While U.S. steelmakers applauded the steel tariffs, there were many who saw the “age of protectionism” descending on America. Global trade could suffer collateral damage.

The three–day Steel Success Strategies conference – this was the 33rd edition – held in the last week of June in New York was a stark reminder of the pain that U.S. steel consuming industries were feeling as the Trump administration imposed steel and aluminum tariffs under Section 232 of the Trade Expansion Act.

Not many Americans had heard before of the use of Section 232 for imposing tariffs. Section 232 was, in fact, previously invoked in connection with imports of items such as machine tools, uranium and ceramic semiconductor packaging. The Nixon and Ford administrations resorted to using Section 232 in response to oil imports; these actions were, however, challenged in federal court. However, Section 232 is rarely used; before the Trump administration decided to use it, the most recent action taken under Section 232 was against iron ore and semi-finished steel in 2001.

Debating 232

Because of its global impact, Section 232 was also hotly debated at the conference – fetching reactions from both supporters and opponents. While U.S. steelmakers were satisfied with the tariff imposition, saying they could now have a “level-playing field” in America, steel consumers and foreign suppliers predicted global trade disruptions.

For one, there was widespread fear that tariffs would push steel prices upwards in the U.S. “In the end, it is the American consumer who will pay more for everything that contains steel or aluminum,” a Mexico businessman, who insisted on remaining anonymous, said.

Many U.S. steelmakers had not, at the time of the conference, factored the impact of tariffs on imports from Canada, a partner in the North American Free Trade Agreement (NAFTA), into their pricing or strategies because they were not “fully convinced” that the tariff will remain in force for long.

Some delegates at the conference, in private conversations, speculated that U.S. President Donald Trump was either using the 25% steel tariff against Canada and Mexico as a “bargaining chip” to extract maximum concessions from them or just wanted to get both partners out of the NAFTA and enter into bilateral agreements. Trump would be tough on Mexico, but there was no long-term justification to continue the tariffs on Canadian steel products.

Indeed, some Canadian suppliers are even willing, according to some conference delegates, that they would consider paying the tariff on behalf of its U.S. customers.

John Ferriola, CEO and chairman of Nucor Corporation, whose key-note address attracted a packed auditorium, said that U.S. steel industry is thriving in a strong economy. “This is an amazing time. The world steel forecast suggests that steel demand will grow; this year’s demand will grow by 2%. We have invested billions of dollars over the past years. We can now benefit from this surge,” Ferriola told the delegates.

2017 was Nucor’s best year, he noted. The first quarter 2018 got off well. “It’s a good time to make steel.”

Ferriola recommended the steel industry to follow three principles while planning for the future: move up the value chain, acquire assets that complement the business and expand into under-served markets.

Apparently alluding to China, which has been criticized by the steel industry for its overcapacity that ends up in the U.S. market, Ferriola said: “The worst offenders have promised to rein in their overcapacity, but there is no result. Finally, we are addressing issues like subsidies that lead to overcapacities. America has stopped asking nicely to comply with the rules of world trade.”

While NAFTA had been successful for steel in the U.S., Canada and Mexico, the “24-year old agreement needs modernizing in terms of rules of origin, trade-law enforcement and treatment of state-owned enterprises”. “NAFTA should be updated for a 21st century global economy,” Ferriola said, adding that the “new and improved NAFTA will be all future free trade agreements”.

Geography of steel

While pricing would be a key factor affecting U.S. buyers of Canadian and Mexican products, it will also depend on the geographical location of the supplying source. For a buyer in northeastern U.S., suppliers in eastern Canada would be closer than, for example, in southern U.S. The costs will also be affected by freight charged on such shipments.

In their joint presentation called “Who will emerge from the wreckage?”, Peter F. Marcus, the managing partner of World Steel Dynamics (WSD), joined by Philipp G. Englin, the company’s CEO, predicted that “we are going to see lesser volumes and an improvement in steel quality, for example, for the automobile industry”.

According to a WSD paper titled “Steel’s Moneyed World”, steel’s new “age of protectionism” had dawned in the third quarter of 2016, heralded by the success of trade suits filed against Chinese steel mills and others elsewhere.

Peter F. Marcus, managing partner of World Steel Dynamics
Peter F. Marcus, managing partner of World Steel Dynamics

Besides China, India was also discussed at the conference, with Sanjay Jayram, Executive Vice President (Sales & Marketing) at Indian steelmaker JSW Steel Ltd, presenting what he termed the “India story”. Juggling with figures, Jayram said that steel accounted for 6.1% of the country’s industrial output. India, according to Jayram, is the third largest steel-producing country in the world. Infrastructure, construction, automotive, engineering and other projects are the major demand drivers. India’s steel industry is projected to reach a capacity of 260 million tonnes by 2030; the projected capacity for 2018 is about 96 million tons.

However, the WSD was cautious in its assessment, saying that India cannot become the “next China” because it operates under a market system in which access to funds by businesses tends to be expensive. Current steel demand in India is nearing 100 million tonnes per year. “If it grows 6% per year over the next decade, which seems possible, steel demand would rise to about 180 million tonnes. Current steel demand in China is about 775 million tonnes,” the WSD said, adding that it was, nevertheless, “very bullish on Indian economic growth in the next decade because a) its external debt is not so high, and b) it is now benefitting almost fully from the power of the information and technological revolutions”.

JSW Steel of India is planning to invest $500 million to acquire, enhance and upgrade Acero Junction Inc., an integrated steel manufacturing plant in Ohio with a potential capacity of 3 million tons per year, of steel.

The announcement comes on the heels of JSW’s announcement in March that it will expand operations at its plate and pipe mill in Baytown, Texas – another $500 million investment that is expected to create 500 jobs there.