The Trump steel tariff would add 25 per cent to the cost of imported steel and 10 per cent to imported aluminum.
Trump steel tariff could significantly impact US energy pipeline industry
A number of US energy pipeline developers are concerned that the Trump steel tariff will force costs higher and are now looking to the US Commerce Department for exemptions to the proposal announced by President Trump last week.
“We have a number of pipeline projects that would be impacted significantly by this cost increase,” Adam Bedard, chief executive of Arb Midstream, told Reuters. If any exemptions are made available, “we’d certainly try and qualify for it.”
A 2017 study conducted by the pipeline industry reported that imports accounted for 77 per cent of the steel used in US pipelines.
With the expansion in the US oil industry, some manufacturers are handling back orders and there are customers waiting two years for pipe to construct pipelines to carry shale from West Texas to the US Gulf Coast.
The US Commerce Department is working to create a procedure that could see companies avoid paying the 25 per cent tariff on imported steel or 10 per cent tariff on imported aluminum.
According to Reuters, Commerce has 10 days to come up with a procedure to apply for exemptions from the tariff. There is currently a national security exemption for US companies to buy steel items not produced by domestic manufacturers in the volumes or quality required.
Some countries may also qualify for certain exemptions.
Energy trade associations argue that US manufacturers either do not offer key metal grades or diameters, or have long production times that could impede the development of pipelines located in shale fields.
NAmerico Partners LP has plans to construct a multi-billion dollar pipeline to transport natural gas from West Texas to the US Gulf Coast. The company estimates the Trump steel tariff could raise the cost to its customers between 2 per cent to 4 per cent.
“We will do everything we are capable of to limit the impact to our shippers,” Jeff Welch, NAmerico’s managing partner told Reuters. The company has not made a final decision on the 468-mile pipeline, he said.
Even if Commerce comes up with the exemptions, tariffs could still slow down projects and raise costs, according to Nicolas Adrian McTyre. McTyre is a Texas attorney and former trial attorney for the Federal Energy Regulatory Commission.
“You are looking at a new regulatory hurdle potentially and there are a lot of unknowns to that process currently.”
Key exporters, including South Korea are now shifting from US sales due to the tariffs, even before the tariffs are officially imposed.
Reuters spoke with John Stoody, a spokesman for the US Association of Oil Pipe Lines, who said that one company tried to buy steel from South Korea recently, but was unable to purchase pipe due to the tariff.
“Foreign pipe sellers are hesitant to sell pipe,” Stoody said.
An official with Seah Steel of South Korea, says despite sales to the US amounting to 20 per cent of its total revenue, the company will pursue non-US markets.
The Trump steel tariff “will inevitably impact our exports, and make it necessary for us to find a new channel for exports,” the anonymous Seah official told Reuters.
The company bought two US plants in 2016 in an effort to reduce tariff burdens, but the company still relies on Korean manufacturing lines for its sales to the US.
In April 2017, the US Commerce Department said it found Korean steel producers had been dumping oil country tubular goods (OCTG) in the US market.
Imports of OCTG, which includes drill pipes, casings and tubings, from Korea amounted to $1.1 billion for the period between mid 2014-2015. Commerce reported this accounted for nearly 25 per cent of all US OCTG imports, more than any other country.
As a result, duties were raised to as high as 24.9 per cent from a previous range of between 4 per cent to 6.5 per cent.
“The best case is to get exempted but there’s nothing else we can say,” Reuters reports Park Hoon, CEO of Husteel said while on the sidelines of a meeting between Korean government officials and industry executives to discuss the tariffs.
He added that nearly 80 per cent of Husteel’s business relies on US sales and with the Trump steel tariff looming, the company is looking to other export markets.
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