U.S. to consider trade barriers for steel products

The U.S. Department of Commerce released a report on
the effect of steel imports on the national security on Feb. 16. The
investigation was initiated in April 2017, and concludes that “steel imports
are weakening our internal economy and threaten to impair the national
security.” U.S. Commerce Secretary Wilbur Ross “has determined that the
only effective means of removing the threat of impairment is to reduce imports
to a level that should, in combination with good management, enable U.S. steel
mills to operate at 80 percent or more of their rated production capacity,”
according to the report.

Ross recommends in the report that President Trump
“take immediate action by adjusting the level of these imports through quotas
or tariffs.” By Apr. 11, President Trump should choose one of three
alternatives for the trade barrier that the report proposes: a global 
quota of 63% of the 2017 import level (for imports from each country), a global
tariff of 24%, or a 53% tariff on a subset of 12 countries (Ukraine not
included) together with a quota of 100% of the 2017 import level for the other
countries.

The main goal of the proposed introduction of trade
barriers is to increase the U.S. steel capacity utilization rate to 80% from
73%. The report states that “utilization rates of 80 percent or greater are
necessary to sustain adequate profitability and continued capital investment,
research and development, and workforce enhancement in the steel sector.”

The investigation considered five steel product
categories: flat, long, pipe and tube, semi-finished, and stainless.

Dmytro Khoroshun: We estimate
that in 2017, Ukraine exported to the U.S. 270 kt of steel products considered
in this investigation at a total amount of USD 186 mln. Three product
categories are important for Ukraine’s exports into the U.S.: long (111 kt in
2017), pipes and tubes (87 kt), and flat (68 kt). We calculate that Ukraine did
not export semi-finished steel products into the U.S. in 2017, and that exports
of stainless steel products amounted to only 5 kt.

Importantly, the investigation did not consider trade
in pig iron, which Ukraine exports in large quantities into the U.S. (1.3 mmt
for USD 400 mln in 2017).

We think that the last alternative for the barriers,
in which Ukraine would face a quota of 100% of the 2017 level, will be the best
outcome for Ukrainian exporters such as Metinvest (METINV, exports flat
products) and Interpipe (INPIP, exports pipes and tubes). In any case, the U.S.
increasing its capacity utilization rate by 7pp will displace production in
other countries by about 8 mmt per year and will be negative for the steel
industry in other countries, Ukraine included.