3-4-18 12:03 PM EST | Email Article
By Zeke Turner 

BERLIN -- President Trump's announcement of punitive steel tariffs may raise U.S. prices short term, but in Europe they could have the opposite effect.

Mr. Trump's decision last week to impose tariffs -- 25% on steel imports to the U.S. and 10% for aluminum -- could divert a stream of cheap steel now flowing into the U.S. towards the European Union, EU steelmakers fear.

"Diverted trade flows threaten Europe with a new steel glut when as things are the EU market is far from tackling (its own) import crisis," said Hans Jürgen Kerkhoff, president of the German Steel Federation. "If the EU doesn't act, our steel industry is going to be left footing the bill for American protectionism."

In the past year, rolled steel imports to the EU increased 1% to 32 million metric tons, a record, according to the German Steel Federation. The Trump administration has signaled it wants to reduce imports to the U.S. by 13 million tons -- an amount that could potentially wind up instead in Europe, whose leaders have positioned themselves as defenders of free trade and see tariffs as a last resort.

"The problem...won't get solved with such unilateral measures," said Steffen Seibert, a spokesman for German Chancellor Angela Merkel on Friday in Berlin. "Tariffs can't be in anyone's interest at all."

The new risks come as Europe's two largest steel producers -- the world's biggest steelmaker ArcelorMittal SA in Luxembourg and German champion Thyssenkrupp AG in Essen -- have explored mergers and consolidations to keep their businesses intact.

Thyssenkrupp has been battling with over-capacities in its home market and has been hammering out since September plans with India's Tata Steel Ltd. to combine their European steelmaking business.

ArcelorMittal Mittal, itself the product of a European-Indian consolidation in 2006, said on Friday it agrees with the need to solve the problem of excess capacity world-wide but not with the U.S. decision to put up a one-sided trade wall.

"The greater need -- is to create a truly sustainable global steel industry," the company said in a statement.

Germany has been at the forefront of a global push against tariffs since last year, when it used its presidency of the Group of 20 major economies to summon the U.S., China and all major steel-producing countries in the world to Berlin to seek other ways of solving the overproduction problem.

The U.S. left that meeting saying it hadn't accomplished anything, that China was continuing to peddle old promises and that all options were on the table -- a threat of tariffs that the U.S. activated last week.

Even though the prospect of redirected imports creates distress in Europe, the export restriction itself is unlikely to immediately hurt Europe's big producers as much of their U.S.-traded steel is also produced stateside. Indeed, these producers could benefit if the tariffs result in higher prices in the U.S.

A spokesman at Thyssenkrupp AG said that the effect of the newly announced tariffs was "relatively small." The company exports to the U.S. only a small share of the 11.4 million metric tons of steel it makes.

About 21% of ArcelorMittal's 2017 revenues were produced in the U.S. and wouldn't be affected by the Tariffs, according to Gianmarco Migliavacca, vice president and senior credit officer at Moody's.

The company employs around 18,000 people across 27 sites in the U.S., including mines and mills, and produced 14.2 million metric tons of crude steel in the country last year. That exceeds the 3.8 million metric tons of steel ArcelorMittal made in Mexico and 5.7 million metric tons it made in Canada.

Still, the dominant feeling in European business circles is one of consternation.

In a poll of 109 companies conducted by the American Chamber of Commerce in Germany at the end of February, 93% said that the unilateral measures from the U.S. weren't going to help the U.S. economy or solve the global issue of overcapacity in the steel market. Among the surveyed companies, 92% expected that President Trump's announcement would likely or very likely ignite more tariffs from other countries world-wide.

The result would be "a downward spiral in which everyone loses," according to Berhard Mattes, the president of AmCham Germany.

Seth Rosenfeld, a senior research analyst covering European and U.S. steel at the'investment bank Jefferies in London said that the risk to European steelmakers was real, but the European Union has its own trade levers available.

"Investors are rightly concerned that steel will be redirected from the U.S. to Europe, but we expect the EU to respond aggressively and quickly, " Mr. Rosenfeld said.

On Friday European Commission President Jean Claude Juncker said the bloc would add tariffs on Harley-Davidson motorcycles, Bourbon and bluejeans.

"I'm not saying that we must shoot back but we must take measures," Mr. Juncker said.

Write to Zeke Turner at Zeke.Turner@wsj.com


(END) Dow Jones Newswires

March 04, 2018 12:03 ET (17:03 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.
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