US government moves to negotiate steel import quotas with its allies in exchange for tariff exemptions could leave them worse off than countries who have to pay the levy. It has also agreed permanent exemptions for Brazil, Australia, Argentina and South Korea in return for quotas. South Korea, for example, agreed to quotas restricting its steel sales to the United States by 30 percent, with different quotas for different products, some of which traders say are nearly full. US Customs and Border Protection data corroborates this, showing South Korea has already used its quota this year for nine different steel products.
Steel markets expect exempted countries like the EU, Canada and Mexico to get a tariff deal similar to the South Korean one, meaning quotas for some products are likely to be used up in the first half, a USbased trader said.
Meanwhile for countries which are not exempt, the price they can fetch exporting to the US where steel costs much more than in the rest of the world – makes trade profitable even with a 25% tariff.
The US based trader said that “The tariff turns out to be the lesser problem (for US importers). There could actually be another price spike once the market realises what these quotas actually mean.”
Jefferies research said that the premium for US hot rolled coil versus a global basket was USD 255 a tonne in late April, more than twice the historical average of USD 117.
Jefferies analyst Seth Rosenfeld said that “Assuming a quota system is implemented on select countries, supply-side constraints could develop (in certain products) in the second half as full year quotas are disproportionately utilised in the first half.”
This would support US steel prices HRC, which have already surged some 80 percent since Trump announced his tariff investigation last year.
The Peterson Institute for International Economics, a Washington-based think tank, says countries exempted from tariffs made up two-thirds of the 34.6 million tonnes worth of US steel imports last year.
Source : REUTERS
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