South Korean steel pipe mills to bear the brunt of proposed US tariffs

Pipe manufacturers, such as Husteel Co and Nexteel Co, will likely be the hardest hit among steel suppliers in South Korea by the proposed trade restrictions, trader and mill sources said.

“Korean pipe makers mainly sell to the US, therefore some of them will need to seriously consider moving their factories to the US if the tariffs and quotas are imposed,” a Korean trader said.

The US was the largest importer of steel pipe and tube from South Korea in 2017, accounting for 1.6 million tonnes, or 66%, of all Korean pipe and tube exports, according to a December 2017 report published by the Department of Commerce’s International Trade Administration (ITA).

US Commerce Secretary Wilbur Ross last Friday recommended a tariff of at least 53% on steel imports from 12 countries including South Korea, as well as global tariffs of at least 24% on steel from all other countries. A quota on steel imports equal to 63% of each country’s 2017 exports was also suggested. The proposals were a result of Section 232 investigations into whether steel and aluminium imports posed a national security risk to the US, and President Donald Trump has until April 11 to decide how to proceed. 

“If imposed, those curbs will have the biggest effect on South Korea’s linepipe and oil country tubular goods (OCTG) producers,” a market participant in East Asia said.

“Most Korean pipe makers are focusing on linepipe and OCTG because the markets for other pipe products, such as those used for construction, are dominated by Chinese and Southeast Asian mills who have lower production costs,” he added.

OCTG were the most exported Korean steel product into the US by volume, totalling 1.05 million tonnes in 2017 – a 136.40% year-on-year increase, according to census data compiled by the Commerce Department. South Korea also shipped 665,700 tonnes of linepipe and 151,158 tonnes of standard pipe to the US last year.

For Korean suppliers in general, market sources held mixed views on the potential impact of the proposed restrictions.

“Many mills in South Korea will be affected significantly in the short term because the US market is the most profitable export destination for us,” a major Korean steel supplier said. “But the US is not that big of a market, therefore producers will be able to reorganize their businesses easily and find other buyers eventually.”

The Korean trader believes there will not be any considerable impact on the large integrated mills. “Those mills have gradually reduced their export volumes to the US since previous anti-dumping measures were imposed on certain Korean steel products,” he said.

Retaliation unlikely
Market participants doubt that South Korea will impose similar trade restrictions against American goods in response to any new ruling under Section 232.

Some are expecting South Korea to submit an appeal to the US by highlighting the fact that the two countries are close military and economic allies.

“Many Korean steel producers are upset and criticizing our government for not being able to negotiate for the lower tariff of 24%, which other Asian allies of the US managed to get,” the major steel supplier said.

Separately, on Tuesday, South Korea launched a complaint with the World Trade Organization (WTO) against existing US anti-dumping and countervailing duties and investigations, including five cases involving imports of hot-rolled, cold-rolled and corrosion-resistant steel products from South Korea. 

The US is the third-largest importer of Korean steel, receiving 2.8 million tonnes, or 11.80%, of South Korea’s steel exports during the first nine months of 2017, according to the December 2017 ITA report. China and Japan were the top two destinations for South Korea’s steel, importing 3.1 million tonnes and 3.0 million tonnes respectively in the same nine-month period.

Aside from pipe and tube, other key Korea-origin steel products sent to the US in 2017 included metallic-coated sheet and strip, plate, hot-rolled sheet and cold-rolled sheet.

Last year’s total export volumes of Korean steel to the US stood at 3.4 million tonnes, down 1.6% from 2016, according to the Commerce Department’s census data. In terms of value, however, the exports increased 19.30% year-on-year to $2.8 million in 2017.