The U.S.’s government’s announcement of restrictions on steel imports is going to adversely affect the profitability of majority of steel companies based in its key steel exporting countries such as Canada, Mexico, Brazil and South Korea.
The companies in South Korea are especially more at a disadvantage this year because although U.S. has decided to impose a quota on steel imports from South Korea (70% of the average imports of 2015 to 2017), the country seems to already exhaust its quota for this year.
One such company which is going to suffer heavily in terms of profitability is Dongkuk Steel from South Korea. This is because the company exports a substantial percentage of its total production to U.S. In 2017, the company sold about 130 billion won (USD 122.29 million) worth of steel products to the U.S. which is about 4% of its total sales.
However, market sources suggest that Dongkuk Steel may circumvent the protectionist steel trade policy of U.S. through its joint venture CSP in Brazil. This is because although U.S. has imposed import quota on semi-finished imports (which account for 80% of Brazilian steel exports to U.S.) from Brazil at 3.5 MnT (only 7% decline from imports in 2017), the country has not exhausted its import for quota for this year.
Export of slabs from Brazil’s CSP will Benefit Dongkuk Steel
Slabs are one of the key semi-finished product of imports for U.S which country majorly procures from Brazil. With trade restrictions in place, domestic steel price in U.S. has risen significantly. Now as Brazil can export upto 3.5 MnT of semi-finish steel to U.S., the per-tonne price of slabs exported from Brazil to the U.S. have risen from USD 465 to USD 576 between Dec’17- May’18.
CSP Steel Mill – a two year old joint venture of Dongkuk Steel in Brazil is a major slab producer in the country. Subsequently, with the increase in slab export prices, it is enjoying good benefits. As per the market sources, CSP Steel Mill is exporting 10% to 15% of its products to the U.S. at present. The steel mill’s profitability has improved a lot with this increase in slab prices.
An industry source has commented that steel companies in South Korea are failing to benefit from the current steel price increase in the U.S. as they already shipped a large amount of products before its import restrictions. On the other hand, the CSP Steel Mill, which has been rather sluggish since 2016, is currently benefiting from the protectionist trade policy of the U.S.