The biggest steel news in the month of March is undoubtedly the signing of a proclamation by US President Donald Trump on 8 March 2018 for the imposition of a 25% tariff on steel imports following the submission of the Section 232 investigation report by the US Department of Commerce.
Under the proclamation, other than Canada and Mexico, which are excluded from the tariff, steel imports from all other countries will be imposed the 25% duty effective 23 March 2018. However, the proclamation does include a broader provision which will allow other countries to request an exemption.
Following the proclamation, there was a furry of activities by some countries, amongst them the major steel exporting countries to US like Brazil, South Korea, Turkey, Japan and EU, to lobby for exemption on the import tariff. Some countries have also been reported to be considering the filing of WTO complaint over the imposition of the tariff. Subsequently, it was announced that Canada and Mexico, together with EU, Australia, Argentina, Brazil and South Korea will be given only temporary exemption from the 25% tariff until May 1, pending discussions of satisfactory long-term alternative means to address the threatened impairment to US national security.
What would be the impact of the imposition of the blanket tariff by US on the global steel industry? What about the impact on the steelmakers in ASEAN?
By country, US is the largest steel importing nation in the world, importing some 35 million tonnes of steel products in 2017. One of the biggest concerns on the imposition of the 25% duty by US is that a substantial volume of these materials would be redirected to other steel markets outside of the United States, leading to an oversupply situation in non-US steel markets. This could have a negative impact on global steel prices.
Another possible development is that it could lead to increased trade defence measures being adopted by the affected countries and this is not good for the global steel industry which is still recovering from the severe downturn it suffered a few years back.
For the steel industry in ASEAN, the proclamation by President Trump is not expected to have serious direct impact on the steelmakers in the region. None of the ASEAN countries is in the list of top 10 steel exporting countries to the US. Nevertheless, Vietnam, the biggest steel exporting country in ASEAN and the 12th largest steel exporter to the US in 2017, might feel some pinch from the above action. Vietnam’s steel export to the US has surged over the past couple of years and the growth momentum is likely to be affected by the imposition of the 25% tariff.
As for the redirection of steel products to ASEAN, this is a possibility as ASEAN is a major steel importing region in the world. However, it is unlikely to be a matter of big concern to the steelmakers in the region. The biggest steel exporting country to ASEAN, China, is not a significant steel exporter to US, exporting only around 800,000 tonnes of steel products to that country in 2017. On the other hand, we could potentially see an increase in the export of steel products to ASEAN from other countries like Russia, Turkey and India, which, lately, have been making inroads into the ASEAN market at the expense of China. These three countries, together, exported some 6.5 million tonnes of steel products to the US in 2017.
A more significant impact on the steelmakers in ASEAN arising from the action of US is the possibility of an increase in the prices of ferrous scrap, the main feed material for steel making in the region. The imposition of the 25% import duty is likely to result in an increase in domestic steel production in the US. As close to 70% of the steel production in the US is done via the EAF process, this will lead to a surge in the domestic consumption of ferrous scrap, thus reducing the volume of scrap available for export from the US, a major ferrous scrap exporting country. The resultant increase in the prices of the feed material will exert further pressure on the cost of steelmaking in ASEAN.
TAN AH YONG