Section 232 only part solution for global steel industry

The United States' Section 232 tariff on steel imports will help ease global steel overcapacity and boost domestic production, but it is only one step toward achieving those goals, according to industry executives.

“Tariffs in the US alone won’t curb global overcapacity. It’s a global issue and we have to work with our partners to counteract it,” Steel Dynamics Inc (SDI) president and chief executive officer Mark D. Millett said during a town hall at the Association for Iron and Steel Technology’s annual AISTech 2018 conference in Philadelphia on Wednesday May 9.

One key way to suppress global overcapacity is by curbing transshipments, Cleveland-Cliffs chairman, president and chief executive officer Lourenco Goncalves said, adding that Vietnam, for example, doesn’t have the capacity to produce “even 10% of the steel they’re exporting. It’s all enabled by the Chinese… we need enforcement.”

Meanwhile, other factors outside of the tariff are helping to boost the domestic steel industry, including the US tax bill, robust demand and fewer regulations, industry executives agreed.

US hot-rolled coil prices, for example, rose to a more than seven-year high last week. American Metal Market’s hot-rolled coil index reached $43.87 per hundredweight ($877.40 per ton) on May 3, up 1.5% from $43.21 per cwt the prior week and the highest level since hitting $45 per cwt in April 2011.

“The economy is doing well, unemployment is low, tax reform is complete… There are a lot more things important than 232,” Goncalves said. 

“The current health [of the market] isn’t necessarily driven by 232 yet” since it only recently went into effect, Millett said. “The great thing about 232 is that it should give the present climate some legs. The health today is driven by demand.”

Having the support of President Donald Trump’s administration through a variety of means, including the tariff, fewer regulations and the tax bill, “is energizing… it’s a great opportunity for us if we can keep the administration’s backing,” U.S. Steel Corp senior vice president of automotive solutions James Bruno said.

Industry executives were quick to point out that while a combination of factors have been propelling the domestic steel industry, the tariff has played a critical role.

The tariff “brought countries to the table,” Nucor-Yamato Steel Co vice president and general manager Thad Solomon said.

Once the tariffs were introduced, many countries at first were upset but then were open to negotiating, Goncalves said. “All of a sudden, quotas were a good thing. The tariffs worked in a way to create a more negotiated system.”

Even with the 25% Section 232 tariff on steel imports in place, the US will continue to rely on imports but “at a normalized level like 20-22% of demand” since mills will be able to boost their utilization rates to 80% or 90% from 75%, according to Millett.

“At the end of the day, we’ll continue to import. What we can’t afford is having the country flooded with unfairly imported steel,” Goncalves added.

The US has relied on steel imports largely because the domestic industry isn’t able to compete with China mainly due to three reasons: the “absurdly low wages” that Chinese workers receive, the lack of pollution controls and subsidies designed to create overproduction, he said.

In a market-based system, “the US steel industry can compete against anyone in the world. But to try to do that when competing against non-natural or politically based motives, it’s very difficult to do,” Solomon said.