Analysis: Trumped: How Seoul's U.S. trade 'coup' left Korea steel in limbo as Japan marches on

Husteel

13/09/2018 23:00

(Repeats item with no changes in text)
    * No U.S. import tariffs for S.Korea, but strict quota
    * Some specialty firms idle production lines amid bottleneck
    * High-tech Japanese pipes in demand from U.S. oil sector
    * Some in Korea left ruing choice of quota over tariffs
    * Top 10 steel producer interactive: https://tmsnrt.rs/2MY7Cnp
 

    By Jane Chung and Yuka Obayashi
    SEOUL/TOKYO, Sept 13 (Reuters) - As much as half of output
capacity at some specialty South Korean steelmakers has ground
to a standstill as an exemption to U.S. import tariffs they
first hailed as a Seoul diplomatic coup turns out to be an quota
bottleneck.
    Production lines are standing idle, people with knowledge of
the matter say, even as data shows Japanese steel pipe makers
have expanded U.S. exports despite having to cope with 25
percent tariffs. Japanese players have been boosted by offering
high-tech pipes for the U.S. oil industry amid an output boom
that can't be easily be substituted by U.S. manufacturers,
unlike Korean firms' goods.
    South Korea was the first country to score the exemption
back in March, agreed as President Donald Trump set out to level
the manufacturing playing field with the rest of the world. The
deal meant continued, tariff-free access to Korean steel's
3rd-biggest export market. 
    But what should have been a boon for specialty pipe
exporters like Nexteel, Husteel  005010.KS  and Seah Steel
 003030.KS  turned bust: The quota for 2018, set nearly a third
below previous years' volumes, was almost already used up by May
when the new system kicked in, leaving Nexteel and Husteel
forced to reduce factory run rates until October and November,
when they can resume U.S.-bound shipments for 2019.
    Some, like Seah Steel, are now considering investing more in
small U.S. production bases to beat quotas and tariffs alike.
But meantime the U.S. Commerce Department says imports of pipes
and tube products from Japan climbed nearly 50 percent in volume
in January-July this year, compared with a year earlier - while
imports from South Korea slid 18 percent.
    "If the United States goes easy on Mexico and Canada (in
trade policy), South Korea's imports may be a burden to them and
for that reason, they could trim quotas," said Wonmog
Choi, professor of trade law at Ewha Womans University. "We
should realise that we're sandwiched between them."
    South Korea's overall steel exports easily outstrip Japan's
by volume: Even capped by the quota, 2.63 million tonnes of
Korean steel can be shipped to the United States this year, well
ahead of the 1.73 million tonnes exported by Japan in 2017, U.S.
data shows. 
    Top Korean steelmakers POSCO  005490.KS  and Hyundai Steel
 004020.KS  were not hit as hard by the quotas since the United
States accounts for less than 5 percent of their total sales.
For smaller players like Husteel, Nexteel and Seah Steel the
U.S. market is vital - 70 percent of their exports go there.
    
    COMING TO AMERICA?
    President Trump on Aug. 29 offered the prospect of future
relief to nations with quotas including South Korea, saying they
could apply for product exemptions.  urn:newsml:reuters.com:*:nL2N1VL021 
    But exporters to the United States without operational bases
there cannot apply directly for exemptions - they are reliant on
U.S. customers seeking permits for more imports, rendering the
process more time-consuming and complex. 
    In the meantime, an official at one pipe maker told Reuters
one of the company's five factories has been idled until later
this year.
    "Our run rates have lowered almost by half," said the
official, who asked not to be named due to the sensitivity of
the matter. He said his firm is considering moving one or two
plants to the United States to skirt the quota.
    A Seah Steel official, who declined to be named due to
company policy, said, "We were relatively hit less hard by
quotas because we have two U.S. plants... In the mid- and long
term, we're considering expanding production capacity in the
United States." 
   
    THE PATH TO INDIA 
    The U.S. Department of Commerce's International Trade
Administration website, using data from IHS Markit-Global Trade
Atlas sourced from the reporting country's official statistics,
shows the value of Japanese pipe and tube exports to the United
States rocketed 84 percent in January-July compared with a year
earlier, to $190 million.
    Korean shipments were worth $831 million - but up a measly
2.6 percent.
    Like Seah Steel, Japanese majors have U.S. output that
cushions the blow of tariffs or imports. 
    "Our U.S. production capacity of about 7.1 million tonnes is
far greater than our export to the U.S., which were about
600,000 tonnes last year," said Katsuhiro Miyamoto, executive
vice president at top Japanese steelmaker Nippon Steel &
Sumitomo Metal Corp  5401.T .
    But with both their overall U.S. exports declining by
volume, South Korea and Japan have ramped up shipments to growth
markets like India, as steelmakers sought out new clients - and
tapped into higher global prices stoked by uncertainties over
global trade rows with the United States.  urn:newsml:reuters.com:*:nL4N1V44CO     
    The price rises have left some in Korea ruing the U.S.
export quota even more, and wishing for tariffs instead.
    "Export volume is capped," said Lee Jae-yoon, associate
research fellow at the state-funded Korea Institute for
Industrial Economics & Trade. "If South Korea were able to keep
exporting, higher prices could have offset (the impact)...even
if tariffs were imposed, that could have been better." 

($1 = 1,127.7800 won)

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
GRAPHIC: Top 10 steel-producing countries    https://tmsnrt.rs/2N6sCIC
INTERACTIVE: Top 10 steel-producing countries    https://tmsnrt.rs/2MY7Cnp
INTERACTIVE: U.S. imports of steel pipes/tubes from Japan and
Korea    https://tmsnrt.rs/2CMtIFk
GRAPHIC: U.S. imports of steel pipes/tubes from Japan and Korea 
  https://tmsnrt.rs/2CMIgVz
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting By Jane Chung in SEOUL and Yuka Obayashi in TOKYO
Additional reporting by Manolo Serapio Jr. in MANILA
Editing by Kenneth Maxwell)
 ((jane.chung@thomsonreuters.com; +82 2 3704 5667; Reuters
Messaging: jane.chung.thomsonreuters.com@reuters.net))