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Nucor CEO gives steel tariffs an 'A' as 6-month mark approaches

Atlanta — Nucor CEO John Ferriola said Wednesday if he had to assign a letter grade to the US Section 232 tariffs on steel, he would give the trade measure an "A."

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September will mark the six-month anniversary since the US began implementing the 25% tariff on steel imports, with the tariffs taking effect for the majority of countries March 23, and taking effect for Canada, Mexico and the EU June 1.

"In the short term, we were looking to stop the flood of illegally traded imports and if you look at when [the tariffs] fully went into effect in June, within a month or two we saw overall imports go down by 25% roughly, with finished steel imports down about 14%-15%," Ferriola told S&P Global Platts on the sidelines of Steel Market Update's annual conference, held Wednesday in Atlanta. "I would say in the short term we're seeing the effect we were hoping to accomplish."

For the longer term, Ferriola said he hopes the tariffs will create more balanced trade between the US and its trading partners in order to address the "massive trade deficit we're seeing today."

"A lot of economists say the trade deficit doesn't matter, but I struggle with that," Ferriola said.

He noted that when goods are made in another country and imported into the US, the value of those goods is creating jobs elsewhere and creating income tax elsewhere that governments can then use to invest in areas like infrastructure, research and development, and to pay down the country's national debt.

The tariffs are allowing US steelmakers to compete on a more level playing field and invest in operations, he added.

"If you look right now at our company, we have about eight major projects going on that are either moving us further downstream in galvanizing lines, or are bringing new capacity online with our micro mills," Ferriola said. Nucor is currently constructing two rebar micro mills in the US, one in Frostproof, Florida, and another in Sedalia, Missouri.

Ferriola said he isn't concerned that the US market could become oversaturated as new and previously idled capacity comes online.

"If you look at last year, finished steel imports were around 29 million tons and if you go back 15 or 20 years when we had more balanced trade, that number was closer to 10-15 million tons," he said. "That's what I consider the natural level, not the artificially priced level of imports. If we get back to that 10-15 million mt level of imports, and even if our demand for steel is not growing -- which it is -- we have 10-15 million mt of capacity we could add before it would become overcapacity."

Additionally, if a mill was not competitive before the tariffs took effect, it will be difficult for them to compete should conditions in the market change.

"A mill that couldn't compete before will compete in extraordinarily good markets and it will go away as we go through the different cycles," he said. "If they don't have the cost structure to compete in normalized times, they won't stay around."

The Section 232 tariffs on imports are providing Nucor and domestic steelmakers with a tailwind, but it is unfair to attribute the success Nucor has seen in growing its earnings solely to the tariffs, Ferriola said.

"Yes, Nucor is doing well, the steel industry is doing well, but everybody is doing well," he said. "Our customers are operating at a phenomenal level. We're selling more steel, they are producing more products, and they are seeing [higher] earnings." Ferriola noted that while Nucor is seeing record profits, companies manufacturing steel-intensive products like Caterpillar, John Deere, Martin Marietta, Praxair, and Fiat Chrysler also reported record second quarter earnings.

"Tax reform had a tremendous impact on capital intensive companies like Nucor and industries like the steel industry," Ferriola said. Nucor's higher earnings can also be attributed to deregulation, the recovery in US energy demand, the success domestic steelmakers have had in prosecuting trade cases in recent years, as well as investments the company has made in its operations.

"Our company invested $8 billion from 2009-2010 through 2017 and is investing $1.5 billion now," Ferriola said. "Tariffs gave us a tailwind, there is no doubt about it, but let's not forget all the other things that are working in our favor. At the end of the day, tariffs or no tariffs, it's economics 101: supply and demand. Demand is strong we're seeing it and our customers are seeing it. Nucor put itself in a position to succeed if the playing field was leveled."

--Justine Coyne, justine.coyne@spglobal.com

--Edited by Pankti Mehta, pankti.mehta1@spglobal.com