Last week, this report identified imports as the most significant and relevant upside risk moving towards the end of the year. Before the Section 232 tariffs were implemented last spring, many steel distributers and users imported high levels of material to receive before they were subject to the 25% tariffs. However, after the tariffs were implemented, imports declined because the domestic vs world price differential, including tariff effects, was unattractive. Furthermore, the recent decline in domestic steel prices has made these differentials even more unattractive.

In order to quantify what this means for the domestic supply dynamic, we look at net imports (imports minus exports) over a trailing 12 month period. A trailing 12 month period is used because this incorporates the lead times and days on hand associated with imported material, and it gives a comparable annual level. The chart and graph below show this data, updated through June.

Compared to last June, there were over 900 thousand fewer tons of sheet products in the domestic market. Moreover, our forecast for July and August final imports remains at the low levels we have seen already in the second quarter, and we could see further declines as we move through the third quarter based on the extremely low price differentials reached in June and July. This would result in an immediate supply shock that would drive orders to domestic mills, and push lead times out in the short term. However, as price differentials revert to normal levels, and global economic uncertainty discourages fixed asset investment, this deficit may be short-lived.