The Department of Commerce Tuesday imposed preliminary duties on imports of cold-rolled steel, used to make auto parts, appliances and shipping containers, from seven countries including China, whose steelmakers were slapped with a massive tariff.

The duties, set at 265.79% for Chinese steelmakers, will be imposed within the next week but must still be confirmed in a final determination scheduled for this summer. They are meant to punish dumping, or selling below cost. to improperly gain market share. Chinese officials have denied the practice.

After enduring one of their worst downturns ever, American steelmakers are now counting on tariff protection to help ride out a weak market. A slowdown in the steel-heavy oil-and-gas industries combined with a boom in Chinese exports has deflated steel prices around the world.

The benchmark hot-rolled coil index fell 35% in 2015 to under $400 per ton, contributing to a $1.5 billion loss at U.S. Steel Corp., and an almost $8 billion loss at ArcelorMittal, the world’s biggest steelmaker, which has big operations in the U.S.

Both those companies have had to lay off U.S. workers and were behind petitions to impose protective import tariffs on a range of steel products, including cold-rolled steel.

Lakshmi Mittal, CEO and controlling owner of Arcelormittal, in a recent interview said he was counting on tariff protection to help save his U.S. mills, heavily concentrated in northern Indiana. Tariffs, Mr. Mittal said, “will help prices.” The Chinese steel industry lost $10 billion last year, he added. "That proves they’re dumping.” Chinese officials have denied dumping.

But can tariffs really save the American steel industry?

Analysts say trade protection will prop up prices, but can’t be expected to save beleaguered companies or improve market demand, especially in the oil and gas segment.

“There’ll be a short-term benefit,“ said John Packard of Steel Market Update. ”However, in the long run, the U.S. mills are always going to want more tariffs, and it’s questionable how much more [protection] they can get." The U.S. already has anti-dumping duties in place on 19 categories of Chinese steel. And the U.S. needs some imports because U.S. demand—regularly over 110 million tons—is far higher than the U.S.’s annual production of around 80 million tons.

Although China is only the seventh biggest exporter of steel to the U.S., behind Canada, Brazil, Russia, Mexico, South Korea and Turkey, Chinese steelmakers have received the most attention because they have the ability to disrupt the U.S. market. Their prices tend to be 20% to 50% lower than anybody else’s, say steel traders. And because the volumes of its exports are so massive, Chinese steel is ending up everywhere. China last year exported more steel—100.4 million tons—than any other country except Japan produced.

Besides the fates of the individual companies, the tariff debate is landing in a campaign season where trade looms as a potentially major issue.

The campaign season and the rise of Donald Trump are renewing focus on the U.S. trade deficit with China, which averaged $1 billion a day in 2015. Mr. Trump has said he would impose large tariffs on Beijing, alarming U.S. officials and industry leaders who back free trade.

The Obama administration has been discussing steel production with China, which pledged to trim output by up to 150 million metric tons over five years. Chinese Premier Li Keqiang told U.S. Treasury Secretary Jacob Lew this week in Beijing the country would press ahead with economic overhauls to shrink the steel industry.

Industry officials and labor groups say China’s planned cuts amount to just a fraction of overcapacity and don’t go nearly far enough. "Talk and dialogue must not be a substitute for action as addressing the root cause is urgent,” said United Steelworkers President Leo Gerard.

 

Source : wsj.com

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