In the post-Brexit environment, the British authorities have tried to forge economic partnerships with many countries, across the world, away from the so-called bureaucracy of the regional trading bloc.
Central to its sales pitch is the mantra of free trade. The UK seeks to portray itself as a global-looking nation open for business.
The recent decision to extend tariffs on steel imports for two years – until June 2024 – is arguably contrary to these principles.
Protectionism has been a key feature of the global steel scene since 2018. In the United States, Section 232 restrictions were introduced by the Trump administration. In response, the EU – when the UK was still a member – implemented its own measures.
Following the country’s exit from the EU, the British government had to consider whether to maintain or end these measures.
In June 2021, the UK’s Trade Remedies Authority (TRA) proposed that safeguards on ten product categories be extended for three years. Additionally, the UK government chose to enact emergency legislation to temporarily extend restrictions, for a year, on five of the categories for which the TRA had recommended the measures be repealed.
As the expiration of the temporary measures approached, many domestic steel consumers hoped the country could finally move away from protectionism. This would allow them to buy from all over the world at competitive rates.
Given that the US and EU have taken little action to remove existing barriers to trade, the UK government has decided, perhaps unsurprisingly, to extend these temporary measures until June 2024.
Except for certain exemptions for developing countries, the restrictions add a twenty-five percent duty to the price of steel imports, once a certain quota has been reached.
This is considered controversial by some in the UK. To avoid challenges at the World Trade Organization, governments must conduct an “investigation to determine whether increased imports have caused or threaten to cause serious injury to a domestic industry” before enacting safeguard legislation.
The TRA has recently completed this task. It determined that there was no evidence that unrestricted imports of these five product categories will affect the UK steel industry – hence its initial recommendation to suspend measures on these products.
The UK government later argued that any removal or weakening of trade legislation would expose domestic steelmakers to an influx of cheap steel entering the country.
Steel prices fall
The influx of imported materials purchased shortly after Russia’s invasion of Ukraine, along with a recent slowdown in purchases, has caused local steel prices to plummet, with numbers now back to lows. before the war.
The UK remains an attractive proposition for traditional and potential exporters. The continued impact of Covid-19 and low end-user business activity is leading to continued weakness in their home markets. A shortage of components is dampening auto-related demand and the construction sector is suffering, due to inflationary pressures, in many countries.
In addition, freight disruptions are easing to some extent. Shipping rates are falling, albeit from steep peaks, and the availability of breakbulk vessels and container carrying capacity are improving.
Many East Asian steel suppliers – often benefiting from cheap raw materials of Russian origin – are able to offer materials at attractive prices.
Prices for Turkish flat and long products remain very competitive, given the recent drop in scrap costs and the lack of activity in the domestic market. It is understood that Indian hot rolled coils – with boron additions – are still widely offered, despite the recent introduction of an export tax. Meanwhile, Vietnamese factories are keen to sell excess inventory at every opportunity.
Steelmakers in the UK successfully lobbied that they would find it difficult to compete with low-cost competition if importers were given ‘carte blanche’ to supply the market at will. Domestic production, already constrained, could be further pulled back due to soaring energy costs.
The strategic importance of the steel sector in the UK cannot be questioned. Many domestic shoppers lament the lack of reliable and consistent supply from door-to-door outlets. They cite these problems as an argument against protectionist measures.
The United Kingdom has decided to maintain its position, by extending the trade measures. While this “restriction of choice” may frustrate many steel users, it may just help local producers stay competitive in these turbulent and extraordinary times.
Source: MEPS International Ltd.