sábado, 25 de mayo de 2019

sábado, mayo 25, 2019

Trump, Tariffs and China Spell Trouble for American Steel

The vanishing levies on Canada and Mexico could be just the beginning of the industry’s problems

By Nathaniel Taplin





It was all just a fleeting, pleasant dream.

U.S. steelmakers woke last week to the brutal reality of evaporating tariffs on Canadian and Mexican steel. But an even greater problem is waiting in the wings: China may soon be tempted to ship more of its unwanted steel to foreign shores.

President Trump said Friday that the 25% tariffs he imposed on Canada and Mexico in mid-2018 would be lifted and that both countries would drop retaliatory levies. That removes a major hurdle to congressional approval for Mr. Trump’s revamped Nafta, the U.S.-Mexico-Canada Agreement.

U.S. steel companies will certainly take a hit, given that the tariffs boosted U.S. prices significantly above the global average for most of 2018, at the expense of steel-consuming industries like oil and autos. Even with the 25% tariff, imports of Canadian and Mexican hot-rolled coil steel are roughly 5% cheaper, according to Moody’s.


           Bad news is coming down the pipe for U.S. steelmakers. Photo: staff/Reuters


Meanwhile, Chinese steelmakers are raising output nearly as fast as property investment, the main source of steel demand, is growing. If that trend continues and Chinese mills send their excess production abroad as they did in 2014, it could sink global steel markets.

The big global steel rally that began in 2016 was made in China. The country’s stimulus pushed property investment sharply higher, while Chinese President Xi Jinping’s signature campaign to reduce excess factory capacity and pollution, launched in 2017, gave steel output a hard knock. Close to 10% annual growth in real-estate investment, paired with falling steel output, sent China’s monthly net steel product exports sliding about 60% between late 2015—when they ran to nearly 10 million metric tons—and late 2017.



Unfortunately, nothing lasts forever. Weakening economic growth in 2018 led to weaker controls on production. Property investment is still growing at about a 10% clip, but now steel output is too. Margins have narrowed, and net exports have begun to creep higher.

One cause for optimism is that regulators appear to be aware of the problem. China’s two biggest steel cities will extend seasonal winter production restrictions into June, Reuters has reported.

This is helpful, but it also puts the global steel market once again at the mercy of Chinese officials. April industrial growth was bad. If May doesn’t show a significant bump, or the Chinese job market keeps worsening, pollution restrictions might be watered down again.

Beijing doesn’t want domestic steel prices to collapse. Given the strained state of trade relations with Washington, sending more steel abroad look tempting. The U.S. steel industry needs to prepare for a bad day.

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