Trump’s Steel Tariffs Could Hurt U.S. Coal Companies

By Stephen Lee

The Trump administration’s new tariffs on foreign steel could take a bite out of U.S. coal companies.

The 25 percent tariff on steel from Canada, Mexico, and the European Union would hurt demand in the U.S., a major customer for the steel. But those countries also buy 40 percent of U.S. metallurgical or “met” coal, the high-grade substance used to make steel, according to the Energy Information Administration. So a dip in their steel production could go in tandem with a dip in their met coal demand.

The countries hit with tariffs also could strike back with tariffs of their own on U.S. coal. If that happens, big met coal producers such as Arch Coal, Alpha Natural Resources, and Ramaco Resources Inc.—which have leaned heavily on foreign markets as one of the few bright spots in their industry—would have to cut their prices in order to stay competitive in the global market, according to Hector Forster, a steel analyst with S&P Global Platts.

Otherwise, cheaper met coal from countries such as Australia, Canada, Colombia, Mozambique, and Russia could fill the void, Forster told Bloomberg Environment.

Mixed Emotions From Industry

The White House’s hoped-for outcome is that the tariffs will goose U.S. steel production. Because the U.S. imports so little met coal, more domestic steelmaking might mean more domestic mining.

But Forster said that is unlikely, because two-thirds of U.S. steel is made using scrap metal, not met coal. The scrap metal sector of the industry is also where most of the growth is, Forster said.

Not surprisingly, U.S. coal producers responded to the tariffs with mixed emotions.

“On the one hand, any boost to domestic steelmaking is certainly a positive,” Ashley Burke, a spokeswoman for the National Mining Association, told Bloomberg Environment. “But you also have to consider countries that import significant amounts of coal for steelmaking and the impacts of tariffs on their appetite for U.S. met coal.”

Will the Tariffs Even Happen?

But some analysts aren’t convinced the tariffs will stick.

“I would be surprised if we saw these tariffs on such close allies be processed in the long term,” said Caitlin Webber, a trade policy analyst for Bloomberg Intelligence. “They’re going to continue to negotiate over this, potentially wrapped up in other higher-priority issues, like NAFTA.”

A likelier outcome is that the U.S. and its trading partners will come to a negotiated agreement on export restraints or quotas, Webber told Bloomberg Environment.

The Trump White House might also use the tariffs to extract better terms on lumber and dairy products with Canada, Webber said.

Trading Partners Fire Back

Other nations were quick to condemn the tariffs.

Mexico immediately slapped its own tariffs on U.S. flat steels, lamps, and various types of food, including pork, apples, grapes, blueberries, and cheese.

Canadian Prime Minister Justin Trudeau called the tariffs “totally unacceptable,” and noted that Canada buys more U.S. steel than any other country.

“That Canada could be considered a national security threat to the United States is inconceivable,” Trudeau said.

Canada was the biggest importer of steel to the U.S. in 2017, comprising 26 percent of the total. Mexico, at 9 percent, ranked fourth.

Met coal accounted for some 60 percent of U.S. coal exports, and that figure rose 22 percent in the first three months of 2018, compared to last year.