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USA: Global:
Wed, Jan 29, 2020, 9:48:21 ---- The fact: 42.844.000 visitors done.

Free market winners in the coming trade war?
Steel Business Briefing
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Company: Steel Business Briefing, United Kingdom
Attn: Patrick Flockhart

Later today, President Bush will meet European Union leaders to talk about steel. If the discussions turn tough, the US 201 duties could bring another trade war, which might involve textiles, citrus fruit and fountain pens, as well as steel. While US producers may feel they have obtained some of the protection (and the higher prices) they wanted, the duties are already impacting global steel industry trends, influencing the sector in new ways.

Existing "classic" long-term trends include cost cutting, more value added production, vertical and horizontal integration, and the growth in the Chinese production. Recent developments are either speeding up or slowing down these international trends. What are these developments, and what impact are they having?

The new short term influences include (1) The US 201 duties, tariff rate quotas and the strong dollar; (2) The counter "safeguard" measures in other regions/ countries; (3) Rising prices particularly in the USA, and to a lesser extent in Asia, supported by growing consumption; and (4) Price rises in western Europe accompanied by rather weak demand levels.

These trends are affecting both commercial and corporate links globally. On the one hand, the increasing protectionism is segregating markets leaving some companies particularly in the USA - behind. But on the other hand, it is also acting as a spur to dynamic producers and consumers to investigate new ways of working together. Also it is impossible to say at this stage, which trends will turn out to be the most important; some may even seem contradictory.

Indeed, part of the apparent conflict in trends reflects the different ways in which governments and companies are responding to the current situation. Governments to a greater or lesser extent - are generally reacting in nationalistic terms; most companies are responding, wherever possible, in commercial terms.

Steel for many governments is still a symbol of national economic strength partly because it gives jobs to so many men (not women), and partly as it is seen as a core manufacturing/industrial activity. Their dominant tendency is protective.

The short-term influences are already impacting on the market developments on both sides of the Atlantic, as well as in the CIS/FSU and in Asia.

1. Consumers moving out of the USA faced by rising prices, a strong dollar and uncertainty over the availability of imports, some US consumers are relocating to Canada and Mexico, or even further afield, in order to maintain their competitiveness. Examples of such "runaway" steel users include Dana, Oxford Automotive, Emerson Electric, York International and Margate Industries, according to Charles Blum, president of the International Advisory Services Group.

2. Producers moving into the USA The new strength of the US market, combined with the weakness of its production has encouraged several foreign producers to consider expanding their commercial/corporate links with US based companies Brazils CSN is looking at a joint venture with Bethlehem at Sparrows Point; and Russias MMK may assist Detroit Steel in renovating its hot strip mill.

3. Growing commercial links between west European consumers and producers in central and eastern Europe and the FSU/CIS. This is in part spurred by the way the EU producers have increased prices in a rather weak market. The central Europeans are the best placed to supply a safeguarded EU due to their proximity, and the high level of import quotas set by the European Commission. However, other mills in the CIS/FSU have the advantage of a country-specific import quota. Severstal, for example, in recent weeks has said that Van Leer and Caterpillar may increase their purchases for their European operations.

4. But the central and east Europeans are also seemingly looking to increase their exports to the USA, as they are exempt ("as developing countries") from the 201 tariffs. Most mills in the region are understood to planning to take advantage of this "loophole". Those that have said they are keen to increase US shipments include Bulgarias Stomana (owned by the Greek Sidenor), and Lieipajas metalurgs in Latvia.

5. A determination by all the big west European producers to maintain their US customers, even if this means bearing some of the cost themselves. In fact, it would seem that for niche products, the high US prices mean that the costs to be born by the foreign suppliers will not be as high as first thought.

6. A greater interest by key global players in markets outside the USA, such as China and Europe. ThyssenKrupp is increasingly active in China, and if reports are to be believed Brazils CSN as well as some Asian mills may be looking increasingly at Europe.

The winners in this steel industry-based trade war will include those companies quick enough and rich enough to position themselves as critical players either in terms of size, and/or specialisation, and perhaps geography, suggest industry observers. If true, the 201 may help or hinder some of the industrys existing players, as well as bring to the surface new companies, not previously seen as among the top rank.

Corus may link with CSN, claim reports

Anglo-Dutch Corus and CSN, the Brazilian steel-maker are developing commercial/ corporate links, say unconfirmed press reports in Brazil, and other reports in London. Corus says it cannot comment on market rumours. Industry insiders note that at present it seems "everyone is talking with everyone about every conceivable combination".

However, CSN is known to be currently negotiating a joint venture with Bethlehem Steel, which is in Chapter 11. This would be to provide hot rolled from Brazilian slab - for its recently acquired CR mill at Heartland, near Chicago, say industry sources. Some reports also link Corus with this jv. It is unclear how the appointment of Benjamin Steinbruch as the new (interim) chief executive of CSN will impact on these negotiations.

CSN has excess low-cost slab, and is said to be looking for coastal plants where it can be processed into value added products. Brazil faces limits on its US exports of slab, HR and CR, though the slab limits are quite high. A link with Corus would "make sense", says a seasoned Latin American industry source.

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