US Steel Industry Performance Declines After Trump Presidency... "Domestic Steel Companies Must Monitor USMCA Agreement"

[Asia Economy Reporter Hwang Yoon-joo] Despite U.S. President Donald Trump's steel industry revival policies, including tariff reductions and import restrictions, the performance of American steel companies has deteriorated. It is analyzed that the expansion of uncertainties such as the U.S.-China trade dispute and increased cost burdens due to tariff imposition negatively impacted the industry. As the U.S. presidential election campaign officially begins this year, there is a high possibility that President Trump will introduce policies to protect the domestic steel industry for his reelection, making it necessary for the Korean steel industry to prepare countermeasures.

POSCO Research Institute released a report titled "Background of the Decline in U.S. Steel Companies' Performance and Future Outlook," stating, "Although U.S. steel companies recorded their highest-ever performance in 2018, a sharp drop in steel product prices and production slowdown since the second half of 2018 make a performance decline in 2019 inevitable."

According to the report, US Steel achieved an operating profit margin of 10% in the third quarter of 2018 but then declined again, returning to a loss in the third quarter of last year. US Steel experienced net losses for eight consecutive years from 2009 to 2016 but showed signs of recovery by turning profitable from 2017.

Mini-mills Nucor and Steel Dynamics (SDI) also saw profitability worsen after the second half of 2018. Nucor's sales dropped by 19% in the third quarter of 2019, and SDI's sales fell by 22%. Both companies' operating profit margins decreased by about 7 percentage points.

The report cites price declines rather than oversupply as the main reason for the performance deterioration. Although the construction industry, a key demand sector for U.S. steel, is on a mid-term upward trend, it entered a downturn phase after mid-2019, and automobile sales have decreased since the second half of 2017 after a period of stagnation.

Sales of passenger cars and light trucks in the U.S. fell from 18 million units in 2017 to 17 million units by August 2019. Production in the three North American countries also decreased by 3.7%, recording 13.9 million units in 2019 (January to October cumulative) compared to 14.4 million units in 2018 (January to October cumulative).

Senior Researcher Lee Sang-hak analyzed, "It is difficult to expect a short-term rebound in steel demand," adding, "Depending on the future outlook of demand industries, market forecasts for products such as flat-rolled steel and long products will also be differentiated."

The report advises that as President Trump is expected to conduct trade negotiations with major countries such as China and the EU and present pledges for reelection this year, the domestic steel industry should prepare response strategies according to the situation and period.

Specifically, the report emphasizes the importance of monitoring the congressional ratification of the United States-Mexico-Canada Agreement (USMCA), which was concluded to modernize the North American Free Trade Agreement (NAFTA), and any changes to its detailed provisions.

Recently, the three North American countries agreed on amendments to the USMCA, which reportedly include an enhanced definition of production methods in the automotive origin rules, adding "steel melted and poured in North America" to the existing "minimum 70% North American steel usage condition."

Additionally, attention should be paid to policy changes related to Section 232 on steel and automobiles, additional trade remedy policies such as Section 301, designation of currency manipulators, and developments in the U.S.-China trade war, the report added.

This content was produced with the assistance of AI translation services.