US mill executives expect Sec. 232 tariffs to remain in place amid EU talks

The US and EU earlier this month committed to working together to address issues stemming from the Section 232 tariffs on steel and aluminum.

But US steelmakers and groups representing the industry don’t expect the metals tariffs to go away completely without implementation of another trade measure, industry executives said at a press conference the Association for Iron and Steel Technology hosted June 30.

“We are talking with the EU to try to find a workable solution here, but you can’t just do away with the [Section 232 tariffs] without replacing it with something,” said Philip Bell, president of the Steel Manufacturers Association. “The EU itself has extended its safeguards for another three years so it would be very unreasonable for them to expect the US not to have something in place to replace the 232s and … that needs to be something that prevents import surges from occurring.”

Bell said he applauds President Joe Biden’s administration for taking a “very measured, total government approach” to the 25% import tariffs on steel that former President Donald Trump put in place March 2018.

“I do think we will see some kind of breakthrough,” Bell said about bilateral talks with the EU. “We need the EU’s help because they have to deal with their own excess capacity and they also have to help us deal with global excess capacity.”

While the Biden administration has committed to discussions with the EU, there is no commitment in place to end the tariffs by the end of this year, said Kevin Dempsey, the CEO of the American Iron and Steel Institute.

Additionally, the Biden administration has committed to maintaining a viable steel industry in the US and that cannot happen if the tariffs are removed, Dempsey said.

“Until we resolve that global overcapacity problem driven by foreign government subsidies, we’re going to face the threat of recurring surges in imports,” he said. “Whenever there is a demand shock, as we’ve seen in the past, the excess steel will flood into the most open market and that’s why it’s critical we maintain an effective measure that prevents new surges.”

Cleveland-Cliffs CEO Lourenco Goncalves said while the tariffs are in place for an indefinite period of time, Section 232 was never supposed to stay in place forever, but the issues that led to its implementation will not go away until solutions are reached to address global excess steel capacity.

“Section 232 was a stop-gap; an emergency measure put in place, and rightfully so, to stop the bleeding and then let’s organize and see where the problem really is,” Goncalves said. “The problem right now is abundantly clear, it’s overcapacity, it starts in China, but it does not end in China.”

Trade tensions heighten for scrap

With electric arc furnace steelmaking on the rise globally, demand for scrap, particularly from China, is going to continue to increase going forward and may bring with it its own trade disputes as countries look to reign in exports, industry executives said.

Russian Prime Minister Mikhail Mishustin signed off June 25 on a decree that will raise the country’s export duty on steel scrap to Eur70/mt or 5%, whichever is greater, up from Eur45/mt, or 5%, currently. The new rate will come in force 30 calendar days from the signature date and will remain in effect for 180 days.

Additionally, the EU has talked about limiting its scrap exports because of the carbon footprint of exporting scrap abroad, Bell said.

With $16 billion in new capacity investment coming online in the US, almost all of it EAF-based, this is going to put even more pressure on US scrap prices, particularly for prime grades, he said.

“With these Russian restrictions that are going to force Turkey to look elsewhere for scrap and guess where they’re going to look, they’re going to look here and that could drive prices up as well,” Bell said.

The US has tools at its disposal to address issues that arise in scrap, whether that would be filing challenges to the restrictions with the WTO, or the implementation of Section 301 tariffs to retaliate against these actions, he said.

Noting the lack of action that has resulted from the OECD Steel Committee in addressing global excess capacity since its creation five years ago, Goncalves said governments need to take a more aggressive approach to issues surrounding scrap.

“I am afraid if you use the same approach that we used to try to resolve the steel overcapacity to resolve the problem of scrap you end up with exactly the same outcome: zero,” he said.

While US scrap supply will continue to be squeezed by increasing demand, one benefit is the mills that are expanding are largely vertically integrated and have their own raw materials operations, Dempsey said. Additionally, an abundant supply of natural gas in the US provides other alternatives for EAF steelmakers, he added.

“I think it’s really critical that we’re looking to develop and increase alternative iron unit supplies in the US now with a number of gas-based [direct reduced iron] facilities in the US,” he said. “I think given our large supply of natural gas and availability of iron ore, further development of that natural resource will be a critical part of the solution for the US.”

— Justine Coyne