Fo­rei­gn Steel Keeps Flo­wing In­to U.S. Des­pite Ta­riffs

L'Opinion - - The Wall Street Journal -

U.S. ta­riffs on im­por­ted steel are de­li­ve­ring hi­gher pro­fits for steel com­pa­nies but ha­ven’t chan­ged the coun­try’s de­pen­dence on fo­rei­gn-made steel.

Fo­rei­gn steel­ma­kers have been sub­jec­ted since March to 25% ta­riffs in the U.S. Ins­tead of iso­la­ting im­por­ted steel as the most ex­pen­sive in the mar­ket, do­mes­tic steel pro­du­cers have rai­sed their prices by as much or more, moves that have ge­ne­ra­ted hi­gher pro­fits for those steel­ma­kers and dri­ven up costs for U.S. ma­nu­fac­tu­rers. Fo­rei­gn steel’s share of the steel mar­ket re­mains si­gni­fi­cant, and the U.S. conti­nues to be the world’s lar­gest mar­ket for im­por­ted steel.

“It’s made the exis­ting com­pa­nies more pro­fi­table, but there hasn’t been fun­da­men­tal change yet,” Kirk Mur­ray, vice pre­sident of Hous­ton-ba­sed SeAH Steel Ame­ri­ca Inc., said about the ta­riff.

Flush with cash, some U.S. steel­ma­kers, in­clu­ding Nu­cor Corp. and Steel Dy­na­mics Inc., are plan­ning to ex­pand or build new plants and grow pay­rolls. While the new ca­pa­ci­ty could muscle some im­ports out of the mar­ket, it al­so could put pres­sure on ol­der U.S. mil­ls that are more ex­pen­sive to ope­rate.

U.S. steel­ma­kers don’t pro­duce en­ough steel to meet do­mes­tic de­mand. Im­ports fill more than a fifth of the na­tion’s steel sup­ply. The ta­riffs have made steel more ex­pen­sive in the U.S. than al­most anyw­here in the world. The bench­mark price for hot-rol­led coi­led sheet steel is up 22% in the past year at $760 a ton, 70% hi­gher than the price of sheet steel in some other coun­tries. That makes sel­ling steel in the U.S. ap­pea­ling to steel­ma­kers in Eu­rope and Asia, even af­ter ta­riff and trans­por­ta­tion costs.

“Pu­shing the price up has just en­cou­ra­ged the im­ports to come in,” said Mike Lo­cker, pre­sident of New York-ba­sed steel consul­ting firm Lo­cker As­so­ciates Inc.

Lex Group, a Chi­ca­go-ba­sed steel pro­ces­sor and dis­tri­bu­tor, has conti­nued to sell steel from Ger­ma­ny, Viet­nam and other coun­tries sub­ject to the ta­riff to U.S. ma­nu­fac­tu­rers.

“The fo­rei­gn mil­ls can pay the ta­riff now and still make mo­ney,” said Lex Group regional pre­sident Bill Dou­glass.

Two mil­lion tons of fi­ni­shed steel were im­por­ted to the U.S. in Oc­to­ber, ac­cor­ding to the Ame­ri­can Iron and Steel Ins­ti­tute trade group and the U.S. Com­merce De­part­ment, a 7% in­crease from Sep­tem­ber. Im­ports are down 13% in the year through Oc­to­ber from a year ear­lier.

Do­mes­tic steel pro­duc­tion, meanw­hile, has ri­sen 5% in 2018 from last year. Bet­ween April and Sep­tem­ber steel pro­duc­tion ave­ra­ged near­ly 8 mil­lion tons a month, the most since 2014, the steel ins­ti­tute said.

Some in­dus­try ana­lysts say steel com­pa­nies are at risk of ad­ding ca­pa­ci­ty that is de­pendent on steel prices staying at cur­rent sky-high le­vels. Ma­nu­fac­tu­ring ac­ti­vi­ty in the U.S. has shown si­gns of slo­wing re­cent­ly. Ge­ne­ral Mo­tors Co. , a ma­jor steel con­su­mer, said Nov. 26 that it would dis­con­ti­nue se­ve­ral car mo­dels, close U.S. plants, and eli­mi­nate near­ly 15,000 jobs. Steel­ma­kers are coun­ting on ri­sing sales of high-va­lue sheet steel to GM and other au­to ma­kers to pro­pel growth.

Fal­ling oil prices, slo­wing eco­no­mic growth and the roll­back of the 25% ta­riff on fo­rei­gn steel al­so could push the steel in­dus­try in­to its next slump.

Shares in most U.S. steel com­pa­nies are trai­ling the broa­der mar­ket this year, as in­ves­tors fixate on the short-li­ved po­ten­tial for the ta­riff. Shares in U.S. Steel , AK Steel Hol­ding Corp.and Steel Dy­na­mics all dip­ped to their lo­west price in a year last week in the wake of GM’s an­noun­ce­ment and broa­der concerns about the in­dus­trial eco­no­my. Steel stocks took ano­ther bat­te­ring in Tues­day’s broad-mar­ket sel­loff trig­ge­red by in­ves­tors’ an­xie­ty about U.S. eco­no­mic growth and doubts about the pros­pects for a trade deal bet­ween the U.S. and Chi­na af­ter a 90-day truce to trade hos­ti­li­ty was an­noun­ced over the wee­kend.

The hi­gher prices have re­vi­ved pro­fits for U.S. steel­ma­kers. Net pro­fit at North Ca­ro­li­na-ba­sed Nu­cor Corp., the lar­gest U.S. steel


U.S. Steel Corp. is pro­fi­table this year af­ter lo­sing mo­ney for most of the past 10 years.

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