SINGAPORE: Moody’s Investors Service says that the US’ plan to impose tariffs on steel imports is credit negative for Moody’s-rated Asian steel producers, but the impact will not prove material.
US president Donald Trump has indicated that he would approve a 25% tariff on steel imports starting the following week. The president’s decision was based on the US Commerce Department’s Section 232 investigation of the ramifications of metal imports on national security.
“The impact of the tariff would be manageable for the Asian steel sector and Moody’s-rated steelmakers in the region, because exports to the US account for relatively small portions of their total steel production,” Moody’s analyst Sean Hwang said in a statement Friday.
Moody’s pointed out that China’s direct steel exports to the US represented only 1% of total exports or 0.1% of total steel production during the first nine months of 2017. In addition, the reliance by Chinese steel companies on exports decreased substantially in 2017.
In contrast, the Korean steel sector demonstrates a relatively high exposure to US exports, given its position as the third largest steel exporting country to the US during the first nine months of 2017.
Nevertheless, even in the case of Korea, steel exports to the US are mostly focused on pipes and tubes (57% of exports to the US in 2017, according to the Korea Iron & Steel Association), product types that the two Moody’s-rated steelmakers, POSCO (Baa2 positive) and Hyundai Steel Company (Baa2 stable), show little exposure to.
Consequently, the two companies show only a moderate exposure to the US market, because they have either diversified their export markets — as is the case with POSCO — or demonstrate a high reliance on the domestic market — as is the case with Hyundai Steel.
Separately, Moody’s Investors Service managing director Marie Diron said the impact of potential new US tariffs on steel and aluminium imports from the rest of the world will depend on the scope of the tariffs, their levels, and the capacity of steel and aluminum producers to offset part of the tariff increases through cuts in costs or margins.
Based on the size of aluminium and steel exports to the US -- in relation to each exporting economy’s GDP and total exports -- Canada and Bahrain would be most exposed directly, if the tariffs also apply to them.
Diron said in Asia, the direct economic effects at the macro level would be very small as exports of aluminium and steel to the US typically amount to less than 1% of GDP or exports.
The direct impact on steel companies would be manageable for the steel sector and rated steel-makers in Asia as steel are predominantly traded within the region. The direct impact is moderate on Korean steelmakers to low on all the rest of Asia.
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