Trade Legislation Fails to Halt Slide in North American Steel Prices

During the last few months of 2018, North American flat product steelmakers have lost a vast proportion of the pricing gains they obtained in the early part of the year. The rapid rise of regional steel prices was, largely, a consequence of the implementation of the Section 232 measures. This gave domestic producers the opportunity to escalate prices – with little resistance from buyers.

With hot rolled coil values approaching US$1000 per short ton, in the mid-part of 2018, US steel manufacturers took steps to restart idled capacity. Furthermore, a number of new plants were opened. Year-to-date capacity utilisation, in the US, is 78.2 percent, which is an increase of 6 percent, year-on-year. Despite the existing trade legislation, imports continue to be a key feature of the domestic steel scene. Significant quantities of foreign material are still entering the country. 

With concerns about supply eased and a marked slowdown in activity, in recent months, US steel producers are struggling to minimise the extent of the recent price deterioration. December’s hot rolled coil selling figures are 18 percent down from their July highs. Subsequently, many US steel market participants are questioning the long-term viability of the Section 232 measures, in propping up domestic steel prices. One US purchasing manager remarks that he expects the trade legislation to “die with a whimper – not a bang”. He noted that import protection has had “unintended consequences”. Many US steel users are finding it increasingly difficult to compete in the international arena while having to contend with greater competition from foreign companies, due to their access to cheaper raw materials. 

MEPS’ research indicates that the Section 232 tariffs will continue to support local selling figures at relatively high levels, whilst they remain in effect. This should enable North American mills to maintain healthy profit margins, in the medium/long term. Nonetheless, the high cost of steel will continue to negatively affect steel consumers.