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Commerce Department recommendations on steel may boost US metallurgical coal

U.S. Department of Commerce Secretary Wilbur Ross is recommending President Donald Trump takes "immediate action" to impose tariffs on imports of steel, a move that could be a boon to U.S. metallurgical coal producers.

The coal sector has been eyeing potential moves to stymie the imports of foreign steel based on potential increases in domestic demand for metallurgical coal used to make steel. Ross' report recommends Trump takes one of three actions: a global tariff of 24% on all steel imports, a tariff of at least 53% on steel imports from a targeted list of 12 countries or a quota on all countries' steel imports capped at 64% of their 2017 sales into the United States.

The remedies aim to increase domestic steel production from the present 73% of capacity to an approximately 80% operating rate.

Authority for the investigation stems from Section 232 of the Trade Expansion Act of 1962. Ross' investigation focused on the effect of imports of steel on the national security of the United States. Ross said national security purposes included consideration of the "general security and welfare of certain industries, beyond those necessary to satisfy national defense requirements."

The policy would target imports of steel from Brazil, China, Costa Rica, Egypt, India, Malaysia, Republic of Korea, Russia, South Africa, Thailand, Turkey and Vietnam.

Coal producers have said they hope, in tandem with potential stimulus to domestic infrastructure projects, increased U.S. steel production will lift domestic demand for metallurgical coal.

Arch Coal Inc. noted when the investigation was announced that the domestic steel market was an important market for the company. Ramaco Resources Inc. President and CEO Michael Bauersachs had said that "almost all of the possible actions being reviewed will have an overall positive impact on U.S. metallurgical coal demand." George Dethlefsen, CEO of Corsa Coal Corp. had called the review a "tremendous catalyst" for the U.S. coal industry.

Moody's Investors Service released a report Feb. 14, ahead of the Commerce announcement, noting that steel imports rose 15% to 35 million tons in 2017. While imports of steel ebbed toward the end of the year, steelmakers had been noting increasing imports in an attempt to get steel into the U.S. market ahead of the investigation's outcome and any potential action.

"The spring and summer months of 2017 were characterized by a high level of uncertainty related to the pending Section 232 investigation, which contributed to a heightened level of imports in the marketplace, pressuring metal pricing," Reliance Steel & Aluminum Co. President and CEO Gregg Mollins said on a Feb. 15 recent earnings call. "However, the improving demand environment, along with increased raw material pricing and trade-faced resolutions in the second half of the year supported higher pricing levels on nearly every product we sell."

Michael Rippey, the president and CEO of SunCoke Energy Inc., a company that manufacturers coke from coal for the steel production, noted capacity utilization trends had been positive. He said he expected a favorable outcome for Section 232 and an increase in infrastructure spending would be a tailwinds for the steel and manufacturing sector going forward.

On a call with reporters, Ross said Trump would take up one of the recommendations or a modified version of any of the options presented but he did not know what his decision might be.

"It's not for me to speculate on what action he might take," Ross said. "He'll make his decision when he makes his decision."

The president is required to make a final decision on the steel recommendations by April 11.