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Dec. 6, 2019, 12:10 p.m. EST

Here’s what Trump’s plan to ‘restore’ Brazil, Argentina steel and aluminum tariffs mean for the metals

Brazil accounts for the largest share of U.S. steel imports

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By Myra P. Saefong, MarketWatch


Getty Images
A worker removes molten steel during the galvanizing process at steel manufacturing giant ArcelorMittal's Eko Stahl steelworks in Eisenhuettenstadt on April 25, 2019.

Steel and aluminum prices have suffered steep declines this year, and planned tariffs on the two metals that Brazil and Argentina ship to the U.S. aren’t expected to provide a lasting lift.

Still, concern over the tariffs on steel is likely to outweigh those on aluminum, as Brazil accounts for the largest share of U.S. steel imports. Prices of both metals declined, thanks to a surge in Chinese production, and are projected to continue that slide into the first half of next year, says Ted Bauman, senior research analyst and economist at Banyan Hill.

On Dec. 2, President Donald Trump tweeted that he would “restore” the tariffs. The two nations received exemptions from the 25% steel tariffs and 10% aluminum tariffs in 2018.

When the overall tariffs were put into place last year, U.S. domestic prices of steel and aluminum skyrocketed, posing challenges and raising uncertainties for the companies dependent on these products, says Joe Casucci, CEO of steel fabricator and erector FJM Ferro.

Aluminum prices, however, didn’t move much when Trump announced plans to restore the tariffs. On the day of his tweet, U.S.-Midwest-delivered primary aluminum, as assessed by S&P Global Platts, stood at 95.67 cents a pound, up 0.2% from a day earlier, but down 7.4% since the start of the year.

Aluminum prices are down for the year due largely to “weaker demand and plentiful supply” of both primary and scrap aluminum, says Karen McBeth, U.S. content director of metals price reporting at S&P Global Platts. China produced an estimated 36.5 million metric tons of primary aluminum in 2018, up 1.6% from 2017, according to the International Aluminum Institute.

But steel saw a more pronounced move on the day of Trump’s announcement. U.S. Midwest domestic hot-rolled coil steel futures  were at $555 per short ton, up 0.9% for the session, according to FactSet data. They’re still down roughly 23% from the first trading day of 2019.

The “negative headwind” in steel prices came on the back of high inventory levels seen at the start of the year, says Darwei Kung, portfolio manager for commodities at global asset manager DWS Group.

As China demand recovered from a decline in 2014 and 2015, the “entire supply chain built up inventory in anticipation of higher demand”—then the trade war took place, leading to a “large surplus,” he says.

China produced a record 928.3 million metric tons of steel in 2018, up 6.6% from 2017, according to the World Steel Association.

Still, Brazil accounts for the largest share of U.S. steel imports at 19%, or 2.8 million metric tons, of the total 11 million metric tons imported this year to date as of June, according to the International Trade Administration.

The country is the largest exporter of a “key semi-finished steel product, which is converted to finished steel by some U.S. steel companies and sold into the domestic market,” says Michael Fitzgerald, managing editor, metals, at S&P Global Platts. Brazil sent the U.S. 3.55 million metric tons of steel slabs in 2018, he says.

Slab converters like the Pennsylvania operations of NLMK USA /zigman2/quotes/200815833/delayed UK:NLMK +0.60% , ArcelorMittal /zigman2/quotes/202790215/composite MT -1.41% and Nippon Steel’s /zigman2/quotes/209782682/delayed JP:5401 +0.09%  joint venture in Alabama, and California Steel Industries rely on the exports to produce finished steel products for the U.S. market, Fitzgerald says. So Brazil “would likely have the biggest potential impact on U.S. prices in 2020 if tariffs are reinstated long term.”

/zigman2/quotes/200815833/delayed
UK : U.K.: London
$ 23.42
+0.14 +0.60%
Volume: 159,160
Jan. 24, 2020 4:35p
P/E Ratio
8.52
Dividend Yield
11.06%
Market Cap
$14.04 billion
Rev. per Employee
N/A
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/zigman2/quotes/202790215/composite
US : U.S.: NYSE
$ 15.40
-0.22 -1.41%
Volume: 3.67M
Jan. 24, 2020 6:30p
P/E Ratio
7.64
Dividend Yield
1.10%
Market Cap
$15.61 billion
Rev. per Employee
$363,403
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/zigman2/quotes/209782682/delayed
JP : Japan: Tokyo
¥ 1,623.00
+1.50 +0.09%
Volume: 2.58M
Jan. 24, 2020 3:00p
P/E Ratio
8.31
Dividend Yield
1.23%
Market Cap
¥1494.29 billion
Rev. per Employee
¥64.38M
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Myra Saefong is a MarketWatch reporter based in San Francisco. Follow her on Twitter @MktwSaefong.

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Myra P. Saefong is on the markets team in San Francisco. She has covered the commodities sector for MarketWatch for more than 10 years. She has spent the...

Myra P. Saefong is on the markets team in San Francisco. She has covered the commodities sector for MarketWatch for more than 10 years. She has spent the bulk of her years at the company writing the daily Futures Movers and Metals Stocks columns and has been writing the weekly Commodities Corner column since 2005. Myra has been with MarketWatch since 1998 and holds a master’s degree in English literature.

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