Where does U.S. Steel Market Stands after a Year of Import Tariffs Imposition?

In March 2018, world's one of the largest steel-consuming nation, U.S. had imposed tariffs of 25% on steel imports under Section 232 of Trade Expansion Act of 1962 on the grounds of national security stating that these restrictions are necessary in order to protect the country's domestic steel industry from the rising imports. Now after a year of these trade barriers, let us analyse what is the current steel market scenario in U.S.:

Higher plant utilisation levels

After the imposition of trade barriers, U.S. steel producers capitalised initially by announcing the successive list of price hikes with little resistance from the buyers. Subsequently, amid healthy trade environment, U.S. steel values advanced rapidly. The domestic EAF producers attracted by the lucrative rising financial returns took steps to build new facilities or restart idled capacity. The year-to-date capacity utilisation in U.S. is 82% against 76% in the corresponding period in 2018.

Poor domestic steel demand

However, despite higher capacity utilisation levels and U.S. steel selling prices being the highest at present, the domestic steelmakers have lost a large part of the pricing gains they secured in late 2017 and early 2018. The reason being tepid demand from automotive industry especially passenger cars segment as well as slowed construction activities which are steel's two largest markets. After the rough winters, the construction activities in U.S. are yet to take off and automotive sales as forecasted by Centre for Automotive Research is expected to decline by 1% to 4% in 2019.

Imports still coming in the country

Although there is not an influx of cheap steel imports into the country with trade restrictions in place, the imports are still able to enter U.S in past one year. This is because Section 232 has created level playing field for foreign suppliers to target sales in U.S. Significant quantities of foreign material are still entering the country, most notably on the west coast and in the southern states. According To AISI (American Iron and Steel Institute), the total and steel imports in U.S. for the first three months of 2019 were 8.7 MnT up by 0.1% against the corresponding period of previous year despite the fact that import tariffs were not in place during Jan-Mar'18.

Likelihood of oversupply in years ahead

A number of political and economic uncertainties exist in the U.S. Cross-border trade with near neighbours, Canada and Mexico, is being adversely affected by the tariffs, despite the recent USMCA deal. Both countries have introduced reciprocal measures against US steel exports. This protectionist climate is likely to continue under the current US administration. Apart from this the ongoing trade disputes with two major economies, China and the European Union are unlikely to boost market sentiment, amid the expectation of a slowing economy.

Domestic steelmakers have announced dozens of capital investments estimated to add 20 to 24 MnT, or about 20% more steel capacity to the U.S. market, over the next few years. Without a corresponding increase in demand, which is highly unlikely, the market could be flooded with steel suppliers looking for buyers at almost any price thus adversely affecting its domestic steel prices once again.