MEIS 2018: Snowball effect of Section 232 tariffs affects third of world trade, Mena region at risk – Ezz Steel

The knock-on effect of Section 232 tariffs imposed by the United States in March this year on imports of steel and aluminium has been swift and dramatic.

In retaliation, the European Union, Canada and Turkey swiftly imposed their own safeguard measures; the Eurasian economic zone is set to do so soon.

But this trade war poses in particular a threat to the Middle East-North Africa region, which is currently the least protected from imports, George Matta, chief marketing officer of Ezz Steel, said at the 22nd Middle East Iron and Steel Conference in Dubai on December 10-12.

“It is inevitable, given that world steel trade accounts for at least 29% of production, or 463 million tonnes last year, that protectionism in one import market, such as the USA, will cause other countries to protect or ‘safeguard’ their own markets from diverted supply,” he told delegates.

“The US import market accounted for 7.5% of global trade or 34.6 million tonnes last year – its share of global steel usage is 6.2% – so the potential impact on other steel markets is more acute. So far this year US safeguarding has been very effective – imports have fallen by 12% through the first nine months,” he said.

According to Matta, the total volume of trade affected by the global protective measures this year amounts to 150 million tonnes, which accounts for 33% of world trade.

Producers in protected markets have the most to gain from a trade war – in the US, for example, spot prices have risen significantly because of the newly erected barriers to cheaper supply from elsewhere.

“Average US spot import prices have increased by close to $200 per tonne year on year [from the first to the third quarters of 2018] after 25% tariffs were introduced in April. By contrast, export-dependent markets such as China and Russia have seen local prices rise by just $75 per tonne,” Matta said.

Fastmarkets’ assessment of the US import rebar price averaged $654.74 per short ton ($721.72 per metric tonne) cfr port of Houston in the year to date, up by $169.14 per short ton from the average of $485.60 per short ton in 2017.

Fastmarkets’ price assessment for Russian domestic rebar averaged 37,862 roubles per cpt Moscow including VAT in the year to date, up by 6,708 ($102) roubles from the average of 31,154 roubles per tonne cpt in 2017.

And Fastmarkets’ price assessment for Northern China domestic rebar averaged 4,010 yuan per tonne ex-warehouse so far this year, up by 349 yuan ($50) from the average of 3,661 per tonne ex-warehouse in 2017.

The emergence of regional price disparity to this extent is hurting the steel industry in markets such as the Middle East and North Africa by making the region more attractive to overseas steel suppliers.

While steelmakers’ utilization rates in 2017 were only about 40% of capacity in North Africa and were below 50% in the Gulf Cooperation Council (GCC) region, producers outside Mena operated at around 80% of capacity, Matta said.

“Utilization rates rise as a function of increased production but not lower capacity,” he said.

Crude steel production rose by 5.3% year on year over the first 10 months in January-October 2018, to 1.5 billion tonnes, the World Steel Association estimated.

Steel demand in the Mena region is finally climbing out of a three-year depression, at least.

“The acceleration in regional economic growth, from just 1.3% in 2017 to 2.7% this year is as usual spurring a steel demand revival. We predict steel demand [in the Mena region] will rise by 2.8% this year,” Matta said.

Long steel consumption, supported by increased construction activity, is the main driver of demand in the region. But activity in the engineering and metal goods sectors is slowing, which is weighing on flat-rolled consumption.

“The turnaround in construction activity is forecast to endure through 2019 and as a consequence, pull long products demand [in the Mena] higher and at a faster rate than for flat-rolled demand through both 2018 and 2019,” Matta said.

“Nevertheless at 3.0% and 2.5% this year and next, it is a modest rate of recovery that will keep demand below peak [of almost 5% in 2017] but at the same time incentivize external suppliers to restore their market shares in a strengthening market,” he added.

Mena long steel consumption will reach 48 million tonnes in 2018 and will climb to 50 million tonnes in 2019, Ezz Steel – Egypt’s biggest producer – estimates.

It expects flat steel consumption in the region to rise by 3.5% in 2018 to 25.3 million tonnes and by a further 1.5% in 2019 to 25.7 million tonnes.