Chilean steel and iron ore producer Cap SA experienced a significant surge, marking its highest increase in two weeks, following the imposition of tariffs on certain Chinese steel products by authorities. This action prompted the company to reverse its decision to close its mills.
Cap stands to gain from tariffs of 34% on steel balls and 25% on the bars utilized in their production. In March, the company, headquartered in Santiago, had announced intentions to halt steelmaking due to an inundation of inexpensive imports from China. Despite a slowdown in domestic demand, Chinese mills continued to produce steel at a steady pace.
The imposition of tariffs, effective until September, provides Cap’s steel division with a competitive edge “as long as these additional charges remain in effect,” as stated in a filing over the weekend. Consequently, its shares saw a notable increase, climbing by as much as 3.1% and settling at a 1.4% rise by 11:10 a.m. local time, ranking among the top performers on Chile’s primary stock index.
Chile’s Anti-Distortion Commission’s decision to implement tariffs mirrors similar actions taken in Mexico and a pre-election promise made by US President Joe Biden to triple tariffs on Chinese steel and aluminum exports.
Despite Chile’s relatively minor role in the global steel industry compared to China’s dominance, the situation underscores the challenges facing President Gabriel Boric’s administration. Balancing the need to maintain operational mills and preserve approximately 20,000 jobs with the potential consequences for Chile’s historically successful free-trade strategy presents a delicate dilemma. Additionally, there’s the risk of straining relations with China, its primary trading partner.
This predicament extends to other steel producers in the region, such as Brazil and Colombia, grappling with a surge in low-cost imports amidst reduced domestic demand in China and years of imposing tariffs elsewhere.
While steel production may constitute a modest portion of regional economies, its significance in infrastructure and manufacturing renders it strategically vital. In the case of Chile, the newly imposed tariffs could elevate costs within the crucial mining sector, which heavily relies on steel balls for ore grinding.
