President Donald Trump's bid to stanch imports flowing into the U.S. steel market is fighting strong currents: Domestic prices that are among the world's highest and a buoyant dollar that pushes down the cost of imports.
High labor costs have long pushed up the price of U.S. steel. Domestic producers increased prices further last year after new tariffs helped trim the share of imports in the U.S. steel market in 2016 for the first time in three years. Washington imposed those duties, up to 500%, on some steel products from competitors in China and other countries after U.S. steelmakers complained they were benefiting from unfair government subsidies and selling steel in the U.S. for less than it cost to make
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Meantime, the U.S. dollar's recent strength has made imported steel a bargain for domestic manufacturers and construction companies.
Wider duties on imports could encourage U.S. producers to further drive up their prices, complicating another of Mr. Trump's campaign pledges: to support U.S. manufacturers.
"For every steelworker, there are 60 workers in steel-using industries," said Lewis Leibowitz, a Washington attorney who has worked on trade cases involving steel in the past. "You need competitive steel prices for those industries to be competitive and to export."
The Trump administration on Thursday authorized a special investigation under the little-used 1962 Trade Expansion Act to consider emergency trade sanctions against foreign steelmakers on "national security" grounds.
Following a memo-signing event at the White House, John Ferriola, chief executive of the Nucor Corp., said he hoped the investigation would result in a "level playing field" for the U.S. steel industry. Asked whether he believed the U.S. industry could operate at 100% capacity -- it is currently operating at 71%, Commerce Secretary Wilbur Ross said earlier Thursday -- Mr. Ferriola said: "We can come very close to 100%. Give us a chance to show you what we can do."
Asked whether that would drive up consumer prices, Mr. Ferriola said: "It would make sure that we get a fair price for our product."
"A strong steel industry is at the foundation of America's economic and national security," U.S. Steel Corp. said Thursday, welcoming the administration's effort. "For too long, China and other nations have been conducting economic warfare against the American steel industry."
Investors reacted positively to the news. Nucor's shares were up 3.4% in midday trading, while shares for U.S. Steel and AK Steel Holding Corp. were up more than 7%.
The administration faces a tough road to argue, as the act dictates, that U.S. national defense is being undermined by steel imports, said Mr. Leibotwtz. "A tiny percentage of steel is used for military purposes, " he said.
Keeping track of steel prices can be more complicated than watching the value of commodities such as iron ore or oil because of the wide variety of steel produced for specific uses. Some types of specialized steel aren't made in the U.S.
And even within the U.S. steel industry, many of the biggest producers are global companies with sprawling operations that could be affected by new trade sanctions. ArcelorMittal SA, which is headquartered in Luxembourg, is one of the largest producers of steel in the U.S. but supplies some of its mills in the U.S. with partially finished products imported from its mills in Mexico or Brazil.
"Steel is a global industry," said Adam Green, an analyst for market consultant World Steel Dynamics. "There are a lot of relationships between US steel companies and steel makers around the world."
(END) Dow Jones Newswires
April 20, 2017 15:56 ET (19:56 GMT)