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Tariff Plan: Will the Desired Objective Be Achieved?

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President Trump’s tariff plan

In its Section 232 investigation findings, the Department of Commerce said, “The quotas or tariffs imposed should be sufficient, even after any exceptions (if granted), to enable US steel producers to operate at an 80 percent or better average capacity utilization rate based on available capacity in 2017.”

The US steel industry’s capacity utilization ratio was 72.3% last year. The ratio averaged 74% between 2011 and 2016. The aluminum industry’s capacity utilization ratio was even lower at 43%, according to the Department of Commerce.

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Impact

Looking at aluminum, US aluminum production and the capacity utilization rate fell. Companies idled plants in response to lower global aluminum prices. Aluminum prices are decided by a trading mechanism. So, lower global aluminum prices mean that US producers get less for their products.

While Century Aluminum (CENX) intends to bring some of its capacity back online, Alcoa (AA) might not be in a hurry to restart the production at its idled smelters. Alcoa has been shutting down its underperforming plants in the last decade as part of its transformation strategy.

While U.S. Steel Corporation (X) announced a plant restart, AK Steel (AKS) might not restart its idled Ashland Works plant immediately. AK Steel has been lowering its shipments in the spot market and focusing on the value-add product mix (XME).

We could see a spike in US steel and aluminum production this year. Tariffs could reduce imports to some extent. However, some countries being exempt from the tariffs could open Pandora’s box. Countries ranging from Japan to India would likely lobby for exemptions.

Visit Market Realist’s Metals and Mining page for ongoing updates on the industry.

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