Trade tensions threaten stability Steel tariffs call for

trade teNsioNs threateN staBility

The European metals industry had a relatively good year in 2017 with demand, sales, prices and profitability being boosted by buoyant economies in Europe, North America, China and much of the rest of the world.

In the wake of strong rises in demand, average global steel prices almost doubled in the second half of the year.

Average price increases in non-ferrous metals at around 20 per cent during 2017 were the highest among all commodity sectors. Aluminium prices went up by over 15 per cent, copper by over a quarter and nickel, driven by sharp increases in demand for stainless steel, by over a third in the second half.

Prices for metals used in high tech products also soared. Those for cobalt doubled. For some speciality metals supply could not keep up with demand.

Trade disputes

However by early 2018 economic confidence began to falter and prices of many metals started to soften. Prices of non-ferrous metals actually went down in the first quarter.

The biggest worry was that a global trend towards protectionism across the world would suddenly accelerate with President Donald Trump’s US government taking the lead.

His first target was steel and aluminium on which he introduced 25 per cent and 10 per cent increases in tariffs respectively in March. Then he threatened to slap 20 per cent tariffs on European car imports which would have a double whammy effect on steel and aluminium producers because the automobile sector is one of their main customer industries.

A key factor behind the trade tensions, particularly in base metals, was excess production capacity, especially in China.

For European metal producers the big fear behind higher tariffs was not just a loss of competiveness in major export markets like the US but that large amounts of metals destined for the US market would be diverted into Europe.

When welcoming the success of the European Commission’s negotiation of a temporary exemption for aluminium in March to the US 10 per cent tariff, Gerd Gotz, director general of European Aluminium, the aluminium producers association, pointed out that the “real problem... is how to tackle Chinese overcapacity.”

European Aluminium warned that as a result of higher US tariffs, an additional 20 per cent of primary aluminium and 35 per cent of semifabricated aluminium exports could be redirected into Europe, much of it from China. In 2017 there was a double-digit rise in Chinese semi-fabricated exports into the region.

Steel imports into Europe went up by 8 per cent in the first half of the year. Gert van Poelvoorde, president of Eurofer, the European steel producers association, likened the surge to a ‘tsunami’ which if left unchecked would ‘destroy’ the European industry.

For the European Union’s steel sector, which with an annual output of 170 million tonnes is the second largest in the world, 2017 was a year of recovery with demand growing by 1.3 per cent, which it predicted could rise to 2.3 per cent in 2018. But all the industry’s recent gains could be put at risk by the ramifications of trade disputes, according to Eurofer.

While the European metals industry looked fairly strong for most of 2017, US steel tariffs and a growing tendency towards protectionism signal trouble on the horizon. Sean Milmo reports.

Tackling excess production

Governments under pressure from the metals industry have been taking action to deal with the problem of excess production capacity. The G20 group of leading industrialised nations has set up a Global Forum on Steel Excess Capacity in order to address the root causes of overcapacity. Governments have already agreed to eliminate market-distorting subsidies and other state support measures. The aluminium sector has been urging the creation of a similar body to deal with its difficulties with excess production.

Despite international steps to curb overcapacity, the EU has been introducing new measures to counter the trade effects of excess products. These include new ways of calculating anti-dumping duties so that they more effectively curb exports from countries which makes widespread use of state subsidies.

Chinese steel imports in Europe went down by 44 per cent in 2017, pushing the Chinese share of finished steel imports in the EU down to 16 per cent against 22 per cent in 2016. Eurofer claimed that the decrease was the result of the EU’s new trade defence tools, such as the anti-dumping initiative.

In the wake of the latest US tariff-raising activities and new metals trade barriers being erected by countries like Mexico, India and South Africa, Eurofer has been calling for the EU to take even tougher trade defence action.

Combining strengths

In the long term the industrial strategies emerging across Europe have been encouraging metals sectors to build up thriving value chains which can depend on supplies from Europe-based commodity metals producers adequately protected from trade conflicts.

The objective is that metals manufacturers along value chains, particularly those which have expanded into high tech sectors like electronics and aerospace, would be less vulnerable to the results of protectionist trade policies. Innovation and technological advances would help increase the international competiveness of these producers.

One of the strategies behind the merger of the European operations of India’s Tata Steel and Germany’s thyssenkrupp is that the new company would be able to maintain technological leadership in flat steel production.

The overall aim in the sector is that it would be built on a foundation of sustainability with low carbon emissions, a high level of environmental protection and a big contribution to the circular economy through the recyclability of its products.

Eurofer has, for example, been developing an EU masterplan for the development of a low-carbon European steel value chain.

European Aluminium has a vision of a sector of primary producers and manufacturers of semi-fabrication aluminium using rolling and extrusion processes and recycling operators directed towards the fulfilment of a circular economy. The majority of the plants involved in extrusion and recycling are SMEs, many of them based in aluminium-based clusters.

“With its capacity for endless recyclability, aluminium has all the properties needed to become the circular material of choice,” says Kjetil Ebbesberg, the association’s chairman.

However to realise its full potential for recyclability the aluminium sector must find ways of curbing the large amounts of aluminium scrap exported outside Europe each year. “(The EU) must take measures to prevent aluminium scrap for recycling leaking from Europe,” says Mr Ebbesberg. That will be yet another issue requiring trade measures. n