US TRADE WAR
Local steel and aluminium firms yet to feel the pinch of Trump’s tariffs
However, there are signs local producers are already trying to cut costs in anticipation of tougher trading conditions
The financial costs of US steel and aluminium tariffs on local producers will only become clearer in the coming months as existing export contracts begin to expire, Steel and Engineering Industries Federation of SA (Seifsa) chief economist Michael Ade said on Thursday.
One month after the US imposed these tariffs, local producers are not yet seeing a fall in exports. Confidence has sharply dropped, however, and there are signs they are already trying to cut costs in anticipation of tougher trading conditions.
The sector is still facing a number of unanswered questions amid deepening trade conflict and secondary effects such as dumping of products due to a supply glut in some countries
Global markets and some JSE-listed shares in particular have been battered by US President Donald Trump’s electoral promise to reduce the US budget deficit. This had begun with the June 1 2018 imposition of a 25% tariff on steel imports and 10% on aluminium, which Seifsa estimates will cost the steel sector R3bn in lost revenue, as well as 7,500 jobs.
Investors remain edgy, and despite uncertainty regarding how far the White House will get in its push against its trading partners, analysts maintain equity and commodity markets are already pricing in a slowdown in economic growth.
Major JSE-listed companies that may be hit by the tariffs include ArcelorMittal, South32 and Hulamin, as well as Kumba Iron Ore and Assore. Hulamin, which has 20% of its sales in the US, said the long-term effects of the tariffs should be neutral.
Solidarity deputy general secretary Marius Croucamp said the union’s wage negotiations had already been affected by the uncertainty. "We are not even talking about percentage increases, the companies are all saying they will need to look at their profit margins," he said.
In general, the union was seeing a pick-up in short-time and retrenchments, as well as reduced capital expenditure. Other factors were at play, however, such as policy uncertainty over land expropriation, as well as SA’s economic performance.
Ade said a further headache for producers was applying for exemptions in the US on a case-by-case basis. The timeframe of such applications was unclear, and authorities would now be dealing with thousands of these.
Analysts are also divided as to the extent to which Trump’s tariff threats will translate into actual policy, saying these may just be leverage in negotiations.
A major fear for local producers is a threat of a 20% tariff on European export markets, which will hurt SA’s R165bn vehicle and parts exports.
On Thursday, markets were buoyed by reports that the US ambassador in Germany had proposed that the US and the EU drop automotive tariffs entirely. The US currently imposes a 2% tariff on EU cars, while the EU imposes a 10% on US imports.
"While no formal deal has been announced, it’s clear that both sides want to avoid a full-on trade war that could cast a pall over the global economic recovery," said BK Asset Management MD Boris Schlossberg.