According to Drewry, the demand for steel and aluminium products has surged ahead of the U.S. tariffs, starting from 12 March.
The share of U.S. imports in the global aluminium trade has been declining gradually over the past few years, while the country’s share in the global imports of iron and steel has been increasing. For any significant decline in U.S. imports, the country will need to expand production capacity which will entail significant capex and time.
As a result, the demand for steel and aluminium products has surged ahead of the tariffs, but in the short term, trade is likely to be impacted by inflationary factors which could increase steel prices in the country with moderately impacting trade.
The US is set to impose a tariff of 25% on all steel and aluminium products from 12 March. This change eliminates country-specific exceptions and hundreds of thousands of product-specific tariff exclusions for both metals. While the tariffs might have long-term and immediate-term impacts on trade flows to the U.S., the short-term impact could be marginally low.
Majority of the steel and aluminium products are traded on bulk carriers and general cargo vessels across the globe.
Furthermore, with the imposition of U.S. tariffs, Brazil could be the worst hit as it contributes the largest share of iron and steel exports (seaborne) to the U.S., 58% in 2024.
However, the impact on China could be much less as its steel exports are not solely dependent on the U.S. market. In the long term, when U.S. starts to produce more steel domestically, some of the trade from Brazil and China will shift to other countries, which could result in increased competition among steel producers and in turn affect the tonne-mile demand significantly.
The next most affected country would be Trinidad and Tobago, which exported 92% of its iron and steel goods to the U.S. in 2024. When the tariffs are enforced, trade between the US and Trinidad and Tobago might reduce substantially and the latter could also find it challenging to replace the U.S. with any other country.
China and Canada lead the aluminium exports to the US. However, if imports from China decline, the US may turn to Canada or South Africa due to their shorter shipping distances. This shift could streamline supply while reducing the tonne-mile demand in aluminium trade.
…Drewry pointed out.
Impact on shipping
With the imposition of a blanket tariff by the U.S., any decline in trade between the U.S. and China will significantly impact tonne miles. This situation could lead to two possible outcomes:
- The additional tariffs have already made imports more expensive, encouraging the U.S. to increase nearshoring to reduce shipping costs.
- The demand for dry and breakbulk shipping will be negatively affected and thus TC rates.
Small bulk carriers and breakbulk ships primarily transport steel and aluminium while general cargo ships have historically competed with Handysize vessels in this market. The recent trends in charter rates indicate that when time charter rates for Handysize ships trend downwards, rates of general cargo ships are also affected. Simultaneously, any spillover trade from Handysize vessels benefits general cargo ships.
We are also likely to witness a significant increase in US imports of steel and aluminium products over the coming days before the tariffs are imposed on 12 March with many companies likely to act swiftly to stockpile these crucial metals ahead of the new tariffs.
…says Drewry.
This surge in demand has the potential of creating a temporary spike in spot rates for vessels transporting these materials, particularly for small dry bulkers and general cargo vessels. However, it is important to note that 1-year TC rates have begun surging in line with the sudden increase in demand as reflected by the Baltic index for Supramax and Handysize ships in the last two weeks.
In addition, if the tariffs are fully enacted, key steel exporting nations such as Brazil, which play a crucial role in supplying the US market via maritime routes, could suffer a substantial decline in shipments in the long term. Supramax vessels, which have accounted for two-thirds of all seaborne steel delivered to the U.S., are poised to bear the brunt of this tariff.
Countries like Japan, South Korea and Vietnam which are major trade partners of the U.S., are also expected to experience significant repercussions.
While the markets may attempt to rebalance by adjusting shipping routes and vessel deployment, the consequences of these tariffs will resonate far beyond US borders. The EU, a formidable player in the Transatlantic trade, has vehemently opposed these tariffs while, in response, China’s retaliatory tariffs on U.S. goods have escalated global trade tensions.
Other countries are also preparing to impose similar retaliatory tariffs. The inter-dependence of global trade means that these tariffs could unleash a plethora of economic challenges, affecting markets and industries worldwide.
The imposition of additional U.S. tariffs on steel and aluminium imports presents challenges as well as opportunities for the breakbulk industry, Drewry concluded. While there may be an immediate surge in cargo volumes until the tariffs comes into effect, it will be challenging for the U.S. to meet domestic demand through the country’s capacity expansion in the short term, limiting the impact of the tariffs.
Meanwhile, demand for general cargo will decrease in the long term, provided U.S. builds up additional production capacity.
