The U.S. steel industry is buoyant in the backdrop of a favorable regulatory environment. The goal of the government is to revive the industry, which has seen a steady decline as local production was increasingly substituted with cheaper imports.
Steel imports have jumped from $22.7 billion in 2010 to $29.1 billion last year, according to the U.S. Census Bureau with the country remaining the world’s largest importer of steel. Further, USGS data shows that while steel mill and semi-finished product imports were 36 million metric tons (MMT) and 8.4 MMT in 2017, steel mill exports were a mere 11 MMT.
Steel Import Monitoring and Analysis (SIMA) data says that in the year ending January, 35% of imported steel comprised flat products, 28% pipes and tubes, 19% semi-finished and 18% long products. Canada (19%), Brazil (13%), Korea (12%), Mexico (11%), Turkey (5%) and Japan (5%) were the top exporters to the U.S.
So the prospect of a 25% tariff on imported products was seen as a positive for the industry that could perhaps help it generate higher volumes and stronger pricing. A longer-term benefit (because it is capital intensive) could also be the resuscitation of operations that were shut down in the last few years as a result of consistent Chinese dumping.
But there was a catch: Canada, Mexico, the European Union, Australia, Argentina, Brazil and South Korea were granted exemptions until May 1, so they could negotiate more favorable terms with the U.S. as regards their steel exports to the country, something the government has flagged as a national security concern. Since the list includes all of the top steel suppliers to the U.S., the May 1 deadline has assumed great importance.
Moreover, even if these deals work out, the government will introduce a quota system, so cheap Chinese products can’t sneak in indirectly through dumping in any of the supplier countries.
Challenges
While the tariff will bring pricing support, it will also result in some challenges.
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