Steel unknowns

09 Oct 2017
Lower volumes: steel exports are down at Los Angeles. Credit: Port of Los Angeles

Lower volumes: steel exports are down at Los Angeles. Credit: Port of Los Angeles

US ports will suffer from cutbacks in steel imports, finds Martin Rushmere

Steel trading has long been used as a political and economic weapon in the complicated twists and turns jockeying for position in international trade. US ports are accustomed to this, but their planning is being thrown into disarray because the issue has become overtly political under the new White House administration.

Sales agents are finding it increasingly difficult to placate foreign authorities and businesses that want to know the direction of US policy. A port official, speaking privately, says the previous standard response that protectionist forces always surface under a new administration, only to die down, no longer satisfies other countries.

The official says that much of the pressure is coming from the White House itself, in contrast to previous administrations that acted on private sector concerns.

An economist, also speaking privately, said: “In one, small way I take heart from the accusation from some quarters that China is the main cause of the problem.” Imports from there are way down, 20% of what they were two years ago. “The clamour to punish China means that the authorities will be aiming at the wrong target.”

Claims that domestic production and exports will surge if there is a clamp down on imports are dismissed as wishful thinking. Exports through Los Angeles' Pasha terminal, one of the top three steel handling ports in the country, totalled a paltry 43,000 tonnes in 2016, of which 99% was containerized.

By contrast, imports totalled 1.5m tonnes with breakbulk accounting for 80% of that.

Wider impact

For the big ports such as Los Angeles, a drop in steel volumes will affect jobs and the regional economy to a limited extent.  “But it’s the smaller ports like Stockton that will really feel the pain,” says Dan Smith of the Tioga Group consultancy. “They are not nearly as diversified and there will be a severe knock-on effect in the region. They tend to handle a limited range of products and losing one product can mean a huge chunk of business. Losing just one is a big blow to a port.”

Analysts note that public calls for cutbacks on imports make little mention of which types of product should be penalised. “It is conceivable that hasty action will be taken to satisfy political interests without any regard to production capabilities and the economics of the situation.”

A big imponderable is the action on rebar (reinforcing steel), which is a mainstay of the construction industry. Mr Smith agrees with the concerns voiced by others of whether the US has the capacity to make up for any cutbacks.

“This has not been thought through by the administration,” says an analyst, “and my feeling is that there will be a production gap and hence a big leap in prices.” Penalties have already been levied on rebar from Taiwan of up to 32% on the landed cost.

“To my mind it makes sense to be very specific about which products should be targeted,” says the analyst. “There is possibly justifiable action that can be taken over specialised products but it requires well thought-out handling.”

Political cries

US ports have told Congress privately their concerns about lost jobs and the economic impact. New Orleans is among those that are worried.

“The port is particularly sensitive to the idea of proposed tariffs or quotas on imported steel because the commodity is an important revenue source. In 2016, 35% of the port’s cargo-related revenue was generated by imported steel,” says port spokesperson Donnell Jackson.

“Previous tariffs on imported steel - last in 2002 - broadly and negatively impacted the port and local economy. The steel tariff resulted in higher construction and manufacturing costs nationwide,” he says. “More American workers lost their jobs in 2002 to higher steel prices than the total number employed by the US steel industry itself.

“Free and open trade policies, combined with appropriate incentives for the US steel producers would be the best means to promote all sectors of the US economy,” says Mr Jackson.

“The wide imposition and enforcement of new tariffs on imported steel would create a negative impact on ports, the larger maritime community, manufacturers throughout the US, and other steel-consuming industries.

“The port works in conjunction with the American Association of Port Authorities and is closely monitoring the Trump administration’s directive to the Commerce Department to investigate whether steel imports are hurting US national security. At this time, AAPA has communicated that a crackdown on steel and other imports from China to balance the US trade deficit has taken a slower track,” says Mr Jackson.

Tit-for-tat

Just as serious as job losses and damage to regional economies is the prospect of retaliatory action.  The most obvious measure would be to accuse the US of dumping practices and impose tariffs. But there are other more subtle methods.

“China and other countries are very adept at targeting specific commodities or regions,” says Jock O’Connell of Beacon Economics. “There is a phytosanitary agreement on rice, and they could claim they found ticks in a consignment from, say, the Mississippi Valley.”

As has happened before, such retaliation would lead to sudden difficulties for other ports such as the agro-exporting ports of the Pacific Northwest, leading to a growing political uproar.

“A whole control panel of switches can be turned on and off with retaliatory action,” adds Mr Smith. “Inspections can be made tougher, which the world trade community is used to.  Any restrictions by us will lead to repercussions.

“If you start a trade war, there are no winners or losers. It’s not like real estate where you are dealing with different people and then moving on. In trade you are working with the same countries. Trade agreements in general work better when worked out with individual countries and not in the form of general agreements."

Port reliance

“New Orleans shares the concerns of possible retaliatory action in the form of tariffs on US imports,” says Mr Jackson. “The majority of cargo moved through the port is for export. Manufacturers and producers from the American Midwest and Canada rely on us as a key part of the supply chain to deliver anything from chemicals to machinery, grains, and agricultural products to the world.”

New Orleans imported 2.4m short tons of steel in 2016, ranking third in the US, while exports were 43,000 tons. Most of the imported steel goes through the Nashville Avenue Terminal Complex, operated by Ports America.

The Alabama State Port Authority has voiced similar fears about retaliation. The chief executive of the authority says the talk of tariffs on imports “is a little unnerving”, according to the Journal of Commerce.

The American Institute for International Steel is also blunt in its assessment of restrictions. “President Trump still, unfortunately, misunderstands the positive role that free and fair trade in steel has in promoting the nation’s economic health. Any limits on trade will surely be met with retaliatory measures from trading partners who count on the US to model the free market principles that produce growth nationally and globally.”

Calls for the administration to step back from imposing restrictions will probably be intensified in the wake of the two hurricanes that hammered the Gulf Coast and Florida. Tampa Bay was one of those hit and is Florida’s largest port for handling steel. 

Labelling a product/country combination as being “subject to antidumping duty and countervailing duty” is  “complex, long, and fraught with unclarity", says Gabrielle Griffith, a director of trade advisory group BPE Global, based in San Francisco. “Antidumping duty is placed on a specific product from specific countries. If a high tariff is placed on that product from a specific country, chances are that company will try to source the product from elsewhere before they consider a US operation.”

The administration’s radical trade policy changes have led companies such as BPE Global to develop software tools for ports and businesses to calculate precisely how their finances will be affected.

Links to related companies and recent articles ...

Port Of Los Angeles

view more