According to IBISWorld, the outlook of the Australian steel and aluminium sectors has strengthened significantly following President Trump’s decision to exempt Australia from new tariffs on imported foreign steel and aluminium. The United States is the largest steel importer in the world, buying 35.6 million tonnes in 2017.
In a shock to global markets, on March 1st the President announced unilateral tariffs of 25% on steel and 10% on aluminium to be imposed from the 23rd of March. The Australian Iron Smelting and Steel Manufacturing industry is highly reliant upon the American market, with exports from the United States accounting for 18.1% of industry revenue in 2016-17, or about $243 million. Profit margins in the Australian industry are already slim due to import competition and volatile demand from the domestic market.
According to IBISWorld, the proposed tariffs would have rendered Australian exports to the United States uncompetitive, significantly reducing local industry revenue and undermining the viability of Australian steel production.
“The exemption for Australian steel imports is particularly beneficial for BlueScope Steel and Liberty OneSteel, the largest Australian steel manufacturers,” said Mr Jason Aravanis, Senior Industry Analyst at IBISWorld. “Both of these firms have posted declining revenue and significant losses over the past five years, however they have benefited from an improved outlook in market conditions over the past year. A curtailment of Chinese steel production since early 2016-17 has allowed global steel prices to rise, providing some breathing room for Australian manufacturers.”
“As rising energy costs in Australia reduce the viability of steel manufacturing, Australia’s exemption from the new tariffs will likely improve confidence in the recovery of these firms – especially as BlueScope Steel accounts for almost all Australian steel exports to the United States.”
In contrast, the Australian Aluminium Smelting industry was less likely to be affected by the proposed tariffs. In 2016-17, Australian aluminium exports to the United States accounted for only 3.9% of total exports, or about $127 million.
“Exports account for about 70% of the Aluminium Smelting industry’s revenue, with the majority of exports going to Asian economies due to their close geographic proximity,” said Mr Aravanis. “However, the outlook for aluminium manufacturers such as Rio Tinto and Alcoa remains subdued due to a heavy exposure to rising electricity prices, and the threat of greater aluminium production from other countries.”
According to IBISWorld, Australia’s exemption from the Trump administration’s tariffs is likely due to the fact that the United States has a trade surplus with Australia, as well as the longstanding positive relationship between the two countries.
This exemption will likely provide a significant competitive advantage for Australian exporters in the American market. Currently, the bulk of steel imports to the United States come from Canada, Brazil, and South Korea. Although currently accounting for less than one percent of steel imports to the United States, Australia is likely to gain market share due to the imposition of tariffs on other exporters. A similar trade policy was introduced by the Bush Administration in 2002, threatening the industry. However, Australia was eventually exempted for 85% of its steel exports from this policy, leading to a 9.0% increase in exports to the American market in 2002.
Top 10 Steel and Aluminium Importers to the United States (2017)
|Country||Steel Import share||Country||Aluminium Import share|
|South Korea||10%||United Arab Emirates||9%|
Source: Department of Commerce, USGS Mineral Commodity Summaries 2017
The Iron and Steel Manufacturing and Aluminium Manufacturing industries in the United States are significant, generating a respective US$89.8 billion and US$41.2 billion in revenue in 2017. According to IBISWorld, these industries are likely to benefit from the new tariffs, as local producers of these commodities can charge higher prices without being undercut by import competition.
However, the exemption of Canada and Mexico from the tariff policy will likely limit the overall benefit to American manufacturers, as these countries are prominent importers of both steel and aluminium. Furthermore, higher prices of aluminium and steel in the United States are anticipated to negatively affect downstream industries, such as Car and Automobile Manufacturing, SUV and Light Truck Manufacturing, and Construction.
Top 5 Australian Steel and Aluminium Export Markets (2017-18)
|Country||Steel Export Share||Country||Aluminium Export Share|