Japanese HRC exports under threat from US Section 232 proposals

Japan’s hot-rolled coil exports may come under threat if the United States implements high import tariffs as recommended by its Department of Commerce, market sources told Metal Bulletin on Tuesday February 20.

They flagged HRC as one of the key products that could be affected by any new ruling because it is the single largest export by volume among Japanese finished steel shipments to the US.

“The US is a major destination for Japan-origin HRC due to demand from its automotive manufacturing sector. HRC export volumes may be affected eventually,” a source at a Japanese mill said.

US Secretary of Commerce Wilbur Ross last week recommended to US President Donald Trump that a tariff of 53% be imposed on steel imports from 12 countries - Brazil, China, Costa Rica, Egypt, India, Malaysia, South Korea, Russia, South Africa, Thailand, Turkey and Vietnam - on top of tariffs of at least 24% on steel imports from all countries following a Section 232 probe into whether steel and aluminium imports posed a national security risk to the US. He made the recommendations saying such quantities and circumstances of steel imports “threaten to impair national security.”

Ross also recommended that steel import volumes be restricted via the implementation of a quota equivalent to 63% of each country’s 2017 exports.

The remedies are “intended to increase domestic steel production from its present 73% of capacity to approximately an 80% operating rate,” he said.

Other market sources are expecting more trade negotiations between the US and Japan to emerge, especially since both countries are close allies.

“Japan-origin HRC exports will likely be among the hardest hit if the tariffs are implemented, so I expect prolonged negotiations to continue between the two countries to work out a solution that will be satisfactory to both sides,” an industry source with knowledge of the Japan HRC market said.

He is not ruling out other countries putting up tit-for-tat trade defenses to block US-origin steel products in the future if the US does in fact enact the recommended trade measures.

“No major steel-producing country will sit back quietly and allow such disadvantageous major trade barriers to be enacted against them,” the same source added.

Major Japanese steel mills are awaiting Trump’s impending decision on the matter and are analyzing how their businesses would be affected in any eventuality.

Japan exported 1.87 million tonnes of steel to the US in 2017, compared with the 2.93-5.96 million tonnes it shipped to South Korea, China, Taiwan and Thailand respectively. This makes the US just the fifth largest importer of Japanese steel.

Last year’s exports to the US included 782,725 tonnes of carbon steel, including HRC, steel rails, wire rod and galvanized sheet. Japan also shipped 540,560 tonnes of specialty steel as well as 146,171 tonnes of secondary steel products to the US in 2017.

HRC was the largest export by volume - Japan shipped 203,913 tonnes of the flat steel product to the US last year. This is a year-on-year increase of 72.6%.

A portion of the HRC are sent to downstream Japanese automakers such as Honda, Isuzu, Toyota and Subaru, which operate 24 manufacturing plants and 43 research and development facilities in 20 American states, according to the US chapter of the Japan Automobile Manufacturers’ Association.

These manufacturers produced 3.98 million vehicles and 4.68 million engines in 2016 with a total cumulative manufacturing investment of $45.6 billion.

The recommendations by the US Department of Commerce on its Section 232 investigations have not gone unnoticed by the Japan Iron & Steel Federation, which said late on Monday that the recommendations were in violation of free-trade principles.

“It is our view that the recommendations in this report are very regrettable. Imports of steel from Japan are integral to the US economy and do not threaten the national security of the United States,” it said.

The Japanese steel industry is presently studying the impact of this report’s recommendations and is monitoring developments carefully.

“We will continue to advocate for the adoption of policies based on the principles of free trade,” the JISF said.

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