Steel fences: The free market for even-numbered metals in the world has begun to disintegrate

The trade war has affected the entire global steel market. Although it all started with the actions of US President Donald Trump, who was trying to support national steelmakers with tariffs, many other countries from Europe to East Asia followed this example. There is a feeling that the global ferrous metals market has begun to disintegrate — more or less large producers will defend their own share through foreign trade tariffs and other restrictive measures. Whether this is the case and how it will affect Russia, the fifth largest metallurgical power, is described in the Izvestia article.

The Revival of American Steel

On March 12, Donald Trump imposed 25 percent import duties on all steel supplied to the United States. The reason for this harsh decision was the decline of American steel centers in the last half century, which had a sharply negative impact on the situation of the country's working class. If in the mid-1970s the United States produced about 140 million tons of steel, then in the 2020s production volumes fell to 80 million tons. At the same time, the consumption of steel by the American industry has not decreased — since the beginning of the century it has been balancing at about 100 million tons.

Photo: TASS/ALLISON DINNER

To a large extent, this was the result of the transfer of production to countries with cheap labor. But not only that: America imports a quarter of the volume from Canada, and another 10% from South Korea. If the cost of steelworkers' labor in these countries is lower than in the United States, it is clearly not at times. Accordingly, the Trump administration felt that they could easily compensate for the difference through duties and support the domestic manufacturer.

Steel production for major players in this market is a matter of national security. There have always been measures to support the release to one degree or another. We can recall the previous administration, which blocked the purchase by the Japanese of US Steel, the largest ferrous metallurgy company in the country. The current government has only escalated the existing policy.

Photo: TASS/ALLISON DINNER

At the same time, the severity of the current measures is unprecedented in many decades and poses the risk of increasing the cost of a huge range of products, from car manufacturing to infrastructure construction, threatening economic shocks and job losses in troubled steel—dependent sectors. Previous measures were still targeted, but the current round uses comprehensive solutions, affecting large volumes and key trade routes.

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Rates for everyone

And the U.S. government is not alone at all. Other countries are now rapidly adopting the methods of the American administration. First of all, these actions are directed against China, which produces almost half of the world's steel. Vietnam and South Korea, the two largest buyers of Chinese steel, and major exporters themselves, have imposed duties on hot-rolled coils, a widely used product that plays an important role in global flows. Taiwan has also launched an anti-dumping investigation. And India's trade body has recommended imposing broad duties on imports of many types of steel products.

Europe may be the first victim. About 18 million tons of steel may not reach the American market, primarily from Asia and Latin America. All these volumes need to be put somewhere. It is highly likely that they will go to the European Union. The latter retaliated against the United States, but did not protect itself from the supply of steel from third countries.

Photo: TASS/ALLISON DINNER

In the old days, any such gesture would have caused a huge scandal that would have been dealt with by the WTO courts. Now, applying to the WTO makes about as much sense as it does to the World League of Sexual Reform. The organization is currently non-functional, and its courts have not been functioning properly for almost eight years. Now the main players in the market have no choice but to save themselves.

According to Roman Andreev, Director of Corporate Ratings at the Expert RA agency, it is not worth dramatizing yet.:

— The statement that the global ferrous metal market is disintegrating is too loud a statement. Of course, some producing countries are trying to protect domestic producers by imposing duties, but international trade is not going anywhere, since not all countries have deposits of ore, coke, and cheap enough electricity for competitive steelmaking.

Alexey Kalachev, an analyst at FG Finam, notes that the global ferrous metals market is experiencing certain shocks. However, these problems are not much more serious than those that have been observed over the past two years due to the difficulties in the Chinese construction industry and the resulting increase in steel exports from China.

Photo: Global Look Press/Ringo Chiu

— In principle, the steel market will not be surprised by duties, — says Kalachev. — For many years, the United States, the EU, and many other countries have been imposing and periodically changing duties on imports of certain types of steel products from individual countries, and almost all states have such tariffs on steel imports from China. This is a natural protection of our own producers working in the strategic sector from external dumping. This is inevitable as long as the global steel market remains in surplus and total production capacity exceeds global consumption by about a third.

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"We are not participating in the carnival"

Russia is the fifth largest steel producer in the world. To what extent can the measures taken affect our production and do we need our own tariffs?

Roman Andreev says that Russian manufacturers are competitors in the global market in terms of the cost of production of ferrous metallurgy products, so they do not need import duties.

Photo: TASS/ALLISON DINNER

— On the contrary, the government may impose duties on exports of metallurgical industry products in order to resolve budget issues or cool prices in the domestic market. As for duties from the United States and the EU, this will not affect Russian manufacturers in the current export structure, since most of them have minimal or no exports in these areas," the expert comments.

According to Kalachev, Russian steelworkers are not participating in this Trump carnival. Our steel is under sanctions in the EU and the USA. Protective duties of 70% are applied against it in the USA.

— If it is 25%, then it is rather mitigation, — the interlocutor notes. — Steel exports to other countries are being held back by secondary sanctions, low market prices and expensive logistics. And the domestic steel market in the Russian Federation is experiencing a decrease in demand due to an increase in the key interest rate and a reduction in preferential mortgage programs. For metallurgists, it is not the American duties that are more important now, but the easing of the sanctions regime and the reduction of the key interest rate in the Russian Federation.

Photo: IZVESTIA/Sergey Lantyukhov

He added that import duties in the Russian Federation may be imposed if cheap steel flows into the country, for example, from China.

— But, firstly, the market is relatively protected by fairly low prices and high competition from its own manufacturers. And secondly, import duties are periodically introduced and reviewed for certain nomenclatures of metallurgical products. Trump's tariffs do not introduce anything new into all this and do not fundamentally change anything," Kalachev concluded.