Steel
Easy Does It
January 2020
The US administration is planning to impose tariffs on steel from Brazil and Argentina, two countries which had previously been successful in negotiating a permanent exemption after the sweeping tariffs were first implemented in March 2018.

Both countries had already agreed to cap shipments but have now been accused of currency manipulation leading to the declaration to impose tariffs. In Argentina’s case, steel (and aluminium) exports to the US account for less than 1% of Argentina’s total exports. In addition to the devaluation of both the Brazilian and Argentine currencies against the US Dollar, both countries have become alternate suppliers of soybeans and other agricultural products to China since the US embarked on its trade war with the country. It has been suggested the move, which is yet to be officially implemented, may be in retaliation to the impact this alternate trade is having on US farmers in the lead up to the 2020 election.

Mexico has accepted a US steel demand within the re-negotiated North America Free Trade Agreement—the United States-Mexico-Canada Agreement (USMCA)—provided it took effect at least 5 years after the trade pact was ratified. The demand restricts the definition of what constitutes North American steel under automotive rules of origin, requiring them to be ‘melted and poured’ only in North America. Canada is expected to agree in tandem with the US once the trade pact is ratified by the US. Also, in North America, the largest iron ore pellet producer of the region—Cleveland-Cliffs—announced it will acquire all outstanding shares of flat-rolled steel producer AK Steel to create a vertically integrated producer of value-added iron ore and steel products.

Despite a preliminary agreement for China’s Jingye Group to purchase British Steel and take control of the Scunthorpe steelworks, GFG Alliance—through Liberty Steel—is reportedly waiting in the wings should the deal ultimately fall through. The Jingye deal is subject to regulatory and foreign investment clearances from European jurisdictions. The drawn out and delayed approvals process has increased talk of the possibility it may be opposed.

Germany’s antitrust authority has handed fines totalling US$720m to three steelmakers for price fixing of quarto plate steel products. The Federal Cartel Office found Thyssenkrupp and Ilsenburger Grobblech, both German companies, as well as Austrian firm Voestalpine had regularly collaborated to agree on surcharges and price supplements for the quatro plate products between mid-2002 and June 2016. All companies have admitted fault, which was considered when determining the fines. A fourth company, Dillinger Huttenwerken was also found to have been involved but was the first company to cooperate and escaped a fine.

Additional supply, particularly from Brazil as Vale continues to ramp up production, is easing the iron ore supply tightness seen in the first half of 2019 and may limit price increases. Slowing demand growth and economic uncertainty continues to result in weak margins, limiting potential price upside.