The Export-Import Bank of the United States (US Exim) has approved two transactions backing domestic firm US Steel, as other US government agencies crack down on steel imports with new tariffs and tighter regulations.
In one transaction, US Exim has agreed to provide a 95% guarantee for a US$250mn working capital loan from PNC Bank in Pennsylvania to US Steel.
US Exim’s guarantee of the 11-month facility will allow the company to monetise a portion of the value of three existing iron-ore pellet supply contracts it has with buyers in North America and Asia.
The cover, which US Exim is providing as part of its working capital guarantee programme, will enable PNC Bank to accept the risk of the foreign contracts, while also helping US Steel to hold up its end of the supply agreements.
In the second deal, US Exim’s board approved a 95% guarantee of a US$200mn supply chain finance (SCF) facility provided to US Steel by LSQ Funding Group, a US-based working capital solutions provider, and Huntington National Bank (HNB).
US Exim’s guarantee of the 12-month facility will support the purchase of accounts receivable due from US Steel to at least 50 of its suppliers in the US, based in Washington DC and around 16 states.
As part of the deal, LSQ will enter into receivables purchase agreements with US Steel suppliers, and HNB will then purchase the receivables from LSQ. In turn, US Exim will guarantee payment of the receivables.
Before the deals are fully signed off, US Exim says the transactions are subject to US Steel and the lending banks negotiating mutually satisfactory terms and conditions, as well as final approval by the US Steel board of directors.
The deals will support 1,600 jobs and approximately US$1bn-worth of existing and future exports from the country, US Exim adds.
Speaking about the transactions in August, before they were approved by Congress, US department of commerce secretary, Wilbur Ross said: “This is a very inventive approach, and I applaud US Exim for helping get a major American employer and exporter through the challenges posed by Covid-19.”
The steel sector has been rocked by the pandemic, with the latest available figures from the World Steel Association showing that US steel production in July 2020 was nearly 30% lower than for the same month in 2019.
In its short-term outlook for the sector published in June, the industry body said its customers around the world had been hit by a general freeze in consumption, by shutdowns and by disrupted supply chains.
US Exim board member, Judith Pryor, noted in August that the transactions for US Steel will support jobs in the “industrial heartland of America”.
“Maintaining a robust domestic manufacturing base is a win-win when it comes to the economy and our national security, and I’m pleased to notify Congress of these transactions,” she added.
Steel and national security
Protecting domestic steel producers has been a key part of the Trump administration’s national security agenda throughout the president’s first term.
When President Trump rolled out 25% tariffs on imports of steel and aluminium in March 2018, he did so by using section 232 of the Trade Expansion Act of 1962.
This clause permits the president to use tariffs if he deems that articles are being “imported into the United States in such quantities or under such circumstances as to threaten to impair the national security”.
He widened these levies in January this year to include a raft of products made from steel, such as nails and tacks, saying that foreign producers had worked to “circumvent” his initial measures by importing derivative products instead.
Certain countries had been given exemptions from these section 232 tariffs, but in the past couple of weeks, Trump announced he would curb steel imports from two of these nations – Mexico and Brazil.
The pair are still excluded from the 232 steel tariff list, but the Office of the United States Trade Representative (USTR) announced recently that, following discussions, Mexico has agreed to establish a strict monitoring regime to address surges in steel pipe, mechanical steel tubing and semi-finished steel exports to the United States.
The USTR added that it would cut Brazil’s remaining 2020 quota for semi-finished steel imports into the United States to 60,000 metric tons from 350,000 tons in the wake of the Covid-19 pandemic, but would allow the South American country to keep existing quotas on other steel products.
Elsewhere, last week the department of commerce adopted new regulatory rules for its Steel Import Monitoring and Analysis (SIMA) system, including requirements for import license applicants to identify not only the country of origin, but also the country where steel used in the manufacture of the imported product was melted and poured.
Speaking about the changes, secretary of commerce, Ross, says: “These significant improvements to SIMA will enable commerce and the public to more readily identify transshipment and circumvention involving steel imports.”