NLMK USA seeks carve-out from Section 232 tariffs for Russian slabs

NLMK USA has requested an exemption for Russian slabs from the Trump administration’s Section 232 tariffs aimed at steel from some countries.

And, if possible, the flat-rolled steelmaker would like to see a blanket exclusion for slabs, James M. Banker Jr., NLMK USA’s executive vice president, commercial, said in an exclusive interview with American Metal Market.

Slab converters account for approximately 15% of domestic steel output. But there is no spot market for slabs in the US.

An exemption for Russian slabs at the very least is necessary because NLMK USA relies on its parent company, Russia’s Novolipetsk Steel Public Joint Stock Co (NLMK), for “well over 90%” of its slab requirements, Banker said.

“It’s a matter of our existence. We need to have slabs excluded from our parent,” he said.

The exemption process can take up to 90 days, according to the US government.

NLMK USA imports more than 2 million tons of slabs per year. Its plant in Farrell, Pennsylvania, doesn’t have a meltshop, so it relies entirely on imported slabs. Its operation in Portage, Indiana, sports an electric-arc furnace but supplements its melts with imported slabs.

There is no merchant market for domestically produced slabs in the United States.

Assuming slabs are $600 per ton once they arrive at US ports, Section 232 tariffs – 25% in the case of steel – could increase the cost of those slabs by $150 per ton, Banker said. “We can’t afford to eat that, and our customers might not want to pay that. And if they won’t pay it and we can’t eat it, then we won’t run.”

NLMK USA sources some slabs from Brazil, which has been exempted from Section 232 duties. “At least some of our [slabs] are now available, which is quite a change from a few days ago,” Banker said.
Brazil was the top offshore supplier of semifinished goods such as slabs to the US in 2017, according to Commerce Department figures. President Donald Trump exempted Canada and Mexico from Section 232 tariffs when he signed off on them on March 8. His administration added Argentina, Australia, Brazil, European Union nations and South Korea to that list on March 22.

Despite the parade of exemptions, the slab market – like the flat-rolled steel market – is tight, so merchant slabs won’t come cheap and costs will have to be passed on to NLMK USA’s customers, Banker said. He also questioned the logic behind the exemptions – for example, why South Korea was exempted but Japan was not. “It’s just a series of bad outcomes,” he said.

NLMK USA executives warned earlier this month that duties on Russian slabs could jeopardize jobs not only at its plants but also at the ports where it brings in slabs. The executives also said the duties had put on ice a $600-million investment its parent company was considering in its US operations.

Russia, at 2.2 million tonnes, was the second-largest supplier of blooms, billets and slabs to the US last year, according to Commerce data. The country accounted for 27.8% of the 7.9 million tonnes of semifinished steel products that arrived at US ports last year. All told, blooms, billets and slabs made up 21.5% of the 36.9 million tonnes of steel the US imported in 2017; Russian semifinished products accounted for nearly 6% of that total.

Steel market participants were divided on the case for exempting Russian slabs from Section 232 tariffs. “If Russia is in, then what is out?” one mill source said, noting that exempting both Russia and Brazil would be tantamount to exempting slabs altogether and would further water down an already diluted Section 232 remedy.

But some steel consumers in the Midwest worried that an already tight flat-rolled steel market could be squeezed to the breaking point if NLMK, a small but important supplier to the region, were forced to scale back or stop production.

“They are one of our largest suppliers and they depend on those slabs. So [whether Russian slabs are exempted] is a big deal … for how it impacts us and for how it impact the marketplace,” one Midwest service center source said.

Tight supplies have resulted in rapidly rising prices. American Metal Market’s hot-rolled coil index stands at $42.78 per cwt ($855.56 per ton) this week, up 2.4% from $41.78 per cwt ($835.60 per ton) previously and up 31.1% from $32.63 per cwt ($652.60 per ton) at the outset of 2018.