Japan’s Nippon Steel Corp said any move by Washington to impose tariffs on Japanese cars and auto parts will hurt its earnings, but expects less of a direct impact from proposed tariffs on U.S. imports from Mexico.
Aiming to curb a surge in illegal immigration, U.S. President Donald Trump said last week he would target all goods coming from Mexico with a 5% tariff from June 10, increasing to 25%, unless Mexico took immediate action.
The move spooked global markets worried about a new front in the U.S. trade war.
“The new tariffs are likely to have little impact on our business as steel which we export to Mexico is processed in our local joint venture and sold to automakers in the country,” Nippon Steel Executive Vice President Katsuhiro Miyamoto told Reuters in an interview on Friday.
Although those automakers will be hurt by tariffs, the initial 5% tariff at least may not have a major impact because of the healthy U.S. economy and cost competitiveness of automobiles made in Mexico, Miyamoto said.
Nippon Steel’s joint venture in Mexico has an annual production capacity of 420,000 tonnes of galvanized coated steel used in automotive parts, compared with the company’s total annual crude steel output of about 41 million tonnes.
The world’s third-biggest steelmaker sees potential U.S. tariffs on Japanese cars and car parts as more worrisome. The sector accounts for about 40% of its annual production, including high margin speciality products.
Trump last month said that some imported vehicles and parts pose a national security threat but delayed a decision for as long as six months on whether to impose up to 25% tariffs on vehicles from Japan and the European Union.
“Japan exports not only cars to the United States, but also a significant volume of car parts, including key safety components using special steel,” Miyamoto said.
“Any major U.S. tariffs on cars and car parts will impact on our earnings as well as Japan’s broad industry.”
Nippon Steel also expected iron ore prices to stay high for some time, Miyamoto said, following a price surge in the wake of dam-related closures at some of Vale’s Brazilian mines and weather-related losses in Australia.
“Iron ore prices have risen by 20-30 percent from our assumption for the current business year (to end-March 2020),” he said.
“Given China’s record-making crude steel output and a limited number of new iron ore projects worldwide, tightness will continue through this year.”
Iron ore prices last month topped $100 a tonne for the first time in five years, although China’s iron ore futures have since surrendered some gains.