This article is reprinted from the Platts Insight blog of S&P Global Platts.
The same fire that melts the butter hardens the egg.
That “same fire” in Western Pennsylvania, the birthplace of American steel, was President Trump’s Section 232 tariffs. They hardened the barrier against steel imports while melting the aspirations of steelmakers who were relying on imports.
Western Pennsylvania is home to US Steel, the iconic steelmaker that in its early years was known simply as “The Corporation.” It was America’s biggest steel producer for virtually the entire 20th century.
USS and other large integrated steelmakers welcomed Trump’s 25% across-the-board tariffs in March 2018, which would serve to tighten domestic supply, paving the way for higher steel prices and improved profit margins.
Two other Western Pennsylvania steelmakers didn’t fare so well. Allegheny Technologies Inc. (ATI), once America’s largest stainless steel producer, and NLMK USA’s Pennsylvania mill, the former Sharon Steel.
Both made strategic plans to use imported slabs – semi-finished steel – to roll into sheet steel, and had foreign partners to do so. ATI teamed up with China’s Tsingshan Group in 2017 for a Pennsylvania rolling mill project dependent on stainless steel slabs from a Tsingshan mill in Indonesia.
NLMK’s offshore slab supplier was its Russian owner.
Trump’s tariffs made it uneconomical for them to import slabs. There was an appeal process for exceptions to the tariffs, but despite their critical needs – and the fact that they also employed American steelworkers who the tariffs were expected to help – they got the cold shoulder.
Commerce rebuffs exemption requests
Ironically, mills that benefited from steel imports being effectively blocked were still able to get the foreign-produced slabs they needed despite the tariffs, via government exceptions. Importing slabs was not as essential to their business models as it was for ATI and NLMK, but was a great help to mills trying to balance their own production with market demand.
Sometimes it’s better to import semi-finished steel in instead of melting your own – like buying a cake mix instead of making the cake from scratch. It gives large integrated mills flexibility and convenience. Availability of foreign slabs also helps US mills weather their expected and unexpected mill outages.
Semi-finished steel, mostly slab, comprises roughly 30% of all US steel imports and the importers are US mills themselves. It may be a little-known fact in Washington DC that US steelmakers as a group are likely the largest importers of steel.
So while USS and its large mill peers were having their cake and eating it too, fellow Keystone Staters, NLMK USA and ATI, got the proverbial pie in the face.
In March, ATI announced plans to idle operations at its 50% owned A&T Stainless joint venture with its Chinese partner in Midland, Pennsylvania, as the Section 232 tariffs made the operation unsustainable. The Department of Commerce denied the company’s first round of tariff exemption requests in April 2019, even though its two-year old venture was required to source its slabs exclusively from Tsingshan’s Indonesian mill under the terms of their JV agreement.
Since March 2018, A&T Stainless has paid over $37 million in tariffs. An ATI spokeswoman told S&P Global Platts that operations at Midland’s Direct Roll Anneal and Pickle (DRAP) Line have been idled since July. “I am not aware of any plans to file another request for exclusion,” she said on Oct. 28.
While announcing the closure, ATI CEO Robert Wetherbee said in a statement: “While we firmly believe we meet the criteria for an exclusion, we cannot wait any longer. Without a tariff exclusion, we have no choice but to idle the Midland operations.”
NLMK USA filed a complaint with the US Court of International Trade (CIT) against Commerce’s refusal to exclude its slab imports from the Section 232 tariffs. NLMK said US steelmakers AK Steel, Nucor and US Steel filed objections to NLMK’s exemption requests, despite their inability or unwillingness to supply the volumes and types of slabs needed by NLMK’s US mills.
NLMK asked the CIT to find Commerce’s denials of slab exclusions unlawful and recognize NLMK’s right for a refund of the tariffs. NLMK owns and operates three steel mills in Indiana and Pennsylvania. The company said it has invested over $800 million in the facilities following their acquisition and employs 1,200 workers in the US.
NLMK is expecting a CIT ruling before the end of the year.
Steel and politics
Pennsylvania’s status as a battleground state, meanwhile, has only strengthened this election cycle, with speculation that the results of the presidential election could come down to voters in Pennsylvania and Florida. Western Pennsylvania was a stronghold of support for Trump during his 2016 presidential campaign, however the region is still seen as being in play this time around, with almost daily campaign stops from both candidates’ campaigns in the last days leading up to the Nov. 3 election.
Polling of likely voters in Pennsylvania has been tight, with the outlook for the race uncertain, just days away from the election.
As of Oct. 27, democratic nominee Joe Biden was showing a lead of 5.1 points in Pennsylvania, according to FiveThirtyEight, which noted that polls in 2016 were off by 4.4 points in the state, with Trump winning Pennsylvania by only 0.7 points.
“So with a 2016-style polling error in Pennsylvania, Biden would be cutting it awfully close, perhaps even so close that court rulings on factors like ‘naked ballots’ swing the outcome,” FiveThirtyEight said.
In late September, US steelmakers participating in a “virtual town hall” event hosted by the Association for Iron and Steel Technology said they expect continued bipartisan support for their industry regardless of who is elected president.