President Biden to Visit South Korea from 20th to 22nd
High Oil Prices Boost Demand for Steel Pipe Products 'Reflected Benefits'
Performance Expected to Soar if Export Regulations Improve
Gwangyang Steelworks shipping yard in Jungma-dong, Gwangyang-si, Jeollanam-do. The photo is not directly related to the article. [Image source=Yonhap News]
[Asia Economy Reporter Jeong Dong-hoon] Expectations are rising for the easing of steel export restrictions following U.S. President Joe Biden's visit to South Korea. This is because there is a growing possibility that the protectionist measures strengthened during the Donald Trump administration could be reconsidered during this visit.
According to the government and industry sources on the 17th, 'economic security' is expected to be one of the main agenda items at the upcoming Korea-U.S. summit scheduled for the 21st. In particular, the relaxation of the application of Section 232 of the Trade Expansion Act, which imposes tariffs of over 25% on steel imports citing national security protection, is one of the biggest issues in the steel industry.
The U.S. has maintained the protectionist trend triggered by the U.S.-China trade conflict since 2018 until recently. Especially, Section 232 of the U.S. Trade Expansion Act, announced in May 2018, is a law focused on restricting steel imports, which significantly reduced export volumes for domestic steelmakers.
At that time, South Korea avoided uniform tariff application but agreed to limit exports to the U.S. to 70% of the average export volume from 2015 to 2017 (3.83 million tons). Accordingly, domestic steelmakers were restricted to exporting 2.68 million tons even if there was demand in the U.S. Steel exports to the U.S. decreased from 3.64 million tons in 2017 to 2.68 million tons last year.
In contrast to South Korea, the EU and Japan secured eased application of these measures through negotiations last year. In October last year, the U.S. agreed with the EU to allow duty-free imports of up to 3.3 million tons of EU steel annually and to impose a 25% tariff on imports exceeding that volume under a 'Tariff Rate Quota (TRQ)' system. Japan also secured a TRQ agreement with the U.S. last month. Accordingly, from April this year, the U.S. will apply duty-free treatment to up to 1.25 million tons of Japanese steel and impose a 25% tariff on excess imports. As competing countries' steel products gained higher price competitiveness in the U.S. market than before, domestic steelmakers inevitably suffered losses.
President Biden is the highest-ranking U.S. leader to visit South Korea in 10 years since former President Barack Obama's visit in 2012. As domestic companies have announced large-scale investments in the U.S. in sectors such as semiconductors and secondary batteries in line with Biden's visit, there is a high possibility that Biden will offer 'visit gifts' to the Korean government and companies. Meetings with business leaders are also being planned during his visit.
Recently, Larry Hogan, Governor of Maryland and considered a potential U.S. presidential candidate, strongly urged the federal government to renegotiate the export volume restrictions on Korean steel products to the U.S., raising expectations for easing Korean steel export regulations. Governor Hogan reportedly sent a letter on the 29th of last month (local time) to Commerce Secretary Gina Raimondo and U.S. Trade Representative Katherine Tai expressing this position. According to the letter, Hogan applauded the recent tariff relief agreements on steel and aluminum with the European Union (EU) and Japan and urged not to delay similar negotiations with other key allies, including South Korea.
If steel export restrictions are eased, the steel industry could see a boost in performance. The steel industry has shown strong results this year as well as last year due to rising product prices driven by increased raw material costs. Especially, the first quarter of this year was favorable due to high oil prices. The surge in demand for oil and gas equipment in the U.S. raised prices for steel pipe products. Hyundai Steel (sales of 6.9797 trillion KRW) and SeAH Steel (448.8 billion KRW) recorded their best-ever first-quarter performances this year. An industry official stated, "Due to the Russia-Ukraine war and economic sanctions on Russia, oil and gas prices have risen compared to pre-war levels, but inventory levels remain low. The increase in fossil fuel drilling operations in North America continues to drive strong demand for steel pipes."
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