Rebar supply in western United States squeezed further by Section 232
Already tight supply of reinforcing bar in the western United States has been restricted further by the implementation of Section 232 import tariffs on steel goods from Canada, Mexico and the European Union, according to market participants.
Before the imposition of the tariffs on June 1, rebar supplies had been tight for a number of reasons. One is an anti-dumping case launched in 2016 by US steelmakers targeting rebar from Japan and Taiwan, which has cut down imports to the region. A buyer source said the only additional tons that have come online since then have gone to mill-owned fabrication plants, with independent fabricators largely unable to secure extra tonnage outside of what they normally consume. Following the anti-dumping case, imported rebar from Mexico had slightly alleviated the supply squeeze, but that material is now cut off from US markets by the tariffs.
To illustrate the impact of the tariffs on Mexican steel products, the US imported 10,439 tonnes of rebar from Mexico in May 2018, prior to the tariffs. In June, after the tariffs, that amount plummeted to 3,399 tonnes, according to figures from the US Department of Commerce.
“The 232 tariffs did make a bad situation even worse as it eliminated some minor supply relief that was coming from Mexico,” the buyer observed.
Another factor making that bad situation even worse, according to a distributor source, is domestic in origin.
“Construction is fairly busy in the West right now,” he said, explaining that there is actually a fair amount of rebar production capacity in the western US with Nucor plants in Seattle and Plymouth, as well as Cascade Rolling Steel Mills Ltd., in Oregon, and Gerdau Long Steel’s Rancho Cucamonga, California facility, but that there isn’t simply enough material to meet demand with imports from Japan, Taiwan, and Mexico out of the picture.
Furthermore, the imposition of the tariffs has impacted the availability of all sizes across the board, said a second distributor, adding that it has also made sourcing material “a lot more challenging.”
Similarly, while the buyer also confirmed that the limited availability of rebar in the West spans all dimensions, he noted that there are currently more constraints on sourcing 40’ and 60’ products. He did, however, add that availability “is better on 20’ inventory primarily because there is still supply coming from Mexico even with the 232 tariffs.”
“It’s pretty much all-encompassing,” added the first distributor, when asked what products have been affected the most.
Beyond the 232 tariffs limiting availability from foreign suppliers, there was disagreement among sources as to whether the mills have been slow to address the problem.
For his part, the buyer source argued that domestic producers have contributed to the problem. “Domestic mills are increasing production for their downstream operations and filling their needs as first priority while the independents are being squeezed on supply,” he told American Metal Market.
The first distributor offered a different assessment, stating that the mills are basically doing the best they can under less than ideal circumstances. “They’re making as much as they can and aren’t trying to drive any shortage, not by any means,” he contended.
Despite the supply issues and increased demand, the buyer said he didn’t see a price increase as likely at this point, mentioning that since import tags are far higher than domestic the possibility is certainly there, but he said the supply void needs to be accounted for before that can happen.
It’s more likely that prices rise than drop, the first distributor countered, putting the likelihood of an increase at 70/30.
Crucially, however, the second distributor also commented that the problems standing in the way of a solution go beyond domestic mills possibly not yet having ramped up production to meet demand. Increased demand, he explained, means that mills have to hire and train new workers, as well as source more raw materials.
So while the tariffs have stimulated an interest in sourcing US-made steel, domestic producers have been struggling to hire enough qualified workers to meet that increased demand in a post-232 world, an added complication to efforts to mitigate the supply dilemma.
With the 232-related turbulence now in full force, the second distributor speculated that any potential relief would ultimately be tied to the lifespan of the tariffs and the targeted countries agreeing to reconfigure their trade relations with the US.
He explained, for example, that any deal reached on the current North American Free Trade Agreement negotiations or an ease on Mexican rebar imports into the US could soothe the pain of the current scenario until the market catches up.
The first distributor envisioned a similar scenario for possible relief, where he saw the situation continuing “until everybody comes to the table and negotiates for quotas,” referring to the 232 tariffs and Nafta talks.
Another possible source of near-term relief could come in the form of a potential cargo from Taiwan that has been booked for September, the buyer also added.
The second distributor summarized that the tariffs have created an unenviable state of affairs for rebar consumers in the western US, echoing the buyer’s sentiments that they have made a bad situation worse.
Since President Donald Trump’s announcement of the Section 232 tariffs on March 1, prices of domestic and imported rebar have predictably risen, with the most dramatic increase on the import side. American Metal Market’s latest price assessment on July 5 for domestic rebar was $35-36 per hundredweight ($700-720 per ton), up from $32-33 per hundredweight ($640 -660 per ton) on March 1. American Metal Market’s concurrent price assessment on July 5 imported rebar was $676-689 per short ton, up from $576-590 per short ton on March 1.