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Brazilian steel traders said on Feb. 11 that they expected their government to negotiate concessions for steel products, including slabs exported to the US, rather than to retaliate to US President Donald Trump's announced imposition of a 25% tariff on all steel imports from March 4.

The US steel industry is dependent on Brazilian-imported slabs and pig iron for processing. Brazilian producers are also dependent on this trade, as the US is their biggest export customer, four prominent traders told S&P Global Commodity Insights.

"The US will still need to import slabs, and the companies that import them aren't necessarily American, including ArcelorMittal, CSN LLC, JSW Steel, NLMK," said a US-based Brazilian trader. "But perhaps the international companies have less lobbying power than US companies like Nucor, California Steel and Cleveland-Cliffs."

"We believe the US will accept negotiation on the 25% at least for semis, so as not to impact the costs of US rerollers," said Osvaldo Sicardi of Rio de Janeiro-based Imexbra Trading SA. "These are raw materials, not final products.... but it will all depend on our negotiators."

The US took 62.2% of Brazil's total steel exports of 7.7 million mt over January-September 2024, and of these, 93% were semis, principally slabs, Sicardi noted.

"Brazilian slabs, semi-finished products and heavy plates are very strategic for the US market," said Gilberto Cardoso, CEO of Tarraco Commodities Solutions, a Singapore-based consultancy.

It's still unclear whether Trump's new administrative order will replace or complement tariffs introduced under his Section 232 measure of 2018, invoked under a national security law, the traders said.

"It will be a tough negotiation due to the political differences," the US-based trader added. "But we believe Trump is wielding a bargaining tool -- throwing a bomb and then later wanting to negotiate."

Brazil's "cautiously assessing" response

Brazilian Vice President and Trade and Industries Minister Geraldo Alckmin told journalists Feb. 10, shortly before the new tariffs were announced, that he considered US-Brazil trade relations "balanced" in a "win-win" situation. Ministers were meeting in Brasilia Feb. 11 to "cautiously assess" a response to the tariffs announcement, according to Brazil's CBN Radio.

Political tensions between Brazil and the US have risen in recent months amid Brazil's growing adhesion to the BRICS group of nations and talk of its potential adoption of a rival currency to the US dollar. Brazil is presiding over the BRICS grouping this year.

If no concession is struck on the new steel tariffs, the US consumer will pay a high price, traders said, as importing mills will pass the new tariff costs onto their consumers, traders said.

Who will pay?

"The US simply doesn't have the infrastructure to stop importing semis, especially slabs. Even if they put a 25% tax on top, they will still import," said Sylvio Bertoli, executive director of Caliber International Ltd., Hong Kong. "But the question is: who will they import from, and who will pay the bill?"

Cardoso added that if the Trump tariffs go ahead, "the Brazilian steel industry may need to reassess its domestic demand outlook and explore alternative export destinations." Europe and Mexico are also markets for slabs, he indicated.

"CBAM is still in debate and will, I believe, be postponed," he added. "It is forecasted that Brazil's economy will start sputtering in H2 2025."

In recent years, the Section 232 tariffs of 25% on steel and aluminum imports, introduced by the previous Trump administration in 2018, have been eased. Brazilian producers currently have import quota arrangements with the US. Brazil is close to filling these steel quota levels.

The US imported 7.03 million mt of Brazilian steel products in 2023,worth $5.42 billion, or 55.2% of Brazil's total steel export revenues that year, according to government data compiled by Brazilian Steel Institute Aco Brasil. Semi-finished products, mainly slabs, formed the bulk of this, accounting for 6.64 million mt, worth $4.83 billion.

The 2023 total also included significant quantities of rolled products: with the US taking 10,576 mt Brazilian heavy plates, 9,361 mt hot rolled coil, 30,645 mt cold rolled coil, 76,651 mt hot dip galvanized sheets, 24,137 mt aluminum-zinc coated sheets, 10,825 mt stainless sheets and coils, 76,834 mt seamless tubes and pipes, 95,568 mt wire rod and 29,956 mt bars, among others.

Brazil's pig iron producers are also largely dependent on the US market and vice versa. The US imported 2.92 million mt of Brazilian pig iron in 2023, worth $1.36 billion, or 75.7% of Brazil's total export revenues for this product.

Brazil's pig iron exports to the US currently total 3.5 million mt/year, and the US imposing a 25% import tax on this "would be to shoot itself in the foot," according to the US-based trader.