CHICAGO — The Trump administration’s Section 232 investigation into steel imports might focus on specific products such as electrical steels and oil country tubular goods (OCTG), according to lawmakers and one industry analyst.
But some warned that 232 protections, even surgically precise ones, could spark trade spats and spur inflation that would ultimately hurt steel demand.
OCTG and electrical steels in the 232 crosshairs?
U.S. Steel would like to see a 232 remedy that includes a mix of quotas and long-term tariffs aimed at decreasing imports’ share of the domestic market below 2017’s roughly 27%, Cowen analyst Novid Rassouli said.
Whether that will happen is not clear. But U.S. Steel’s management “appeared confident that actions from the Section 232 could target the tubular market,” Rassouli wrote in a research note, recounting a recent meeting with company executives. That’s because OCTG imports account for approximately 50-60% of the US market - compared with less than 30% for other steel products, he said on Wednesday February 14.
Those comments echoed similar sentiments, shared at a meeting with President Donald Trump at the White House, from both Democratic and Republican senators and representatives from steel-producing states.
Senator Rob Portman (Republican, Ohio) criticized OCTG imports - and in particular those from South Korea - during the meeting on Tuesday February 13.
“Frankly, most [imported OCTG] is coming from Korea, and Korea doesn’t have a single rig. In other words, they’re taking Chinese steel for the most part and… in effect transshipping it to us,” Portman alleged.
The United States imported 3.09 million tonnes of OCTG in 2017, up roughly threefold from 1.03 million tons in 2016, according to US Commerce Department data. South Korea accounted for approximately one-third - or 1.05 million tonnes - of the foreign OCTG shipped to the US last year. Mexico was a distant second with 425,848 tonnes.
Electrical steel should also be targeted for 232 protections, according to Portman and Senator Bob Casey (Democrat, Pennsylvania). Both senators noted that AK Steel is the sole domestic producer of electrical steels, which are used in everything from transformers to motors.
“It’s a small market, but it’s a critical market,” Portman said. “[AK Steel] told us that if they don’t get relief, they’re going to pull out of this business."
The US imported 96,573 tonnes of electrical steels in 2017, up 61.4% from 59,833 tonnes in 2016, Commerce figures show. The top suppliers of US electrical steel imports were Japan and South Korea - which accounted for 25,907 tonnes (26.8%) and 19,106 tonnes (19.8%), respectively, of last year’s total.
"Any  response needs to be targeted, and electrical steel is the place to target it," Portman said.
“[AK Steel has] been hammered by this,” Casey agreed. He also highlighted a letter signed by steel executives urging Trump to take swift action in the steel 232.
“I know it’s a 90-day period you’re in, but I hope you can promptly determine it,” Casey told Trump at the meeting.
Commerce Secretary Wilbur Ross submitted key reports in the Section 232 probes into steel and aluminium last month - giving Trump 90 days to decide what action, if any, to take.
‘Like old-fashioned chemotherapy’
The president needs to be careful not to choose too blunt an instrument, some lawmakers warned.
“[Section] 232 is a little like old-fashioned chemotherapy. It isn’t used as much, because it can often do as much damage as good,” according to Representative Kevin Brady (Republican, Texas), who serves as chairman of the House Ways and Means Committee. He noted that modern supply chains are complex, pointing to Austrian steelmaker Voestalpine’s hot-briquetted iron (HBI) plant in Texas as an example.
Voestalpine ships HBI from Texas to its mills in Austria and to US customers such as Big River Steel. Any 232 outcome must be careful not to disrupt such multinational supply routes. “You have to be really targeted here,” he stressed.
Domestic manufacturers could be hurt not only by broken supply chains but also by the dramatically higher prices that might result from the 232, lawmakers said. For instance, “ethane cracker plants... require tremendous amounts of steel,” according to Senator Ron Johnson (Republican, Wisconsin). “You’re talking about [$6-billion to $8-billion] projects, and big cost increases in steel could be a big deal.”
In other words, the 232 remedy needs to be mindful not only of AK Steel, but also of customers relying on a sole US supplier, Senator Roy Blunt (Republican, Missouri), advised. “We need to be very thoughtful about all the other buyers of [electrical steel].”
Senator Gary Peters (Democrat, Michigan) agreed. “We’ve got to deal with the steel pricing issue,” he said. If the 232 doesn’t factor in steel consumers, it could result in automotive parts - rather than steel - being dumped into the US. And that wouldn’t be good for Michigan, where auto parts manufacturing employs more people than any other industrial sector, he said.
Trump acknowledged that striking the right balance might not be easy. “The question is: Would you rather pay a little more and create jobs all over the country?” he asked.
And higher prices aren’t the only concern - so is the premise of the 232, according to Senator Pat Toomey (Republican, Pennsylvania). “Invoking national security, when I think it’s really hard to make that case, invites retaliation,” he said.
Report might be made public
In the meantime, lawmakers would simply like to see the 232 report. That way, they could provide Trump with more informed feedback, Senator Ron Wyden (Democrat, Oregon), the ranking member of the Senate Finance Committee, said during the meeting.
US Trade Representative Robert Lighthizer indicated that might be possible. “I think we could put out the report,” he said.
To date, the 232 report has been kept unusually close to the vest, Washington sources have said.