Analyst: With Steel Tariffs Off Canada and Mexico, Canadian Imports Should Rebound
During almost a year of 25 percent tariffs on Canadian steel, U.S. purchases of Canadian steel declined by nearly 20 percent, according to Cicero Machado, a steel analyst with Wood Mackenzie. In the early weeks after the tariffs were lifted, there was not a jump in Canadian steel imports, according to Amy Magnus, whose customs brokerage in Vermont works with many importers bringing steel from Canada. Orders cannot be shipped quickly, she said.
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But Machado said he doesn't think the volume of Mexican steel imports will surge as a result of the tariffs' lifting -- that's because imports of Mexican steel continued to climb even with the tariff. In the 12 months that ended in January, Mexican steel imports increased by 9.6 percent, he said. Overall, during that period, finished steel imports grew by 5 percent, and semi-finished grew by more than 80 percent. Because of the way Brazil's quotas were structured, Brazil was able to increase its semi-finished steel exports to the U.S. by almost 130 percent.
"The reason why imports from Mexico increased, and imports from Canada decreased, even with the 25 percent tariffs on Mexican steel, [is that] prices were still very attractive," Machado said. He said the percentage increase from Canada in 2019 will be a larger increase than the continued growth in Mexican imports.
The cheapest mills in the world are in Russia, Ukraine and China, Machado said. But Mexico, Brazil, Turkey and some Southeast Asian countries can produce steel far cheaper than developed countries, with their higher labor costs. Machado said U.S. steel workers make three times the wages of Brazilians. Europe, South Korea and Japan are cheaper than U.S. and Canadian producers, Machado said, but the price difference is not great.
When the U.S. decided to lift tariffs on Canadian and Mexican metals, the Office of the U.S. Trade Representative said it would watch for surges, and in evaluating whether a tariff was warranted, would treat products poured or melted within the NAFTA region differently than products that were processed in the region from semi-finished steel or aluminum (see 1905170031). Machado said that's not really an issue for Mexico. Mexico imported 11 metric tons of steel in 2018, and 90 percent of that was finished steel. Of all steel imports, 90 percent came from the U.S. Mexico produced 20 metric tons of finished steel, and exported 4 million metric tons.
For perspective, Canada produced 15 million metric tons of crude steel, and the U.S. produced 85 million metric tons of crude steel that year. Machado said that flat-rolled coil, which is used in the auto industry, is the second most common imported product in the U.S., and Mexican exports to the U.S. largely fall in that category.
Machado said the U.S. will be trying to watch whether Canada or Mexico is importing cheap Ukrainian or Russian semi-finished steel, and processing it into steel bars.
"If going forward we see a surge for bars and rebars, that’s going to be a flag," he said. "We need to wait and see really the next chapters, what it’s going to be." But he said it would be very difficult for U.S. officials to track that. "I don’t know how this surveillance will work, actually," he said.
A spokeswoman for the Canadian government called the language of the agreement to lift the tariffs a significant challenge, and said "its implications would need to be discussed on an ongoing basis." She also said, "The president has been clear that his power over tariffs are significant to him, and Canada did not expect him to drop his blanket ability to impose [Section] 232 tariffs." But from Canada's perspective, the fact that the U.S. agreed to limit any tariff snapback on a particular product to 25 percent for steel and 10 percent aluminum was a success.