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USA's delayed Section 232 decision muddies market, customer relations
The multiple postponements to any announcement of a Section 232 action on steel products are allowing additional factors to complicate the decision, and the prolonged uncertainty threatens to strain customer relationships, Metal Bulletin sister title AMM has been told.
Each day that goes by with no confirmation of the Section 232 report and any proposed remedies, further geopolitical developments occur that can either place potential strategies in doubt or bring them into focus.
Section 232 will allow the US president to impose import duties on any product that he believes poses a threat to national security.
The US Commerce Department originally had prepared to announce the results of its Section 232 investigation during the week of June 12. But this was postponed by a delayed briefing for the US Congress, then by the Group of 20 (G20) economic talks, a G20 agreement to address steel overcapacity, a possible separate review by the USA’s Department of Defense, and now potentially a meeting involving officials from the USA and China during the week of Monday July 24.
Since supposed target dates have passed with no announcement, Chinese steel output was confirmed to have reached record highs, and a second round of USA-China economic talks failed to achieve concessions.
Those new facts potentially dishearten constituencies that argued against national-security-based trade curbs and embolden proponents of aggressive Section 232 quotas and/or tariffs.
Michael Stumo, ceo of the Coalition for a Prosperous America, said that the recent Chinese recalcitrance should convince US President Donald Trump’s team that a wide-reaching remedy is necessary.
“The refusal of the Chinese to make concessions […] may confirm to the administration that bilateral talks could be as unproductive as the multilateral trade negotiations they eschew,” Stumo said on July 20.
“The result increases the likelihood that President Trump chooses more effective [Section] 232 remedies in steel and aluminium among the array that will be presented to him by agency officials,” he added.
Steel prices in the USA have risen, as a tough Section 232 remedy seemed likely and imminent. Market participants said that prices will spike further if a heavy-handed Section 232 outcome is confirmed, or decline if nothing materialises.
The postponements also raise the possibility that Trump is using Section 232 threats as a bargaining chip, not only on the question of how severe the remedy may be but also to influence other deals not directly related to the national security study.
Therefore, even an eventual announcement may not bring clarity about what ultimately will happen to steel imports.
“Trump is going to say a 25% tariff across the board for a negotiating position,” one Southern USA distributor said. “He’s a businessman, and he’s going to start somewhere, and he’s not going to start low.”
All the uncertainty has influenced at least one service centre to initiate a dialogue with buyers, even if no one knows exactly what to say.
In a letter to customers on July 20, sales staff at Majestic Steel USA attempted to address how they “plan on handling potential outcomes”. They encouraged customers to get in touch with a sales representative to discuss the Section 232 investigation and recent mill price increases.
The letter signalled that volatility is likely.
“Given the severity of the matter, we want to communicate proactively with your company on the effect this can have on our respective businesses,” Majestic’s sales team wrote. “As a reminder to spot-buying customers, spot prices are subject to change at any moment due to market conditions.”
At the National Assn of Steel Pipe Distributors’ summer conference in June, attorney Alexis Foster urged the distributors to add language, including a possible escape clause, to their forward-looking contracts to protect themselves in the event that the Section 232 action creates significantly higher prices.