Improved Iron Ore Supply to Boost Steel Margins
August 2019
The Trump Administration announced that the US will start to impose an additional 10% tariff on an additional US$300bn worth of Chinese goods from September, on top of the US$250bn goods already tariffed at 25%. Global steel prices remain suppressed amid the escalating trade war rhetoric.

The China rebar price averaged US$530/t in July, marginally up 1.9% from June. China HRC prices were down 2% month on month in July at 512/t. Meanwhile, US HRC prices were down 4.5% month on month to US$595/t. 

Chinese steelmakers continue to bear the pain of rising iron ore prices. The margins for domestic producers were already struggling before Vale’s tailing dam incident in January this year which caused the export price to surge. Prior to disaster, the average 62% iron price was averaging at around 75/t CFR china, however by June, it had reached the $120/t level. Thus, hot-rolled coil (HRC) margins are close to break-even at certain points. The high price of iron ore is expected to stabilize when Vale’s suspended tonnage has recovered and production is ramped up again.

India is on its way to impose an additional import duty on some steel products to protect profit margins for the large integrated mills. Earlier this year, these mills applied to the Ministry of Trade to impose a 25% import duty on steel imports. India currently imposes an import duty of 10% on long steel products and 12% on flat steel products. Steel consumers has expressed concerns regarding the import duty and worry that they are paying much higher prices in the domestic market compared with prevailing international prices.

In addition to its existing tariffs and duties levied on steel imports, the US has been pursuing investigations on the subsidisation of fabricated structural steel arriving from Canada, China, and Mexico. The preliminary investigation indicates that while Canada’s effective subsidies are negligible, producers and exporters in China and Mexico received countervailable subsidies at rates reaching almost 200%. Specifically, Chinese exporters saw subsidies at rates ranging from 30.30% to 177.43%, while Mexican exporters saw subsidies ranging from just 0.01% to 74.01%. Canadian producers received subsidies from 0.12-0.45%, and as such were judged as not requiring any countervailing duties. Based on these preliminary determinations, the Department of Commerce will instruct US Customs and Border Protection to collect cash deposits from importers of fabricated structural steel from China and Mexico and prepare for further determinations on appropriate duties on imports. In 2018, imports of fabricated structural steel from China, and Mexico were valued at an estimated US$897.5 million and US$622.4 million, respectively.