K-Steel Blocked by US Quota... EU and Japan Gain More Price Competitiveness (Comprehensive)

Steel Exports to the US Plunge 30% After Quota System Introduction
Uncertainty in Steel Demand Continues This Year... Urgent Need for Additional Negotiations

South Korea Still Faces Issues with Chinese Steel Imports
US Likely to Pressure for IPEF Participation to Contain China

[Asia Economy Reporter Oh Hyung-gil] Domestic steel companies are facing a crisis as the United States has reached an agreement to resolve steel tariff disputes with Japan following the European Union (EU).

Since exports to the U.S. have already shrunk by nearly 30% due to quotas, if the price competitiveness of steel from competing countries such as the EU and Japan increases, additional damage is inevitable. South Korea, which chose a quota system instead of imposing tariffs in 2018, has requested the U.S. to negotiate the abolition of the quota system, but progress remains sluggish.

Amid global protectionism and ongoing conflicts between the U.S. and China, trade issues in the steel industry have emerged as a priority. With the global steel oversupply unresolved and inflation concerns due to worldwide supply chain bottlenecks after COVID-19, the environment surrounding steel exports is in complete disarray.

Stagnation in U.S. Market Expansion Since the Introduction of the Quota System in 2018

According to local media including Bloomberg on the 7th (local time), the U.S. has agreed to suspend the 25% tariff on a certain amount of steel imported from Japan, while imposing a 25% tariff on quantities exceeding that amount.

This is similar to the way the U.S. resolved steel tariff disputes with the EU last October. With the U.S. resolving steel disputes with Japan following the EU, the sense of crisis in the domestic steel industry is growing. The decline in price competitiveness could deal a heavy blow to exports to the U.S.

According to the Korea Iron & Steel Association, before the introduction of the quota system, steel exports to the U.S. in 2016 and 2017 reached 3.74 million tons and 3.54 million tons respectively, but decreased to 2.5 million tons in 2018 after the system was introduced. Due to the COVID-19 pandemic, exports further dropped to 1.94 million tons in 2020 but somewhat recovered to 2.69 million tons last year.

Exports of steel pipes, which heavily depend on the U.S. market, also did not exceed the quota limit of 1 million tons, with 980,000 tons exported last year.

With steel demand expected to continue growing despite uncertainties this year, recovery of exports to the U.S. is urgent. The World Steel Association predicted in October last year that global steel demand this year would increase by 2.2% from the previous year, reaching 1.896 billion tons.

Lee Jae-jin, director of the Korea Iron & Steel Association, said, "We expect the exemption from tariffs on Japanese steel to be maintained at the low export levels of 2018 and 2019, so the negative impact on the domestic steel sector will be minimal," but added, "Since specific results by product category have not yet been released, we need to wait for the negotiation outcomes."

Major exporters of key products to the U.S. market, such as oil well pipes and automotive steel sheets, include POSCO, Hyundai Steel, Dongkuk Steel, and SeAH Steel. An industry insider said, "Even if the global steel market improves, Korea cannot export steel to the U.S. beyond the quota," and lamented, "Re-negotiation of Section 232 of the Trade Expansion Act sanctions is urgent."

Park Sung-bong, a researcher at Hana Financial Investment, explained, "With international oil prices expected to remain strong, domestic demand for energy-use steel pipes in the U.S. is expected to continuously expand. In the case of SeAH Steel, exports of energy-use steel pipes to the U.S. are limited to an annual quota of 270,000 tons, so there is no room to expand exports, but the possibility of easing import restrictions on Korean steel cannot be ruled out."

U.S.-China Conflict Persists... Issues with Resolving Global Oversupply

Since the Biden administration took office, rather than imposing multilateral sanctions on Chinese iron ore, it has attempted to suppress exports of Chinese steel products through carbon reduction policies. Accordingly, the South Korean government plans to more strongly request renegotiations. Since the U.S. has reached agreements with Japan following the EU, it is interpreted that conditions are now in place to discuss with the South Korean government, which chose the quota system.

An official from the Ministry of Trade, Industry and Energy explained, "Last month, we visited Washington D.C. to convey concerns of domestic companies regarding Section 232 of the Trade Expansion Act," adding, "If prompt discussions are necessary, we are prepared to revisit the site and proceed with renegotiations."

However, there are considerable expectations that negotiations will not be easy as the issue of Chinese steel imports, which the U.S. has raised with the South Korean government, still exists. Especially, following the resolution of steel tariff disputes between the U.S. and Japan, the agreement on measures to curb Chinese steel also places a significant burden on South Korea.

The steel industry and economic circles expect the U.S. to resume negotiations on the condition of South Korea’s participation in the Indo-Pacific Economic Framework (IPEF). IPEF is an economic alliance by the U.S. aimed at countering China in the battleground of U.S.-China competition.

Professor Jung In-kyo of Inha University’s Department of International Trade said, "Currently, the trade topic the U.S. is most focused on is IPEF, but our government is taking an ambiguous stance on it," and predicted, "If our government clearly states its position on this, there could be a way to resolve trade issues such as steel tariffs that we hope for."

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