Blanket US 232 trade actions would be ‘catastrophic': Zekelman

The United States’ imposition of a global steel quota with an across-the-board 24% tariff in a Section 232 order is a bad idea, Zekelman Industries executive chairman and chief executive officer Barry Zekelman said, adding that a remedy should instead take aim at those nations that cheat.

Zekelman favors one of Commerce Secretary Wilbur Ross’ other recommendations, namely to establish a quota and 53% targeted tariff on imports from 12 particular nations, he said in an interview with American Metal Market on Monday February 26.

A Ross option that proposed a quota on steel imports from all countries equal to 63% of their 2017 volumes would be “catastrophic for manufacturers” because the domestic steel industry would be unable to replace all of that lost volume, he said.

A global 24% tariff would be costliest to those who play by the rules, while the notorious cheating nations would be better able to absorb or evade the lower tariff, Zekelman said, singling out South Korea.

“It’s going to actually hurt the fair-trading partners and actually help the unfair trading partners - the bad actors,” he said. “A country like [South] Korea can manipulate the currency or just get more Chinese steel and ask the Chinese to subsidize that a little bit.”

President Donald Trump faces an April 11 deadline to announce a remedy in the Section 232 investigation. The possibilities raised by the Ross report, the details of which were announced on February 16, were enough to send prices higher as buyers started worrying about sourcing if the president acts on one or more of the Commerce options.

American Metal Market’s assessment for US domestic A500 hollow structural sections rose to $960-1,000 per ton ($48-50 per hundredweight) fob Midwest mill on February 22 from $960-990 per ton the previous week. This is the first time prices have touched $1,000 per ton in four years.

While some end-user groups renewed their calls to avoid tariffs and quotas, Zekelman said their cries about higher prices for consumers are an exaggeration. After a pipeline group calculated that existing import curbs had already added $78 million to the cost of a hypothetical 280-mile pipeline project, he noted that the figure amounts to only about 2-3% higher costs.

“It’s peanuts,” Zekelman said, adding that pipeline companies’ profit margins are in the “50% range” versus only 10-12% for steel and ExxonMobil’s annual net income exceeds the market capitalization of all of the publicly traded US steel companies combined. Higher steel prices would account for a much smaller percentage of price increases than would rising costs for labor, freight, fuel and other input costs.

Zekelman acknowledged that there would indeed be items that are not easily found domestically, so US manufacturers would still need to source overseas to continue to thrive. Those buyers should be accommodated until such time that the domestic mills find it worthwhile to produce the item, he added. “There should be an exclusionary request, and they should be able to bring that product in.”

A Section 232 order is also a concern for fabricators and manufacturers, who might suddenly be confronted with more import competition for the corresponding finished item made from the steel that otherwise would be targeted with quotas and/or tariffs. Those imports of finished products should be subject to the same actions as the steel would have been if it had arrived unfinished, Zekelman said.

“The burden of proof should be on the importer” to establish the country of origin of the steel, he added.

Regarding the North American Free Trade Agreement (Nafta), Zekelman - who is from Canada and whose Chicago-based company operates mills in Canada - said the US and Canada have a good balance of trade and should be able to work out favorable terms in a renegotiation. Mexico, meanwhile, has benefited too much from Nafta and needs to obey existing rules and accept further concessions.

Nafta contains a lesson for the Section 232 discussion because the US’ actions against Canadian softwood lumber have had the effect of attracting more imports of Chinese lumber, he said.

Zekelman disclosed that he plans to add a new structural tubing line at his Atlas Tube plant in Harrow, Ontario, in the near future that would produce 1- to 2.5-in square material. “We need that to round out our size range in Canada,” he said, noting that current capabilities are generally 3-in square and wider.

The company’s Z Modular division has a $60-million order backlog and its new Birmingham, Alabama, manufacturing plant is up and running - with plans to expand. “We are looking for more locations for modular factories right now,” according to Zekelman. “I would like to have five total.”

Z Modular will soon have its first sizable showpiece, he added, noting that the 143-unit Cheatham Street Flats mixed-use student housing development in Texas will be the first of its kind with Z Modular steel construction.

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