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Commodities 2022: US steel groups focused on trade enforcement, decarbonization

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Commodities 2022: US steel groups focused on trade enforcement, decarbonization

Highlights

Negotiations ongoing on alternatives to Section 232 tariffs

US, EU looking to expand efforts on overcapacity, emissions

Enforcing US trade laws and continuing decarbonization efforts in steelmaking are the top priorities for the US steel industry heading into 2022, according to the leadership of the two largest groups representing the industry.

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Potential changes to the Section 232 tariff program are of major concern as the US continues discussions with countries on alternative schemes to the tariffs in 2022. In October, the US reached an agreement with the EU to establish a tariff-rate quota, or TRQ, on steel import from the region, with the change taking effect Jan. 1.

The US Trade Representative's office also has been in discussions with Japan and the UK regarding the tariffs, introduced by former President Donald Trump in March 2018.

Included in the agreement with the EU is a provision that for a steel product to qualify of a TRQ, it must be melted and poured in the EU.

"We think that is really important to ensure it doesn't become a loophole for Chinese or other non-EU steel to flood through the EU," Kevin Dempsey, CEO of the American Iron and Steel Institute, said in a recent interview with S&P Global Platts.

The TRQ should help to prevent an import surge from Europe, however ensuring full and effective enforcement of the quotas is critical in light of rising import volumes in late 2021, Dempsey said.

As import levels are rising, US mill capacity utilization has been moving lower, Philip Bell, president of the Steel Manufacturers Association, told Platts.

The raw steel capability utilization rate has declined from 85% in late July to around 80% at the end of December, according to AISI data.

"When you have capacity utilization going down and finished steel import market share going up, that's not a good sign," Bell said.

Any agreement to unwind the tariffs should include a melted and poured standard, Bell said. Additionally, as global economies look to decarbonize, carbon intensity of steelmaking should be taken into account, he said.

Carbon intensity increasingly important in trade deals

As part of the US agreement with the EU, the parties said they would establish a working group with like-minded economies to negotiate further arrangements for trade in the steel and aluminum sectors that take into account both global non-market excess capacity as well as the carbon intensity of these industries.

While there have been other global efforts aimed at tackling challenges related to excess global capacity, this is the first to include carbon intensity.

Bell said in the case of Japan, which has a high CO2 emitting steel industry, the US needs to proceed methodically with its negotiations.

"They have yet to show how they can be a meaningful part of the global arrangement on decarbonization that we have reached with the EU and I think that is going to be an important part of these conversations," he said.

Explore this topic: Commodities 2022

Having a global effort focused on both overcapacity and emissions is going to be critical for global steelmaking, Dempsey said.

"That could become a key first step toward developing a new trade border adjustment mechanism that takes into account carbon intensity since steel made in the US is one of the cleanest produced in the world," he said. "As we continue to invest in further decarbonizing our industry in the US, it is going to be more and more important that we have a trade scheme in place that ensures people don't just import dirtier, higher-carbon-emitting steel from abroad to avoid the costs associated with decarbonization."

Noting that more than 71% of all steel produced in the US is made via electric-arc furnaces that use recycled scrap, Bell said it is time for US steelmakers to "turn their carbon advantage into a competitive advantage" amid decarbonization efforts.

Strengthening existing trade laws, exclusions process

Legislation to strengthen the existing US antidumping and countervailing duty laws was introduced in by the Senate in the spring of 2021 and the House of Representatives in December to establish new ways to discipline cross-border subsidies, Dempsey said.

"China is increasingly subsidizing its steel producers to invest in new plants and equipment in Southeast Asia and other places," he said. "That's expanding global overcapacity but it's a unique situation that the way the trade laws were originally written didn't fully take into account the possibility that a government like China might be subsidizing steel producers to produce in a third country."

Additionally, as part of the EU agreement, President Joe Biden has directed the secretary of commerce to undertake a new rule-making process to review and update the Section 232 tariff exclusion process, which allows importers to bring steel products into the US duty-free if it is determined there is no domestic availability or overriding national security concerns regarding the specific product.

"We will be actively involved in that in the coming months to continue to push to reform the exclusion process," Dempsey said.