US/UK trade agreement elicits market yawn

A new trade agreement between the United States and the United Kingdom announced on Tuesday March 22 is more likely to enhance political ties than actually move significant tons of steel and aluminium across the Atlantic, sources said

Effective June 1, the agreement will implement a tariff-rate-quota (TRQ) of 500,000 metric tonnes on 54 steel product categories as a replacement to the existing 25% tariffs on UK steel imports.

The US imported 272,079 tonnes of steel from the UK in 2021, less than 1% of the total 28.6 million tons of foreign steel brought into the US last year, data from the International Trade Commission shows.

Even prior to enacting Section 232 sanctions in March 2018, the UK eclipsed 500,000 tonnes of steel exports to the US only three times from 2010-2018 - 757,189 tonnes in 2015, 1.29 million tonnes in 2014 and 558,793 tonnes in 2012.

“Not sure how this will all shake out in the end, but it seems like it’s basically a chance for politicians to shake hands,” a northern steel producer said.

The US made the announcement after reaching similar deals with the European Union in October 2021 and Japan in February of this year.

US and UK bilateral talks to resolve Section 232 tariffs and retaliatory UK tariffs on certain US exports began in January.

“The UK isn’t in the top 10 in steel exporters to the US since 2010, and actually ranked 14th,” Fastmarkets’ analyst Kim Leppold said. “There isn’t expected to be a large return of supplies, but there could be opportunities for increased slab or flat products sales again to the US given the reduction in supplies from Russia due to the war.”

The new agreement calls for steel quotas to be administered on a quarterly basis, with the 25% tariff applied to volumes that exceed the assigned limit, provided that they are not subject to an exclusion.

UK steelmakers had complained that the previously announced agreement between the US and the European Union provided the EU with an unfair competitive advantage but welcomed the announcement made Tuesday.

“This deal represents a hugely positive outcome and is warmly welcomed by the UK steel sector,” UK Steel director Gareth Stace said in a release. “The United States represents a key export market for UK producers but since the introduction of Section 232 tariffs by the previous administration, steelmakers across the UK have been selling into the United States at a huge disadvantage.”

“Without this agreement UK producers would have remained at a significant competitive disadvantage in US markets to competitors in the EU and Japan, with their exports severely curtailed. From June, UK steel producers will benefit from tariff-free access to customers across the US - from the Atlantic to the Pacific,” he added.

Some sources have recently suggested that if the price of hot-rolled coil keeps climbing, US buyers may turn to increased HRC imports as a possible option, but Mexico appears to be the leading candidate to fill that gap. Others continue to say HRC imports will remain spotty at best in the coming months.

“I don’t think it’s going to make any difference,” a midwestern distributor said. “Right now our lead times from domestic mills are down to a manageable timeframe. Unless imports come in at a great number and they can expedite the movement into the Midwest, I don’t see them being a major effect.”

Fastmarkets’ daily steel hot-rolled coil index, fob mill US was calculated at $68.94 per hundredweight ($1,378.80 per short ton) on Tuesday March 22, an increase of 12.37% from $61.35 per cwt a week ago.

“[There are] no real concerns on flat roll,” another producer source said of the agreement. “There could be some issues with long products like bars and coiled hot-roll bar. For flat roll it does not concern many in the US.”

The only concern expressed by the Coalition of American Metal Manufacturers and Users (CAMMU) was the new deal didn’t go far enough.

“The US-UK agreement to replace the existing Section 232 steel and aluminum tariffs with a tariff-rate-quote system that allows a certain amount of imported steel and aluminum from the UK will increase the supply of these raw materials in the US, which could help US manufacturers who continue to have long delivery delays and continue to pay the highest prices in the world,” CAMMU said in a statement released on Wednesday, March 23. “However, it is disappointing that the agreement will not completely terminate these unnecessary trade restrictions on one of this country’s closest allies, the United Kingdom.”

“As we are already seeing with the US-EU TRQ agreement where some steel products’ quota filled up for the year in the first two weeks of January, this type of government restriction on raw materials and intervention lead to market manipulations and allow for gaming of the system that puts this country’s smallest manufacturers at an even further disadvantage,” according to the statement.

Aluminium gets similar reaction

As for aluminium, the new agreement replaces existing 10% tariffs with TRQs set at 9,000 tonnes for unwrought aluminum under two product categories and at 11,400 tonnes for semi-finished (wrought) aluminum, other than foil, under 12 product categories. For foil, the annual import volume under the TRQ is set at 9,300 tonnes under two product categories.

Aluminium quotas will be administered on a semi-annual basis with the 10% tariff applied to volumes exceeding the assigned limit.

Fastmarkets assessed the aluminium P1020A premium, ddp Midwest US at 37.00-39.00 cents per lb on March 22, flat from March 18 and down just slightly from an all-time high of $38.00-$40.00 on March 15.

Aluminum market participants also expect little effect from the lifting of tariffs on UK imports - which accounted for just 20.95 million lb out of 13.81 billion lb of aluminium imported to the US, in all forms, in 2021, according to figures provided by the Aluminum Association.

“Given the relatively small amount of aluminum traded between our two countries, we do not anticipate that this decision will have a major effect on the US industry,” Matt Meenan, a spokesman for the association told Fastmarkets.

Edward Meir, a senior commodity independent consultant with ED&F Man Capital Markets, said: “I don’t think there are major metal trade flows between the two countries.”

“The tariff removal could certainly have a small impact, but nothing of consequence,” according to Lloyd O’Carroll, an independent consultant and former aluminium industry executive and economist.

“The UK does not produce much aluminium. There’s a semi-fabricated aircraft alloy plant of Alcoa’s [now Arconic Manufacturing] and some other small things,” he said.

Russia’s invasion of Ukraine on February 24 likely factored in to the US softening its stance towards the UK.

“We’re trying to get all the Western allies on the same side,” O’Carroll said.

“[Chairman and chief executive of JP Morgan Chase] Jamie Dimon reportedly said [on CNBC] that the US needs to push harder on the EU to reduce Russian oil and gas consumption,” O’Carroll added.

According to critics, European energy purchases are a major source of Russia’s funding for the war.

Meanwhile, the Aluminium Association is continuing ongoing talks with the US President Joe Biden’s administration about trade restrictions in the US metals industry.

“While our long-stated preference is for a gradual unwinding of the 232 tariffs on market economy countries rather than a TRQ, we appreciate the Biden administration’s willingness to engage with us on this issue,” Meenan said.

“The Aluminum Association is partnering with the [Biden] administration on the Global Arrangement on Sustainable Steel & Aluminum to tackle subsidized overcapacity and climate change announced last fall as part of a Section 232 agreement with the European Union,” he added.

Orla O’Sullivan and Grace Asenov in New York; Lisa Gordon in Pittsburgh; and Ross Yeo in London contributed to this report.

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