Brazil Cries Foul over U.S. Protectionist Measures for Steel

U.S. steel industry fighting a glut of steel imports from Brazil

b1Brazil’s struggling steel industry is on an offensive with the U.S., whose anti-dumping measures are reducing exports at a time when the Brazilian economy is going through its worst recession in a century. While Brazil is hoping for more bilateral coordination on its steel exports, the U.S. has slapped a 34% tariff on Brazilian cold-rolled steel imports in March 2016, after coming under fire from domestic steel producers that are fighting a glut of steel imports. Brazil will most likely launch a new trade dispute against the U.S. at the World Trade Organization over the U.S.’s decision to raise duties on some Brazilian steel imports, as reported by Reuters on September 13th, 2016.

Meanwhile, the U.S. Commerce Department has accused Brazilian producers of benefiting from substantial subsidies from seven export promotion programs, which could prove to be a disadvantage of U.S. steelmakers. It has hence passed its anti-dumping complaint to the U.S. International Trade Commission (ITC) to give a ruling on whether this has indeed hurt the U.S. steel industry. This in turn could lead to countervailing duties of up to 11% on Brazil’s cold-rolled steel exported to the U.S.

The cold-rolled steel trade, worth $285 million in 2015, is dominated by two Brazilian companies, Cia. Siderúrgica Nacional SA (CSN) and Usinias Siderurgicas de Minas Gerais SA (Usiminas). Usiminas and CSN are the top producers of cold-rolled steel in Brazil, according to trade ministry data. Brazil will also challenge a separate decision by the ITC to raise anti-subsidy duties to just over 11% on hot-rolled flat steel imports from Brazil.

For Brazil, laminated steel shipments to the U.S. are likely to drop by 4 million metric tons as a result of these tariffs from a total of almost 14 million tons in 2015, according to Brazil’s Steel Institute. Brazil opines that the U.S. has unfairly clubbed its low-cost steel products together with that from other countries’ such as China, assuming that Brazil subsidizes its steel industry.

Brazilian cold-rolled steel are mostly used in the auto and appliances industries, as well as for a wide variety of products that require high tensile strength such as steel bars and rods. With the current global economic slowdown where supply mostly exceeds demand, steel producers are fighting to protect their products from being sold below market prices. Brazil is highly vulnerable to the U.S. dumping charges because steel is often sold at above global prices in its domestic market.

Meanwhile, the U.S. steel industry is witnessing a resurgence due to favorable tariffs, where domestic steel manufacturing capacity has seen the sharpest rebound since 2009.

Source: Bloomberg
Source: Bloomberg

Brazil’s recession could hurt steelmakers

Brazil is currently going through a two-year recession that has hurt steelmakers who were already hit from depressed world prices and resulted in job losses for thousands of workers over the last few years. At the same time, an unprecedented amount of overcapacity in China is threatening steelmakers globally. The glut is set to worsen as Chinese steelmakers add an estimated 103 million tons capacity from this year to 2018. Shipments of some steel products from China to the U.S. dropped after the U.S. Department of Commerce set preliminary penalties as high as 266%.

b3China, the world’s large steel producer, exported a whopping 10.3 million tons of steel in July 2016, according to China’s Customs General Administration and as reported by Bloomberg on August 8th, 2016. Steel exports grew 5.8% Y-o-Y to 10.3 million metric tons in July 2016 compared to 10.9 million tons in June 2016. In recent months, there has been growing dissent against China from its trading partners, accusing the country of causing a glut in the markets and thereby reducing their competitiveness.

Governments and steel associations across the world have kept up the pressure to protect the steel sector from dumping, specifically targeting products from China. Falling demand from the manufacturing sector has plunged the global steel market into crisis, with excess capacity taking a heavy toll on producers, including those in China, leading to plant closures and job losses. Global steel usage is expected to fall 0.8% to 1.49 billion tons in 2016 after a 3% fall in 2015, according to Worldsteel.

The global steel market is also suffering from insufficient investment expenditure and continued weakness in the manufacturing sector. It remains to be seen if Brazil finds new markets and opportunities to exports its steel without facing huge tariffs.

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