AOPL urges caution as Commerce issues steel import warning

Feb. 26, 2018

The Association of Oil Pipe Lines urged caution as the US Department of Commerce said increasingly high steel imports threaten US national security. AOPL Pres. Andrew J. Black cautioned that placing tariffs on imported steel could reduce or delay pipeline projects and limit US job growth.

His warning came after Commerce Sec. Wilbur Ross released the findings of investigations of steel and aluminum imports under Section 232 of the 1962 Trade & Expansion Act on Feb. 16.

Ross said the steel report placed the US No. 1 in imports that are nearly four times its exports. It put world steelmaking capacity at 2.4 billion tonnes, up 127% from 2000, while steel demand rose at a slower rate. It listed global excess capacity at 700 million tonnes, almost seven times annual US steel consumption, and listed China as the world's largest producer and exporter, with excess capacity exceeding that of US steel manufacturers.

In an average month, China produces nearly as much steel as the US does in a year, the report noted. As of Feb. 15, the US had 169 antidumping and countervailing duty orders in place on steel, 29 of which are against China, and there are 25 ongoing investigations, it said.

Ross said the report recommends that President Donald Trump impose one of the following:

• A tariff of at least 7.7% on all aluminum exports from all countries.

• A 23.6% tariff on all products from China, Hong Kong, Russia, Venezuela, and Vietnam. All the other countries would be subject to quotas equal to 100% of their 2017 exports to the US.

• A quota on all imports from all countries equal to a maximum of 86.7% of their 2017 exports to the US.

Each of these remedies is intended to increase US steel production from its current 73% of capacity to an 80% operating rate, the minimum needed for the domestic steel industry's long-term viability, Ross said. Each remedy applies measures to all countries and all steel products to prevent circumvention, he noted.

The tariffs and quotas would be in addition to any duties already in place. The report recommends that a process be put in place to allow Commerce to grant requests from US companies to exclude specific products if the US lacks sufficient capacity or for national security considerations. Any exclusions that are granted could result in changed tariffs or quotas for the remaining products to maintain the overall effect, Ross said.

President Trump will be required to decide on the steel import recommendations by Apr. 11, the secretary noted.

The report and recommendations cover not only raw steel imports but also steel products, including seamless or welded pipe and tube products, Black pointed out. "After President Trump has done so much to reinvigorate the economy and provide Americans tax relief, we would hate to see American workers lose jobs from steel trade actions that delay or cancel pipeline construction projects," he said.

Black said a study ICF conducted last year for AOPL and other oil and gas trade associations found that raising line pipe costs by 25% translated into a $76-million increase for a typical (280-mile) pipeline project, or a more than $300 million increase for a major project such as the Keystone XL pipeline. This would delay or cancel pipeline projects and end up hurting US workers denied construction and contracting jobs, Black said.

The US pipeline industry supports Trump's goal of supporting US workers, with about 75% of pipeline project spending going to American workers and products, Black said. Pipeline construction accounts for 45% of project spending, and American workers and contractors receive more than $1 billion in payroll and revenue on a typical pipeline project, AOPL's president said.

"However, US steelmakers do not make enough pipeline-grade steel, which is only 3% of the total market. Pipeline-grade steel is also a specialty product, which must meet high-quality specifications not required for other steel products. It can't be brittle or it could crack and cause a pipeline incident," he said.

Black said that US steel producers largely withdrew from the pipeline business because of its small market, higher costs, and lower margins, choosing to focus instead on higher volume products such as steel for automobiles and appliances. "Thus, domestic steel and pipe production capacity is insufficient to meet pipeline demand-especially for larger diameters for natural gas or major interstate oil pipelines, or pipelines more than 1 in. thick for offshore applications," he said.