Openly airing his views about the controversial Section 232 of the Trade Act, under which the Trump administration has imposed steel and aluminum tariffs on imports, Yuriy Ryzhenkov, the chief executive officer of Ukraine’s Metinvest Group, said that Section 232 had resulted in a rise in steel prices.
“We know all about protectionism and trade cases. It (tariff imposition) is not an ideal solution. The real losers are the automobile, constructions and other industries. U.S. manufacturers are moving out of the country. Will Section 232 really make the U.S. great again? This will produce some winners, but it will also produce losers,” Ryzhenkov said while addressing delegates at the recent Steel Success Strategies (SSS)-XXXIII conference, jointly sponsored by the American Metal Market and the World Steel Dynamics, in New York. His remarks seemed to repudiate the views of John Ferriola, Nucor’s CEO who had earlier, in his keynote address, said that it was a “great time to make steel in the USA”.
In an interview with the American Journal of Transportation on the sideline of the conference, Ryzhenkov described Section 232 as a “strange approach” to resolving the issue of rising imports. “It looks like a bargaining chip to check trade,” he said, adding that the U.S. market should be kept open and that Section 232 was not the appropriate way to limit imports of steel, particularly from allies and close friends.
But the Metinvest CEO also pointed out that the U.S. market was relatively small and despite the tariffs, his company was making supplies to the U.S. “We have, indirectly, benefited from Section 232 because with the rising demand for pig iron, our supplies of this particular item to the U.S. have increased,” he maintained. Metinvest has delivered several hundred thousand tonnes of pig iron to the U.S. in 2017. The company’s first-quarter 2018 pig iron production surged by 60,000 tonnes driven by the prospect of a receptive market absorbing the increase.
Indeed, as he pointed out, pig-iron prices and volumes shipped from the Ukraine to the U.S. have improved, considering that U.S. mills have been ramping up their steel production to compensate for the decline in imports; this, in turn, has fueled demand for larger volumes of scrap or pig iron. Ryzhenkov maintained that the U.S. would not be able to reach the steel production volumes needed to meet domestic steel demand.
Metinvest’s 2017 global sales of pig iron amounted to nearly 1.69 million tonnes, up 21.3%, iron 1.39 million tonnes in 2016.
With 15 million tonne crude steel capacity in 2017, Metinvest is one of the largest steel producers in the Commonwealth of Independent States (CIS) that emerged after the collapse of the former Soviet Union.
Ryzhenkov said that while global steel demand was on the rise, the share of steel trade had, in fact, declined. Ukraine’s exports had declined by 9 million tonnes since 2013. Rising trade restrictions had been one of the reasons for the overall steel trade decline. Consumers would end up paying more because of the restrictive measures under Section 232.
Another negative fallout from the rising protectionism was the migration of U.S. companies whose products faced higher tariffs in the importing market. He cited the case of Harley-Davidson motorbikes. He said the motorbike manufacturer had lamented that the tariffs enacted by the European Union, a major market for its products, was imposing 31% tariffs, which had increased the cost of each motorcycle shipped from the U.S. by about $ 2,200. Would Boeing, General Motors, General Electric and others now follow Harley-Davidson’s example?
Consolidation and change in the business model are the only sustainable ways to fight overcapacity and create value, he said.
Tariffs imposed under Section 232 may have helped steelmakers using electric-arc furnaces achieve strong profitability; however, such tariffs are a major setback for steel-consuming industries that have to pay more for imports, according to Ryzhenkov who said that there will only be losers in the U.S. as well as in the supplying nations which would retaliate with their own set of tariffs on products from the U.S. Also, imported steel – U.S. imports of steel in 2017 amounted to 34.47 million tonnes - cannot be substituted with domestic steel in a short span of time, since import substitution would take anything between half a year to two years