Imposition Of Punitive Tariffs On Steel Imports To Boost Prospects Of Domestic Steel Producers
A preliminary determination by the U.S. Department of Commerce (DOC) has called for the taxation of corrosion-resistant steel imports from China at 256%, a development which is likely to weaken the competition from cheap steel imports to domestic steel producers. [1] Domestic steelmakers, whose business prospects have been negatively impacted by competition from steel imports, had petitioned U.S. authorities earlier in the year for the imposition of punitive taxes on imports from five countries, including China, contending that these imports were priced unfairly low. [2] Besides the duties on China, preliminary duties on steel imports from India, South Korea, and Italy will be subject to anti-dumping duties ranging from 3-7%, whereas imports from Taiwan have been exempt from duties. [1] Whereas some concerns remain about the adequacy of the taxes to be imposed on imports from countries besides China, the imposition of anti-dumping duties on steel imports from China, the largest source of steel imports to the U.S., should provide much-needed respite to the domestic steel industry.
Competition from Steel Imports
Despite a fall in Chinese steel exports in October as a result of weakness in overseas demand and increasing incidence of trade disputes, Chinese steel exports rose roughly 25% year-over-year in the first ten months of 2015. [3] With domestic demand weakening and production levels continuing to remain fairly high, Chinese producers have been exporting most of the surplus production. Chinese steel exports are priced significantly lower than steels in developed countries such as the U.S. Competition from Chinese steel exports has exacerbated the impact of weak demand conditions for steel globally, resulting in the idling of excess capacity, as indicated by falling capacity utilization levels, illustrated by the chart shown below.
World Steel Capacity Utilization Ratio, Source: World Steel Association
The rising penetration of imported steels has driven down both shipments and realized prices of domestic steel producers. U.S. Steel reported year-over-year declines of 27% and 8% in shipments and average realized prices respectively for its U.S. Flat-rolled Steel division in the first nine months of 2015. [4] ArcelorMittal’s NAFTA division reported year-over-year declines of 3% and 13% in shipments and average realized prices respectively in the first nine months of 2015. [5] Domestic steel mills have idled nearly 38% of their total production capacity in response to the increase in steel imports. [1]
The imposition of anti-dumping duties on Chinese steel imports will make them prohibitively expensive, which should boost both demand and pricing for domestically produced steels. The final determination of duties on imports is expected by mid-2016. [2] Chinese steel exporters can challenge the imposition of anti-dumping duties on Chinese steels by the U.S. at the World Trade Organization (WTO), though no challenges have been made till now. However, if U.S. authorities uphold their preliminary ruling when announcing their final determination of anti-dumping duties in 2016, the prospects of domestic steel producers will certainly receive a considerable boost.
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- U.S. Calls for 256% Tariff on Imports of Steel From China, Bloomberg [↩] [↩] [↩]
- U.S. Steelmakers Seek Antidumping Action Against China, Four Others, Wall Street Journal [↩] [↩]
- Steel Exports From China in Retreat as Trade Frictions Rise, Bloomberg [↩]
- U.S. Steel’s Q3 2015 10-Q, SEC [↩]
- ArcelorMittal’s Q3 2015 Earnings Release, SEC [↩]