How Will Trump’s Tariffs Affect Iran’s Steel Trade?

EghtesadOnline: Who’s for a trade war? Apparently no one, except US President Donald Trump.

News ID: ۷۸۱۹۹۱

13 March 2018

His impromptu announcement last week of slapping tariffs on steel and aluminum imports set off worried and furious talks of potential retaliatory measures and market chaos.

The repercussions were quickly felt. Gary Cohn, Trump’s top economic advisor, resigned on Tuesday reportedly over frustration with the tariffs; the European Union prepared a “harsh and clear reaction” by drawing up a €2.8 billion list of proposed counter-measures, and Canada’s Prime Minister Justin Trudeau described Trump’s decision as something “absolutely unacceptable” which “makes no sense”.

The US president followed through on his promise on Thursday and levied a 25% tariff on steel and 10% on aluminum. He has, “at least at this time,” exempted Canada and Mexico from the measure, but the exemption’s continuation is tied to the fate of the North American Free Trade Agreement, from which Trump has repeatedly threatened to quit if the talks to reform it should fall apart, Financial Tribune reported.

Things are much quieter, however, on the other side of the globe in Iran. The Islamic Republic will not be directly affected by tariffs, as it has no trade with the US. Yet its fast-growing industry’s export destinations–or its very own steel market–could eventually be affected by surging shipments from US trade partners looking for alternatives.

“What will happen is that steel product imports to the US will nearly cease and local production will pick up. Traditional exporters to the US will be forced to retreat to other markets,” Bahador Ahramian, a member of Iran Steel Producers Association, told Financial Tribune in a phone interview.

Ahramian, who is also the managing director of Yazd Rolling Mill Company, believes that the turn of events could put Iranian steel exporters under pressure as they already have a limited number of overseas markets at their disposal as global competition is bound to intensity.

Yet Iran’s largest steel exporter, Khouzestan Steel Company, remains nonchalant.

“We will be just fine, considering that our export markets are quite different from Canada and the EU,” the head of KSC’s market research, Mohammad Abiat, told us in a phone conversation.

KSC exported 2.5 million tons of slab, bloom and billet worth 46.81 trillion rials ($951.46 million) during the first 11 months of the current Iranian fiscal year (March 21-Feb 19), setting a new record. Its primary markets are mostly located in Southeast Asia.

A source at Mobarakeh Steel Company, Iran’s flagship flat steel producer, also echoed similar sentiment.

“For one thing, we have our own traditional markets and established clients primarily in Turkey and the Far East as well as in the Middle East and the EU,” the source told us.

“For another, our exports are mostly dictated by the local market condition. When things are good, we don’t need to rely on exports; and things currently are good.”

Statistics testify the above claim. MSC’s exports stood at 880,054 tons during the fiscal year’s 10 months to Jan. 20, down 39% year-on-year. Shipments of hot-rolled coil, the main material that is expected to face stiff competition following the US imposed tariffs, dropped 56% YOY to about 400,000 tons.

This is while MSC’s semi-finished and finished steel output grew 14% and 5% during the period to 5.4 and 4.3 million tons respectively, according to Iranian Mines and Mining Industries Development and Renovation Organization.

Fear of Mounting Imports

The potential repercussions of Trump’s decision come at a sensitive time as Iran’s trade duties, especially in the mining sector, are usually modified during the final months of the year.

Market rumors indicate that import duties are set to drop substantially in late March amid downstream users’ lobbying for that matter. They are currently set at 5% for ingots, 26% for rebar and beams, 15% for HRC, 20% for cold-rolled coil and 26% for coated coil.

“[Trump’s decision] has disoriented steel shipments around the world and could potentially flood Iran’s market in the absence of a proper [import] bulwark,” said the head of ISPA, Mahmoud Eslamian, warning against Iran cutting import duties.

Ahramian believes the threat is there, too, albeit not so grave.

“We have the cheapest steel in the world . . . and imports can only surge when local prices zoom past global ones. Yet global conditions can change fast, and our policymakers have proven to be slow to react,” he said.

Global prices are the primary factor determining the risk’s intensity and H1 forecasts for 2018 still look promising, alleviating most of local steelmakers’ concerns.

Imports are declining in the meantime. ISPA 10-month statistics show that imports of semis shrank 76% YOY to 44,000 tons as finished steel declined 24% YOY to 1.86 million tons.