Davis Index: Market Intelligence for the Global Metals and Recycled Materials Markets

The US’s reinstatement of 25pc steel tariffs on Brazil has spurred speculation about potential impact on the American ferrous scrap market.


The possibility of increased domestic demand replacing import volumes is at the forefront of the discussion, as is the potential effect that could have on US domestic scrap prices. 


The profits of larger entities producing semi-finished goods, such as JSW US and NMLK US, could take a hit. Slab importers are expected to take a wait-and-see approach before committing to any long-term sourcing decisions. For imported finished goods, it’s unclear whether the specifications can be easily replaced domestically. 


US President Donald Trump has a history of changing course and re-establishing rapid background negotiations, but affected companies are still considering legal and lobbing measures.


President Trump has accused Brazil of currency manipulation, specifically actively devaluing its currency to increase exports. Additionally, because to the Sino-US trade war, Brazilian agricultural sales to China have increased, even replacing US sources in many cases. Brazil’s Economy Minister Paulo Guedes denies the accusation.


On Nov. 15, 2019, the US Court of International Trade (USCIT) denied the Trump administration’s motion to dismiss a lawsuit filed by Transpacific Steel (LLC), in which the latter argues that increased tariffs on Turkish steel is both unlawful under Section 232 and unconstitutional. LLC is also seeking reimbursed funds for the punitive 25pc tariff on Turkish imports.


Various sources report plausible sales gains by companies like CMC and Nucor if semi-finished steel products presently coming from Brazil have to be sourced domestically. A few noted current domestic production isn’t of acceptable specification or grade, and that the tariff issue could be resolved by the time companies adjust accordingly. Prolonged cost excesses could impel affected companies to shift sourcing to support domestic scrap.  Pressure on domestic scrap prices is expected to be short-lived and probably negligible.


Turkey successfully challenged the US’s doubling of tariffs to 20pc on aluminium and 50pc on steel at the World Trade Organization (WTO), claiming such measures contravened the WTO’s Agreement on Safeguards and the General Agreement on Tariffs and Trade. While the Trump administration sometimes ignores WTO decisions, there are internal discussions about Section 232’s merits.


On Dec. 2, 2019, President Trump announced the US would reinstate 10pc aluminium and 25pc steel tariffs on Brazil, ignoring both an agreement made in principle on May 1, 2018, and the Presidential Proclamation 30 days later, which established absolute quotas for steel mill articles originating from Argentina, Brazil, and South Korea. Moreover, the agreement established a non-tariffed permanent quota exemption for imports retroactive one year beginning January 1 2018. In Brazil’s case, imports were limited to 70pc of the 2015 to 2017 average for finished steel products and 100pc of the three-year average for semi-finished steel. 


Brazil is the third-largest exporter of steel to the US, comprising approximately 12pc of US steel imports.

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