VIP Shipper Club story – US Tariffs Shake Up Steel Sector

ISSUE 3 / 2018

THE PUBLICATION FOR THE INDUSTRIAL PROJECT SUPPLY CHAIN INDUSTRY

ISSUE 3 / 2018

US TARIFFS SHAKE UP STEEL SECTOR Trump’s Action Protectionism or Political Play?

VIP SHIPPER CLUB MEMBER:

UK STEEL .......................................................................................................... page 38

TRADE NOTES

US TARIFFS SHAKE UP STEEL SECTOR

36 BREAKBULK MAGAZINE www.breakbulk.com

ISSUE 3 / 2018

Trump’s Action Protectionism or Political Play?

BY AMY MCLELLAN

A

ddressing a topic related to U.S. President Donald Trump for a bimonthly magazine comes with its own degree of risk. For an administration that has announced policy or personnel change in a 140-character Tweet, there was always the chance that his proposed tariffs on steel and aluminum imports could be reversed before the article made it into print.

Whatever transpires while the ink on this issue dries, Trump’s rallying cry of “America First,” a key theme of his 2016 election campaign, has already been translated into a more protectionist trade policy.

With the president asserting “trade wars are good, and easy to win,” the U.S. announced plans to impose a 25-percent tariff on steel imports and a 10-percent tariff on aluminum, with exemptions granted for Canada and Mexico.

Cue frenzied lobbying by the world’s steel powers, while politicians parried verbal blows, raising fears of an escalating tit-for-tat trade spat. Turkey, for example, the sixth-largest steel exporter into the U.S., threatened to slap tariffs on U.S. cotton imports for its large textile industry, while European Commission President Jean-Claude Juncker warned of retaliation against iconic U.S. goods, including HarleyDavidson motorbikes, Levi Strauss jeans and bourbon whiskey.

As the U.S. Trade Representative went on to unveil tariffs on US$50 billion of Chinese imports in the aerospace, information and communication technology, robotics and machinery sectors to combat what it calls unfair acts related to technology transfer and intellectual property, there

CREDIT: ARCELORMITTAL

came a further ramp in rhetoric and retaliation. By early April, China had announced retaliatory duties of up to 25 percent on 128 kinds of products of U.S. origin, including pork, fruit, nuts and wine.

China had also filed an official complaint with the World Trade Organization, or WTO. It’s not alone – more than 40 nations took to the floor of the WTO’s most recent Council on Trade in Goods to protest the unilateral action by the U.S. WTO Director-General Roberto Azevêdo called for “restraint and urgent dialogue” from member nations, warning that “an escalation in confrontation will have no winners.”

NOT AS BAD AS IT SEEMS

Compared with the size of the global steel industry, the volumes hit by the tariffs are small. The U.S. imported 36 million tonnes of steel in 2017, with Canada, Brazil and South Korea the leading suppliers.

But this is just 8 percent of the global steel market’s traded volumes of 473 million tonnes.

China, which produces half of the world’s steel and is the main target of Trump’s ire, has shrugged off the tariffs. China’s powerful Iron and Steel Association said the tariffs would have little impact as the country, already targeted by 29 U.S. duties, only exports 0.1 percent of its direct output to the U.S. Indeed, the steel industry is no stranger when it comes to

When a car is sent to the United States from China, there is a Tariff to be paid of 2 1/2%. When a car is sent to China from the United States, there is a Tariff to be paid of 25%.

Does that sound like free or fair trade.

No, it sounds like STUPID TRADE going on for years!

protectionism. Analysts at S&P Global Platts, for example, have tracked 170 anti-dumping and countervailing cases globally.

And while Trump’s political style attracts headlines, the Section 232 measures he announced are in fact a continuation of U.S. policy.

“Over the last two to three years, the U.S. has been on a crusade of steel protectionism,” explains Peter Brennan, senior editor on the European steel team at S&P Global Platts. “There have been a whole raft of anti-dumping measures and tariff rises in recent years – under the Obama administration, for example, the U.S. hiked its tariffs on imports of cold rolled steel from China to 522 percent which makes Trump’s proposed 25 percent tariff look very modest.”

POOR TIMING

What is different is that Trump’s tariffs will hit at a time when global steel prices are finally rising. China has driven up prices since 2016, with demand for steel much stronger than anticipated as a result of its ambitious One Belt One Road initiative and an ongoing construction boom.

U.S. steel prices in particular are high as a result of strong demand from a growing economy. Domestic steel production is up 4.4 percent, and imports are also up in a bid to meet demand.

“That’s what makes this move to increase tariffs now so surprising,” Brennan said. “The conclusion is that

We must protect our country and our workers. Our steel industry is in bad shape. IF YOU DON’T HAVE STEEL, YOU DON’T HAVE A COUNTRY!

www.breakbulk.com BREAKBULK MAGAZINE 37

TRADE NOTES

President Donald J. Trump signs the Section 232 Proclamations on Steel and Aluminum Imports, levying tariffs on foreign steel.

CREDIT: OFFICIAL WHITE HOUSE PHOTO BY JOYCE N. BOGHOSIAN

Trump is doing this as a negotiating tool, a hardball tactic, as part of his ‘America First’ approach to international trade.”

That is certainly borne out by recent developments.

Trump has linked the promised exemptions for Canada and Mexico to a swift agreement to an updated North

The European Union, wonderful countries who treat the U.S. very badly on trade, are complaining about the tariffs on Steel & Aluminum. If they drop their horrific barriers & tariffs on U.S. products going in, we will likewise drop ours. Big Deficit. If not, we Tax Cars etc. FAIR!

38 BREAKBULK MAGAZINE www.breakbulk.com

American Free Trade Agreement.

On March 23, hours before the deadline, the EU, Australia, Argentina, Brazil and South Korea joined Canada and Mexico in clinching a temporary reprieve from tariffs until May 1, allowing additional time to negotiate.

By March 26, South Korea was the first to secure a permanent exemption in a move that both sides called a “win-win deal,” albeit one in which Seoul agreed to limit its steel exports to 2.68 million tonnes, or 70 percent of the annual average exports to the U.S. over the past three years, and agreed to allow the U.S. carmakers greater access to its auto sector by easing environmental regulations and certification procedures.

The EU is now engaged in a serious lobbying effort to convert its temporary reprieve into a permanent exemption.

Axel Eggert, director general of the European Steel Association, warned

that Trump may only extend the suspension if “substantial concessions” are made before May 1. The EU is seeking safeguard measures to prevent steel deflected from the U.S. market, swamping what Eggert calls “a still fragile recovery” of the European steel industry.

Rather than imposing its own tariffs, Richard Warren of UK Steel said the favored and more measured response is to introduce quotas, with tariffs levied on volumes above the quota.

But the big issue remains global overcapacity in the steel industry.

“Even China realizes this is a problem,” Warren said. “The U.S. tariffs are nothing more than a shortterm solution, and will do little to tackle the root cause of the problem.

We need governments around the world to tackle the problems of global overcapacity collectively and cooperatively.”

Global steel giant ArcelorMittal ISSUE 3 / 2018

BREAKBULK AND PROJECT CARGO. SAVANNAH AND BRUNSWICK. SMART MOVE. EXPERIENCE, FLEXIBILITY AND RAPID MARKET ACCESS MAKE THE GEORGIA PORTS AUTHORITY THE PERFECT HUB FOR BREAKBULK AND PROJECT CARGO. •

Dedicated teams well-versed in the special handling requirements for each cargo type

•

Rail options: CSX and Norfolk Southern

•

Direct interstate access to manufacturing points throughout the U.S.

•

Established relationship with the Georgia Department of Transportation for overweight and dimensional cargo permitting assistance For additional information contact Bobby Keel, Regional Sales Manager, Trade Development at (912) 965-6369, bkeel@gaports.com gaports.com/breakbulk

BASED ON OUR CURRENT CONVERSATIONS AND UNDERSTANDING, THERE’S A COMMITMENT ON BEHALF OF THE ENERGY INDUSTRY AND THE ADMINISTRATION TO WORK THROUGH THE IMPLEMENTATION AND APPLICATION OF THE TARIFFS.” – Louis Perrin, Hemisphere Freight Services

If tariffs force project costs up, some may no longer be viable.

CREDIT: HEMISPHERE FREIGHT SERVICES

agreed, welcoming efforts to address unfair trade, but also stressing that “fundamentally a solution must be found to address the high level of overcapacity that still exists.”

THREATENING PROJECT VIABILITY

For those on the breakbulk logistics frontline, charged with the safe transit of heavy industrial plant and equipment, anything that increases steel prices could lead to a slowdown in construction.

Louis Perrin, director of Hemisphere Freight Services, a 40 BREAKBULK MAGAZINE www.breakbulk.com

global logistics provider, points out that much of the U.S. steel imports are used in manufacturing, construction and defense sectors, which could see costs rise. “As a result, projects may become no longer viable, which of course would have an adverse effect on project logistics companies, particularly focused on these sectors,” Perrin said.

Oil companies are already running a slide rule over their budgets to see how tariffs may impact new developments awaiting final investment decisions. Wael Sawan, who heads Shell’s deepwater

Louis Perrin Hemisphere Freight Services

ISSUE 3 / 2018

STRONG LOCATION STRONG PARTNERS

1

We make your risks visible Our family-run company of insurance brokers has been there for you since 1837. The identification and handling of your risks is a challenge we face day in, day out, and the comprehensive experience and expertise we have garnered over many years ensure we find the right solution for you every time. Whether you operate nationally or internationally, we provide tailored assistance and are there when you need us the most.

From a risk assessment and analysis of your existing risk protection to the compilation and implementa-tion of a cover concept right through to support in the event of loss. Our international network me-ans you can be sure you will always have an expert partner by your side, wherever you are.

Herrlichkeit 6, 28199 Bremen | T +49 (0)421 59 82 0 | F +49 (0)421-59 82 301 | info@akpvers.de | www.akp-insurancebroker.com

TRADE NOTES

CREDIT: SHUTTERSTOCK

operations, recently told Reuters the tariffs could materially impact some U.S. Gulf deepwater projects.

DowDuPont also has warned of the impact on its next wave of U.S. Gulf petrochemical expansion. Last year, the chemicals giant spent US$6 billion building plants along the Texas Gulf Coast, which contained US$1.2 billion worth of steel. The tariffs would have added US$300 million in costs.

Indeed, the American Chemistry Council, which represents a petrochemicals industry rejuvenated by low feedstock costs resulting from the country’s shale gas boom, said the tariffs come “at the worst possible time.”

It warns that more than half of the US$185 billion investment in new factories, expansions and facility restarts across the U.S. are still in the planning stage, and that investors could be driven elsewhere as a result of the tariff increases.

Overbridge

No road? No bridge? No problem!

FIRST CLASS IN PROJECTS

42 BREAKBULK MAGAZINE www.breakbulk.com

www.dakoworld.com

40479 Düsseldorf | Germany | +49 (0)211 5502640

ISSUE 3 / 2018

WEIGHING IMPACTS

For now, heavy users of steel are still weighing the impact of the Section 232 measures.

“The short answer is: it’s too early to know the potential impact,” said a spokeswoman for Shell, the global oil giant.

“Based on our current conversations and understanding, there’s a commitment on behalf of the energy industry and the administration to work through the implementation and application of the tariffs. Our goal is to better understand the specific parameters and what, if any, exemptions might apply to Shell’s current and future projects.”

It’s not all doom and gloom, however. Perrin of Hemisphere Freight Services points out that the logistics and project logistics industry is adept at adapting with changing trading conditions.

“It’s a constant dynamic in the

When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!

world in which we operate,” Perrin said. “No matter what politics, business or even natural events occur, we are quick to act and remain agile in ever-changing environments, whether that be delivering aid to disaster zones or providing logistics services and vessels to markets all over the world. We strive to meet our

clients ever changing demands and business markets.”

At the time of writing, the EU and fellow steel powers were still negotiating with the U.S. in a bid to secure an extension of the current waivers. Clearly Trump is looking to reduce U.S. trade deficits with its trading partners and is willing to do deals that fit his America First template.

The key is to keep talking because the big fear is that an escalation will lead to retaliatory tariffs applied to a whole host of industries, with many in the EU fearful of U.S. action against the trade bloc’s important car industry.

And if we get into a real global trade war, cautioned S&P Global Platts’ Brennan, “everyone suffers.” BB Amy McLellan has been reporting on upstream oil and gas and maritime industries for 20 years.

ACCESS TO > 50 MILLION CUSTOMERS IN MONTREAL, TORONTO, CHICAGO, AND DETROIT WITHIN 72 HOURS ASSURED EXPORT TRANSFER FROM RAIL TO VESSEL AT 95% OR MORE

ZERO CONGESTION OPEN BERTH WINDOWS AND CAPABILITIES 24/7

WE’VE GOT YOUR NUMBER. The Port of Halifax is the data driven port you’ve been waiting for.

PortofHalifax.ca

www.breakbulk.com BREAKBULK MAGAZINE 43

Breakbulk VIP Shipper Club is an invitation-only membership program for project owners and developers, EPCs, manufacturers of industrial equipment, oil & gas service companies, energy firms, chemicals producers, mining companies and metals producers.

The club is a central hub for all those who are involved in projects that require oversized cargo. For nearly three decades, Breakbulk events have brought shippers together with service providers to forge a reliable industrial supply chain.

Members may grow their positions as thought leaders to the industry by participating as panelists at Breakbulk events, serve as mentors in our Education Day programs to help encourage the next generation of leaders, and offer insight and guidance as editorial resources for Breakbulk Magazine.

There is no fee for membership in Breakbulk’s VIP Shipper Club and all members receive free admission to Breakbulk events around the world – in Houston, Dubai, Shanghai and Bremen.

To apply for membership, visit breakbulk.com/vip-shipper-club