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Analysis: NLMK USA turns to Stelco, others for steel slab

NLMK USA has turned to Stelco and others to fill the steel slab void caused by US tariffs after the halt to imports from its parent company in Russia.

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"We are not sourcing slabs from our parent company. Even though they invested in a company and created a strategic raw material link and put workers back to work in western Pennsylvania, the math doesn't work with a 25% tariff in this market," NLMK USA CEO Bob Miller told S&P Global Platts.

NLMK's Pennsylvania conversion mill has traditionally brought the majority of the slab it needs to roll into coils through Philadelphia from Russia. The steel producer continued to bring in slabs despite the implementation of 25% Section 232 tariffs in 2018, as it had hoped to receive the approval of exclusion requests. However, the US Department of Commerce denied the company's requests earlier this year.

In 2017, a total of 1.4 million mt of slabs and blooms were brought in through Philadelphia from Russia. In 2018, that amount dropped to 1.1 million mt, according to Department of Commerce and US International Trade Commission data. In April and May, the latest full months' data, there were no imports of Russian slab through Philadelphia.

Finished steel prices were high enough in 2018 to continue importing slabs from Russia despite the tariffs. The daily Platts TSI US HRC assessment peaked at a near 10-year high of $920/st in July 2018, but fell by more than 45% to a low of $502.25/st through the next 12 months.

The search for tariff-free slabs led NLMK to look to Canada after the removal of 25% tariffs on imports from that country in late May.

NLMK started taking shipments of slabs from Stelco in June, according to data from Panjiva, a division of S&P Global Market Intelligence.

At least five separate shipments of slabs from Stelco have passed through the Port of Cleveland in June, with NLMK Pennsylvania the consignee, according to the Panjiva data. The shipments had a total weight of just over 38,000 mt. Stelco declined to comment on its commercial activities.

Still, NLMK has leaned more heavily on Brazilian suppliers through 2019 as the country has been subject to a quota -- not tariffs -- since last year. The company has taken at least six shipments of Brazilian slab in 2019, according to Panjiva data. There have been three separate shipments from ArcelorMittal totaling just under 150,000 mt, two from CSP totaling around 105,000 mt and one from Ternium weighing 52,000 mt, the data showed.

Slab converters in the US relying on Brazilian slabs will face a sharp decline in availability in the fourth quarter of 2019, due to the structure of the quota agreement. Brazil will only have 10% of its annual quota available for export in Q4 after filling quarterly maximums of 30% in the other three quarters. The quota system will leave just 350,571 mt of Brazilian slab available in Q4 for the entire US market.

--Michael Fitzgerald, michael.fitzgerald@spglobal.com

--Edited by Keiron Greenhalgh, newsdesk@spglobal.com