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What impact will tariffs have on the cement industry?

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World Cement,

Global trade is hitting the news again with US tariffs on steel and aluminium imports from Canada, Mexico, and the EU coming into force on 1 June, after an initial exemption was removed. This has prompted retaliatory measures and talk of an impending trade war. Separately, the US has applied tariffs on US$50 billion of Chinese goods

Fears of a global trade war are firmly back on the agenda; however, the impact on the cement industry is unclear. “The battle lines in the simmering trade war between the US and the world don’t really put the cement industry in its direct cross-hairs,” Raluca Cercel, an associate at CW Group told World Cement.

“True the US represents a large share of the global trade in cement as a large importer, but cementitious materials rank far behind industrial goods as a percentage of total US imports. In 2017, the US imported iron and steel valued at a total of US$29 billion [and] paper and pulp products valued at a total of US$16 billion. The value of imported cementitious materials, however, was around US$1 billion.”

According to the US Geological Survey, the US imported 11.28 million t of cement in 2017. That is likely to be an underestimate, however, as the USGS date does not include informal imports from Canada via truck through Seattle and Detroit or through El Paso from Mexico.

Indeed, Canada was the largest importer of cement into the US, according to Cercel, accounting for 39% of shipments; China accounted for 11%.

Where then do the risks lie? For the global cement industry, the risks seem pretty distant: unless a trade war breaks out in earnest, substantially hitting global economic growth, most of the risks are centred on the US.

“The more pertinent discussion as far as cementitious trade is concerned is the future of NAFTA,” Robert Madeira, Managing Director and Head of Research at CW Group told World Cement. “There are three apparent possibilities: no deal, same deal, or two deals separately with Canada and with Mexico.”

Whatever the outcome, however, according to Madeira, “the chances of free trade between the three countries continuing as in the past now seem slim. There is a risk that cement imports get hit with the duty hammer as well – either directly targeted (not so likely), part of a broader set of commodity duties (a bit likelier), targeted country duties (somewhat likelier) or because of free trade pact undoing (likelier).”

Overall, however, the direct impact of tariffs on the cement industry looks likely to be limited: “the main effect is to displace supply from importers to domestic suppliers,” Imran Akram of IA Cement told World Cement.

Despite this, there is a possible indirect risk stemming from the tariffs on steel and aluminium, explained Kenneth D. Simonson, Chief Economist of the Associated General Contractors of America.

“Construction is a major user of steel (and aluminium),” Simonson told World Cement. “There is little or no production of some types of steel, such as certain diameters of pipe, used in construction. As a result, costs will go up even faster than they have done recently and some projects may be delayed because of slow delivery of crucial materials, scaled back, or cancelled in light of rising costs.”

“Industries that lose export market because of retaliatory tariffs or quotas, or have become uncompetitive due to higher steel or aluminium costs, will cut back on demand for construction,” Simonson added.

That risk to construction activity poses a threat to US cement demand growth, which the Portland Cement Association (PCA) puts at 2.8% this year and next, rising to 4% in 2020.

Ultimately, however, it remains to see how things play out. As Simonson cautioned, “the tariffs and retaliatory actions may affect both supply and demand for construction, but it too early to say if they will definitely.”

The mercurial nature of President Trump adds further uncertainty. As CW Group’s Madeira concluded, “there is still a possibility that a potential duty could be short lived [a result of] Trump positioning aggressively in the opening salvoes [of trade negotiations] to later soften the stance once concessions have been made. The jury is still out.”

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US cement news PCA news Cement shipping news Cement news 2018