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Section 232 probe could reshape US steel industry in 2018


Market Realist reported that last year, the Trump administration ordered a probe under Section 232 of the Trade Expansion Act of 1962 to investigate whether steel imports threaten US national security. The 270 day deadline for the probe’s findings will end this month. In this part, we’ll see what the probe could bring for US steel companies like AK Steel, Nucor and US Steel Corporation.

US steel companies would expect the probe to bring about a sustainable reduction in steel imports. US steel mills have been using all of the remedies available under existing laws to curb higher imports. While imports fell after a successful trade case, they were followed by import substitutions from new locations. We have several examples including the flat-rolled cases in 2016, where imports increased from countries like Vietnam after the Department of Commerce slapped duties on imports from countries including China.

While the inflow from China has fallen and the country accounts for ~2% of the total US steel imports, inflows from other countries have filled the void created by lower Chinese imports.

With the Section 232 probe, US steel producers expect a sustainable and lasting solution to the menace of higher steel imports. US steelmakers are optimistic that President Trump will take some strong actions against steel imports.

Next, we’ll see why the Section 232 imports probe could disappoint markets.

As we noted previously, the Section 232 imports probe’s findings are expected this month. The findings could be a key driver for steel companies like US Steel Corporation and AK Steel in 2018. Notably, US steel producers see “unfairly traded” steel products as their biggest challenge.

During its 1Q17 earnings call, Mr Mark D Millett, Steel Dynamics’ CEO called on service centers to be a “little more patriotic than they are.” In other words, he was calling on service centers to order steel from domestic producers instead of buying it from steel companies overseas. Cliffs Natural Resources’ CEO Lourenco Goncalves went a step further and called for steel importers to be jailed.

US steel producers had high expectations from the Section 232 imports probe. However, it appears that they toned down their expectations. In this part, we’ll see why the Section 232 imports probe could fall short of the expectations.

Any trade action under the Section 232 steel imports probe would have to include countries like Japan, South Korea, and Germany in order to be effective. The European Union has already suggested that it would “retaliate” if the US goes ahead with trade actions under the Section 232 probe. Any stringent action against “friendly countries” might make the US look even more isolationist.

The Trump administration might also have to consider the impact of higher steel tariffs on the downstream steel industry. According to observers, the downstream steel fabrication industry generates more employment than upstream steel mills. Higher US steel prices would dent domestic fabricators’ competitiveness.

Source : Market Realist