Brazilian cement makers facing possible retaliatory tariffs on fuel-grade petroleum coke imports from the US are evaluating coke from alternative sources and considering options within existing term agreements.
Brazilian president Luiz Inacio Lula da Silva said last week his government will consider reciprocal tariffs if US president Donald Trump goes ahead with his threat of a 50pc charge on imports from Brazil as of 1 August. Any Brazilian retaliatory tariffs on US coke would hit cement makers in the country, which closely rely on US Gulf coast high-sulphur coke and have limited alternatives in the region.
There is a widespread sentiment in Brazil that the energy sector would be exempt from the tariff dispute, but this is still uncertain. Some large Brazilian cement makers are pushing the government to exempt the fuel from any retaliation list, arguing that taxing an industrial feedstock would hurt domestic infrastructure projects. With minimal viable alternatives, ongoing term contracts, and internal financial pressure, cement makers risk steep cost increases and potential production slowdowns, which could lead to a rise in cement prices, a market participant said.
The US is Brazil's largest coke supplier by far, providing 1.88mn t of the 2.13mn t Brazil imported in the first half of this year, Global Trade Tracker data show. Colombia was its second-largest supplier but provided only 136,400t. And this lower-sulphur coke was likely for other applications besides cement.
Brazil also imported 85,800t from Venezuela in the first six months of this year, but Venezuela's state-owned oil company PdV is still under US sanctions, which prevents international cement makers from buying this coke.
Mexico could be an alternative supplier for Brazil, but it is unlikely to replace much US demand. Although Mexico began exporting last year after state-owned refiner Pemex started up its new 340,000 b/d Olmeca refinery near Dos Bocas, shipments to Brazil have been light thus far. Brazil only imported one 30,700t cargo from Mexico so far this year, according to GTT.
Pemex recently acknowledged that crude quality problems halted operations at Dos Bocas for three months late last year and into early this year. Other Mexican refineries, like the 285,000 b/d Minatitlan facility, have also operated at low rates because of mismatched crude specs and aging infrastructure. Mexican coke's high HGI also is more difficult to use in vertical mill grinding units, one cement maker said.
Even if they could find a suitable alternative to US Gulf coast coke, cement makers could still be forced to import with high tariffs because they are under long term contracts. It is not yet clear if the tariffs would "justify a force majeure situation", the cement maker noted.
Brazil's national currency may also weaken if a trade war escalates with the US, which would further increase the cost of any fuel imports.
US companies are also wary of Brazil's retaliatory tariffs on coke exports and imports.
Brazil was the fifth-largest destination for US green coke exports over the past 10 years, after India, China, Japan and Mexico, taking more than 8pc of US supply. And it was the third-largest destination for US Gulf coast coke, taking more than 10pc of total exports. A sudden drop in demand from the country would likely leave a wide surplus in the Gulf coast market, especially as Chinese importers are also avoiding US supply because of tariff risks.
Brazil is also the US' largest supplier of green and calcined coke imports, making up nearly 20pc of green coke supply and nearly 32pc of calcined coke supply over the past 10 years.
Green and calcined petroleum coke could be exempt from the US' tariffs on Brazilian goods, if the Trump administration follows the existing wording of its April executive order on reciprocal tariffs, which exempted energy commodities.
White House officials have said that exemptions from tariffs for energy commodities will remain despite the higher rates Trump plans to impose from 1 August. But such explanations come with a caveat that Trump has yet to determine the final form of tariff applications.
Trump has also said the US will impose a 35pc tariff on all imports from Canada, and 30pc tariff on goods from Mexico and the EU.
Canada was the fourth-largest supplier of green coke to the US over the past 10 years, making up over 9pc of total imports during that period, and the third-largest supplier of calcined coke, with nearly 17pc.
Canada, Mexico and the EU are also significant importers of US coke, meaning US exporters could be hit if these governments include coke in retaliatory tariffs.
