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How Could Section 232 Probe Help US Steel Producers?

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Section 232 imports probe

Higher steel imports have been a big challenge for US steel producers, including AK Steel (AKS) and Nucor (NUE). Over the last few years, the United States has slapped stiff duties on Chinese steel products, but imports seem to be coming from other regions. This is like the whack-a-mole arcade game. While the inflow from China has fallen and the country now accounts for only about 2% of total US steel imports, inflows from other countries have filled the void created by lower Chinese imports.

Global overcapacity

The key issue here is global overcapacity and higher steel prices in the United States compared to other regions. These factors act as magnets for steel imports into the United States (SPY) (SPX-INDEX). US steel producers expect the Section 232 probe to bring about a sustainable fall in imports. So how could lower imports benefit US steel producers? Let’s see.

The impact

We could see an increase in US steel production and utilization rates after an imposition of tariffs on imports. That could benefit the US steel industry in two ways. First, a lower capacity utilization rate could increase unit production costs for steelmakers, especially those that produce steel using blast furnaces. Second, spare capacity could lead to competition among domestic producers as they dole out competitive offers to capture market share.

Lower imports could also provide pricing power to US steel producers (STLD) (MT). As we saw this year, US steel mills faced resistance when they tried to hike steel prices in the second half of 2017 amid higher imports. If we see strong action against imports, it could be positive for US steel pricing.

In the next part, we’ll look at U.S. Steel Corporation’s (X) outlook if we don’t see any major action against steel imports under the Section 232 probe.

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