The latest presidential proclamation potentially would lead to the arrival of higher volumes of imported oil country tubular goods (OCTG) and line pipe from South Korea, Brazil and Argentina if US consumers can establish that certain items are unavailable domestically. Previously, only buyers of material from countries with a Section 232 tariff, not quota, could request product exclusions.
While the US Commerce Department still must write the exact rules and no deadline was specified, KeyBank Capital Markets analyst Philip Gibbs said the changes could modify trade flows modestly.
In a research note on Thursday August 30, Gibbs said the liberalized exclusion rules "potentially open the door for less scrutiny on specific grades of South Korean pipe, like OCTG and line pipe, the latter of which South Korean producers were beginning to show signs of price gouging on early 2019 contract tenders."
Market participants told American Metal Market that South Korean mills have begun offering X52 line pipe for 2019 delivery at a price range of $1,300-1,350 per ton - as much as $200 per ton higher than recent import prices.
American Metal Market's monthly pricing assessment of US import X52 line pipe was unchanged at $1,150-1,250 per ton cif Port of Houston on August 28. That pricing was unaffected by the higher South Korean offers because no confirmed transactions were reported at that level.
American Metal Market's monthly pricing assessment of US import P110 casing stands at $1,350-1,450 cif Port of Houston.
Trump's proclamation also allows some grandfathering of purchase contracts entered into before March 8, the date the Section 232 order was announced, according to a press release from Rep. Kevin Brady, chairman of the House Ways and Means Committee. It also makes exclusions retroactive to the date that the application was accepted by the Commerce Department, not the date it was posted.
Pipeline companies have complained that the Section 232 orders were adding millions of dollars to the cost of their projects. Two large overseas line pipe orders - from Turkey's Borusan Mannessmann and Greece's Corinth Pipeworks - were subject to US tariffs even though the material was ordered well before the Section 232 actions were announced.
Seth Rosenfeld, an analyst at Jefferies, expects the new presidential order's influence on volumes and prices to be modest, but Tenaris, Vallourec and U.S. Steel could see some impact. Steel buyers may initially feel pleased that they now have the ability to win exclusions on items from quota countries, but Rosenfeld notes that they will "now be thrust into the mess" of Commerce's exclusions review process, which has fallen behind due to a lack of resources.
"While US consumers will request exemptions on the back of today's news, we expect the majority of requests to be refused," Rosenfeld wrote in a research note Thursday. "Critically, with US OCTG utilization rates the lowest of any major steel product, it will be challenging for consumers to prove inability to access domestic material."
Buyers won't see any immediate relief, according to a US domestic tube mill source.
"It's too uncertain right now," the domestic tube mill source said. "All of this takes time. If you need a spot buy, this probably won't help you."