Credit: Shutterstock photoChina's Ministry of Finance announced last week its plans to reduce the export tariff on certain steel products starting January 2018. As per the reports, stainless steel plate and billet export tariffs are expected to fall by 5%, respectively. The reduction in export tariffs would distress the domestic position of foreign steel producers who are already in a fight against cheap Chinese steel imports.
Chinese steel exports are priced significantly lower than steels in developed countries such as the U.S. Competition from Chinese steel exports had exacerbated the impact of weak demand conditions for steel globally in 2015 and resulted in the idling of excess capacity and put a downward pressure on steel prices.U.S. trade authorities imposed anti-dumping and countervailing duties in 2016 on a range of steel imports from various countries in response to petitions filed by the domestic steel industry in order to make them prohibitively expensive. This has provided a modest boost to steel demand and prices in the U.S.
However, China has been able to find ways to circumvent these tariffs by selling steel through Vietnam and such other third countries. As of result of which, the U.S. has not seen a significant fall in its steel import volume. Fall in imports from China has been offset by an increase in import from other countries, thus resulting in a weak position for domestic steel producers. (( U.S. slaps duties on Vietnamese steel originating from China , Reuters))
The outcome of the ongoing Section 232 investigations into the impact of steel imports on U.S. Security are due in mid-January. The subsequent action that would be taken by the U.S. administration based on their findings would have a significant impact on the U.S. steel industry. However, with China's stance on lowering its export tariff on steel, there is an increasing possibility of China being able to negate the impact of a rise in import tariffs from developed countries and maintain its dominant position in the U.S.
This would remain as a downside for major steel producing companies such as U.S. Steel and Arcelor Mittal which are expected to benefit from an increase in domestic demand for steel coupled with imposition of large tariffs on imported steel. The World Steel Association (WSA) expects the North American Free Trade Agreement (NAFTA) region to display a growth of 1.8% in its steel demand in 2018. However, if China continues to dominate the U.S. markets, most of this demand would be taken by the Chinese steel producers who are otherwise expected to face a stagnant growth in 2018 in their home country of China.
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Notes:
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
