US president signs proclamations on steel, aluminium tariffs

HOUSTON (ICIS)–US President Donald Trump signed on Thursday a proclamation calling for tariffs on steel and aluminium, a move that has been widely criticised by the petrochemical and energy industries.

The proclamation calls on tariffs of 25% on steel and 10% on aluminium. They go into effect in 15 days, Trump said.

Two of the largest sources of imported steel to the US, Canada and Mexico, will be excluded from the tariffs if the three countries successfully renegotiate the North American Free Trade Agreement (NAFTA), Trump said.

The president also reserved the discretion to modify or remove the tariffs from specific countries that have security relationships with the US, the White House said.

“We’re going to hold off on the tariff to those two countries to see whether or not we’re able to make the deal on NAFTA,” Trump said. “If we’re making the deal on NAFTA, this will figure into the deal, and we won’t have the tariffs on Canada or Mexico.”

Higher steel and aluminium tariffs will directly harm the chemical industry in several ways.

Several companies are considering expanding petrochemical capacity, and steel and aluminium tariffs could make these projects more expensive.

“For a chemical manufacturing industry that has invested $185bn in new factories, expansions and restarts of facilities around the country, President Trump’s announcement comes at the worst possible time,” the American Chemistry Council (ACC) said in an earlier statement. “More than half of these investment projects are still in the planning stage, and market shifts caused by tariff increases may convince investors to do business elsewhere.”

Oil and gas companies rank among the largest steel users in the country. These sectors provide the feedstock and energy used by the petrochemical industry, and their higher costs could trickle down to chemical companies.

Midstream companies use metals to build the infrastructure and pipelines to collect, extract and distribute natural gas liquids (NGLs).

Some of the largest petrochemical end markets also use steel and aluminium. These include automobiles, construction and appliances.

The chart below shows the largest end uses for steel.

Longer term, the companies in these end markets may replace metals with plastics if the tariffs remain in place long enough. More immediately, higher metal costs could squeeze their margins and slow their growth, limiting further increases in petrochemical demand.

US petrochemical companies could face a bigger hit if countries target the industry with retaliatory tariffs.

The US already exports a lot of plastics and chemicals, and this will only increase once new plants start operations. These new plants were always premised on exporting much of their output to foreign markets that lack the cost advantage of US producers.

Cal Dooley, the president of the ACC, raised the prospect of retaliatory tariffs during a question-and-answer session with US Senator Ted Cruz (Republican-Texas) during a forum his trade group was hosting this week.

Vertical Research Partners, an analyst firm, noted the industry’s vulnerability to retaliatory tariffs in a recent research note.

During CERAWeek by IHS Markit, the tariffs were universally criticised by the presenters at the energy conference.

During his presidential campaign, Trump ran on a protectionist platform, and the steel and aluminium tariffs could augur similar measures, further increasing the risk of retaliatory measures.

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