Canadian USW warns that US steel tariffs may loom

The United Steelworkers union in Canada has warned that certain steel products from the nation, along with aluminium, could again be hit with Section 232 tariffs by President Donald Trump's administration.

The warning comes amid renewed speculation that the US might take trade action against both Canada and Mexico despite the US-Mexico-Canada Agreement (USMCA) taking effect on Wednesday July 1 and amid chatter that the Trump administration might also have other countries in the trade-action crosshairs.

“Canada must strongly defend the community-sustaining jobs in the aluminium and steel sectors,” Ken Neuman, director of the USW in Canada, said in a statement on July 9.

“We cannot comment on potential internal deliberations,” a Commerce spokesperson told Fastmarkets via email on Friday in response to questions about Section 232 in terms of it potentially being re-applied to the US neighbors and other countries.

Canada and Mexico in the crosshairs again?
Speculation has been in the market since at least late June that the US might again hit Canadian aluminium with Section 232 tariffs.

Talk of renewed tariffs on steel appears to have ramped up over the past week. Fastmarkets has heard that renewed Section 232 tariffs or other trade actions might target particular steel products in both Canada and Mexico, and also potentially certain material from Brazil, South Korea and Australia.

Canada shipped 2.02 million tonnes of steel to the US in the first five months of 2020, up by 9.7% from 1.84 million tonnes in the same 2019 period, and Mexico’s steel shipments to the US rose by 12.1% to more than 1.44 million tonnes from nearly 1.29 million tonnes in the same comparison, according to US Census Bureau figures.

Some domestic sources don’t like the trend, especially given that the increases coincided with a sharp drop in US steel output due to the Covid-19 outbreak.

The Trump administration in 2018 slapped tariffs of 10% and 25% on imports of aluminium and steel respectively, including from Canada and Mexico, via Section 232. The move shocked the market because it labeled material from the US allies – which have closely linked supply chains – as a national security threat.

The tariffs against Canada and Mexico were removed in 2019. Whether they will actually be re-imposed or might be used as a bargaining chip in other negotiations remains unclear.

Brazil, South Korea and Australia too?
Fastmarkets has also been told that certain US steelmakers are unhappy with the quarterly structure of the Section 232 quota on Brazil, which results in imports surging in certain months and results in some mills receiving their ordered material before those limits are filled while others are left without the substrate they had expected.

It was unclear whether these sources might prefer to see a monthly limit instead or some other mechanism to smooth out the month-to-month volatility.

Any change to the quota structure would be important because Brazil, in part because it is subject to a quota rather than a tariff, is the biggest offshore supplier of slab to the US market.

And some domestic sources think the quotas – set before the Covid-19 pandemic – should be reduced to reflect substantially weaker demand as a result of the virus outbreak.

Brazil, for example, is allowed to ship 3.51 million tonnes per year of semi-finished goods – a product category that includes steel slab – to the US under the quota.

Leaving such a figure unchanged in the face of weaker demand effectively leads to imports receiving a greater share of the domestic market, some sources said.

Also on US mills’ radar is Australian slab and South Korean oil country tubular goods (OCTG), sources indicated.

US imports of OCTG from South Korea totaled 48,553 tonnes in May, more than five times April’s 8,841 tonnes, Census figures show. The big gain came despite the impact of the pandemic and an oil price crash that hammered demand.

Australia popped up on the trade radar in May after shipping a cargo of slab to the US. The country shipped 45,332 tonnes of semi-finished goods to the US that month after sending only 1,313 tonnes to the US in 2019 and nothing but token quantities of semis since 2013.

The precedent
Several sources noted that the US – whether under Democratic or Republican administrations – tends to take, or at least threaten, trade action ahead of presidential elections.

The Commerce Department under former President Barack Obama, a Democrat, in November 2016 initiated duty circumvention cases against Vietnam that have served as a template for more recent actions by Trump’s Republican administration.

Both administrations also took action during periods of week steel prices.

The US hot-rolled coil price, for example, in late April fell to its lowest point since 2016, at $21.89 per hundredweight ($437.80 per short ton). Fastmarkets’ daily steel hot-rolled coil index, fob mill US was calculated at $23.47 per cwt on Thursday.