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Fiat-Chrysler, Tupras face Turkish tariff risk; Diageo in tariff firing line

The Supply Chain Daily provides a curated overview of Panjiva's research and insights covering global trade policy, the logistics sector and industrial supply chains and draws from global shipping and freight data.

Fiat-Chrysler, Tupras may face challenge of worsening U.S.-Turkey relations
The Turkish government believes the U.S. will not apply planned sanctions following Turkey's purchase of Russia's S-400 weapons system. The debate comes just over a year after the U.S. applied increased steel tariffs in retaliation for Turkey's detention of an American cleric.

The prior deterioration in relations has only led to a slowdown in trade growth between the two countries, not an outright reversal. U.S. imports from Turkey rose 4.6% year over year in the 12 months to July 31, compared to a 13.9% rise in the prior three months.

Steel imports dropped 39.2% over the same period, likely at the expense of Borusan Mannesmann Boru Sanayi ve Ticaret A.S.. The automotive sector may be targeted in the forthcoming section 232 automotive review, where U.S. vehicle imports — including those by Tofas Türk Otomobil Fabrikasi A.S. which supplies Fiat Chrysler Automobiles NV — already fell 31.4%.

The refined oil sector may be a target for sanctions. Imports were worth $344 million in the 12 months to July 31 with supplies from Türkiye Petrol Rafinerileri A.S. and purchases in the U.S. by Saudi Arabian Oil Co.s Motiva unit.

(Panjiva Research - Policy)

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Diageo in the firing line for shots fired in trade war
Diageo PLC has forecast organic revenue growth of 4% to 6% for the coming year, but the distiller's CEO, Ivan Menezes, has cautioned that the firm is "not immune from significant changes to global trade policy."

It could be particularly exposed to a deterioration in U.S.-EU relations. North America represented 34.7% of the British-domiciled firm's revenues in the 12 months to June 30, while Europe represented 92.3% of U.S. seaborne imports associated with the company in the 12 months to Aug. 31.

Growth may already be slowing. U.S. imports associated with Diageo fell 1.0% year over year in the three months to Aug. 31. There was a 13.4% surge in beer brands such as Guinness, offset by a 21.4% slide in non-whiskey spirit brands including Ciroc vodka.

(Panjiva Research - Food & Beverages)

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Jindal, Essar struggle in Europe, Eurofer calls for more protectionism
European steel association Eurofer expects to see a 0.4% drop in EU steel demand in 2019. Eurofer also sees the U.S.-China trade war and a no-deal Brexit having a "severe impact [on] global trade conditions," leading it to call for the EU to extend existing steel protectionism. EU imports have already started to decline with a 9.3% slide in the three months to July 31 compared to a year earlier. India has been the biggest loser with a 46.1% drop.

Among Indian steel exporters, Jindal Steel & Power Ltd. has struggled the most recently with with a 69.4% slump in the second quarter from a year earlier. Essar Group's shipments fell 67.4% while JSW Steel Ltd.'s have declined by 43.7%.

India's shipments to the U.S., meanwhile, fell 26.2% in the second quarter but could recover if a trade deal that includes a roll-back of section 232 steel duties can be delivered. The latter could be delivered as soon as the week of Sept. 23.

(Panjiva Research - Metals & Mining)

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BAT, Steve Madden may gain from Brazil-U.S. trade deal
Brazil is pursuing a bilateral trade deal with the U.S. Brazilian Foreign Affairs Minister Ernesto Araújo has stated that they were working on an "interesting package" but that the agreement had not been written yet. U.S. imports from Brazil increased 10.9% year over year in August alongside a 6.7% increase in exports. The U.S. runs a trade surplus with Brazil, which the Trump administration may be keen to lock in.

The Bolsonaro administration may want to reduce the country's reliance on the Mercosur area due to worsening relations with Argentina. Yet, Brazil would have to give up $2.3 billion of tariff income.

Panjiva's analysis shows that the largest opportunity for U.S. exporters lies in cutting Brazilian tariffs on beverages of 19.9%, autos of 14.5% and plastics of 11.0%. Brazilian exports where tariffs could be cut include tobacco and footwear at tariff rates of 78.2% and 9.2%, respectively.

Reducing tobacco barriers may help British American Tobacco PLC as well as Universal Corp. The firms saw U.S. seaborne imports from Brazil fall 52.7% and 38.9%, respectively, in the three months to Aug. 31. Such a move would not be popular with American farmers.

In the footwear sector, Alpargatas S.A. and Steven Madden Ltd. also saw a decline in imports of 14.6% and 14.3%, respectively, and so they may welcome a reduction in duties.

(Panjiva Research - Policy)

Risk of Trump's ire may be driving CSR, Alcoa's export behavior
The Australian government has warned aluminum exporters to trim exports to the U.S. for fear of triggering a Trump administration move to strip Australia's exemption from section 232 tariffs. Total U.S. imports of unwrought aluminum fell 10.8% year over year in the three months to July 31, yet shipments from Australia surged 327%.

Australia has only accounted for 7.2% of the total. Leading shippers including CSR Ltd. and Alcoa Corp., which represented 33.5% and 24.2% of identified seaborne imports, have already cut back shipments in August.

(Panjiva Research - Metals & Mining)

Valmont bakes in tariffs, barely trims China imports
Steel structure maker Valmont Industries Inc. faces a variety of trade policy risks. So far, it appears to have managed them by having ensured that tariffs on U.S. imports from China "have been baked into the price and just passed along," according to CEO Stephen Kaniewski. China accounted for 65.8% of the U.S. seaborne imports associated with the firm, Panjiva's shipping data shows.

A relatively modest 1.6% reduction in its shipments from China in the three months to Aug. 31 has been more than offset by a 53.9% jump in imports from other markets. The firm may also have outperformed its peers — total imports of steel structures from China fell 53.3% year over year in the three months to July 31.

(Panjiva Research - Metals & Mining)

Christopher Rogers is a senior researcher at Panjiva, which is a business line of S&P Global Market Intelligence, a division of S&P Global Inc. This content does not constitute investment advice, and the views and opinions expressed in this piece are those of the author and do not necessarily represent the views of S&P Global Market Intelligence.

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