Cap jumps as new Chile tariffs make steelmaking profitable again

Chilean steel and iron ore producer Cap SA rose the most in two weeks after authorities slapped tariffs on some Chinese steel products, in a move that prompted the firm to overturn a decision to shutter its mills. 

Cap will benefit from duties of 34% on steel balls and 25% on the bars used to make them. In March, the Santiago-based company announced plans to cease steelmaking due to an influx of cheap shipments from China, whose mills continue to churn out steel despite slower domestic demand. 

The measure, which expires in September, would allow Cap’s steel unit to remain competitive “as long as these surcharges remain in force,” the company said in a weekend filing. It’s shares climbed as much as 3.1% and were up 1.4% at 11:10 a.m. local time, among the top performers on Chile’s benchmark equity index. 

The tariff decision by Chile’s Anti-Distortion Commission follows a similar move in Mexico and a pre-election pledge by US President Joe Biden to triple tariffs on Chinese steel and aluminum exports. 

While Chile accounts for a tiny fraction of a global steel industry that’s dominated by China, the case is testing the priorities of President Gabriel Boric’s government. On one hand, raising tariffs to the levels of North America and Europe will keep mills running, safeguarding about 20,000 jobs. On the other, it may erode a free-trade strategy that’s helped Chile prosper in relative terms, as well as risking the ire of top trading partner China.

The dilemma is shared by other steel producers in the region such as Brazil and Colombia amid an up-tick of cheap imports due to slower domestic demand in China and years of prohibitive tariffs elsewhere. 

While steel-making is a small part of regional economies, it’s use in infrastructure and manufacturing makes it strategic. For Chile, the new stiff tariffs will push up costs in the all-important mining industry that uses steel balls to grind down ore.