Much to the respite of American steel makers, total U.S. steel imports have dropped 15% in 2019 – according to the latest report from the American Iron and Steel Institute (“AISI”), an association of North American steelmakers.
The decline largely reflects the impact of the 25% tariff on steel imports which the Trump administration had levied in 2018 under Section 232 of the Trade Expansion Act of 1962.
According to the AISI, total and finished domestic steel imports are down 15% and 17.9% year over year, respectively, in 2019 to roughly 28.66 million net tons and 21.08 million net tons, respectively. The AISI noted that these figures are based on Commerce Department’s most recent Steel Import Monitoring and Analysis (“SIMA”) data. The data include SIMA permits for December and final imports for November.
Finished steel import market share was 19% for the year. That is down from 23% clocked in 2018. For December, finished steel import market share was estimated at 15%.
The biggest offshore suppliers for 2019 were South Korea with 2,606,000 net tons (down 6% year over year), Japan with 1,256,000 net tons (down 9%) and Germany with 1,046,000 net tons (down 22%).
Tariffs – A Relief for U.S. Steel Mills
The Trump administration, in March 2018, imposed steep tariffs on steel and aluminum imports, defying a wave of criticism and threats of counter-measures from major foreign trade partners. The tariffs, which have made imports more expensive, are nearing the end of their second year.
The tariffs are aimed at rescuing the domestic steel and aluminum industries which had long been reeling under the onslaught of cheap imports and has suffered a significant reduction in production and employment. They are, in particular, targeted at countries with which the United States has significant trade deficits.
While the tariffs on steel imports badly hit certain major industries including automotive that are key consumers of steel, they provided a breather to American steelmakers and have put the wind back into the sails of the long-struggling U.S. steel industry. The tariffs have boosted production capacity of U.S. steel producers amid lower imports. They have helped U.S. steel industry capacity break above the important 80% level – the minimum rate required for sustained profitability of the industry.
Per the AISI, U.S. steel mills operated at 82% of their capacity for the week ending Jan 4. The capability utilization rate for the week also rose from 79.4% a year ago.
U.S. steel imports fell roughly 12% in 2018. Imports also declined in 2019 as a result of the tariffs despite complete exemptions of Canada and Mexico, two major sources of steel imports to the United States. The United States, in May 2019, reached a deal to lift steel and aluminum tariffs from Canada and Mexico. These major trade partners have long been pushing the Trump administration to repeal the tariffs. The deal paved the road for the ratification of the new United States-Mexico-Canada Agreement (USMCA) to replace the North American Free Trade Agreement (NAFTA).
President Trump, in early December 2019, announced that he is restoring tariffs on steel and aluminum imports from Brazil and Argentina. Trump accused these countries of devaluing their currencies which hurt American farmers. The White House had exempted these two countries from the tariffs in 2018 as they continued to negotiate over trade terms. However, the Trump administration later in December backtracked on its decision to reimpose tariffs on Brazilian imports. Brazil is a major exporter of steel to the United States. Tariffs on Argentine steel also have not yet been enforced.
Prospects for U.S. Steel Industry Appear Encouraging
The American steel industry bore the brunt of a sharp decline in domestic steel prices in 2019, hurting profits of U.S. steelmakers. However, there has been some recovery in steel prices over the past couple of months, raising hopes for a reversal of fortunes in 2020.
After a downswing through the first three quarters of 2019, U.S. steel prices appear to have bottomed out. Driven by consecutive price hike actions by major U.S. steel mills and supply-side actions, prices have gained some upward momentum of late. Steel mills’ continued push for price hikes is expected to drive U.S. steel prices further over the near term. Higher prices would lend support to margins of domestic steel producers.
Easing U.S.-China trade tension is another tailwind for the industry. The prolonged trade conflict has taken a heavy toll on the Chinese economy. A slowdown in the Chinese economy also contributed to sluggish steel demand in China, the world’s top consumer of the commodity. Nevertheless, the de-escalation in trade tensions due to the recent announcement of the preliminary U.S.-China trade deal augurs well for the steel industry as it is expected to lead to an improved demand environment for steel this year.