EU/US trade liberalisation could erode prices: NLMK

Posted on 02 August 2018
 

Source: Kallanish

NLMK is cautiously anticipating the development of free trade agreement negotiations between the US and Europe, as trade liberalisation could lead to finished product price erosion, according to chief executive Grigory Fedorishin.

Despite healthy second-quarter profitability per tonne, NLMK’s US segment is paying a 25% import duty on slab supplied by the Russian flagship Lipetsk mill. "With slab at around $530/tonne, it translates into an additional $132.50/t in tax - a huge number,” Fedorishin said during the Q2 financial results call with investors.

While finished product prices in the US are currently strong enough to absorb this additional cost, liberalisation of trade between the US and Europe could lead to price erosion in finished product markets. This could affect the steelmaker's margins.

NLMK tested slab supply from other than captive sources. However, with finished product imports into the US constrained by the duty, the shortage of merchant slab in the global market intensified, and non-Russian slab can only partially compensate the shortage, Fedorishin said. The current solution is to plan supply on a weekly basis and keep minimal inventory in case of the price erosion, he added, having already reduced stocks in both US and Europe.

NLMK's US operations have previously petitioned the US Department of Commerce for an exemption from the tariff brought on by the Section 232 investigation (see Kallanish 5 May 2018). In the petition, NLMK USA ceo Robert Miller cites close to 10 million tonnes of slab deficit in the country, which the tariff fails to address due to the intermediate nature of the product. 

“Integrated mills ...have no incentive to sell their slab to competitors, so they can make the coils," he said in the call monitored by Kallanish, noting the continuous unsuccessful attempts to secure slab domestically.

Meanwhile, NLMK continues to consider the 25% US duty and the free trade negotiations before finalising its new strategy. The "…no regrets" 2 million tonnes/year thick slab caster project is still going ahead in the Lipetsk steelmaking shop 2, Fedorishin said. The company's capital expenditure has been corrected to the slightly lower level of $700-750million for 2018, as the new investment programme is in the preparation stage. 



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