Global Steel Trade; Structural Problems and Future Solutions

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Exports to the United States. Even more dramatic is the change in Korean exports to the United States. While POSCO’s exports of finished steel increased by 10 percent in 1998 (from 966,000 to almost 1.1 million MT), the exports of all other Korean steel producers rose by almost 500 percent, an increase of nearly 2 million MT. 66 (Chart 3-34). For example, available data indicate that the greatest percentage of the increase in plate exports to the United States in 1998 was accounted for by POSCO’s domestic competitor, Dongkuk. 67 POSCO 53.6% 1997 Mini-mills 46.4% POSCO 69.5% 1998 Mini-mills 30.5% Source: Korean Market Study, Korean Government Response to USTR. 3-33. POSCO vs. Mini-Mills: Share of Domestic Sales The Asian Financial Crisis in Korea and Surging Exports The confluence of several factors led to the increase in Korean mini-mill exports to the United States in 1998. All Others 28% POSCO 72% All Others 68% POSCO 32% • The financial crisis of late 1997 and 1998 resulted in a significant decline in domestic demand for steel in Korea. • The drop in demand for steel in several of Korea’s major 1997 1998 Source: Korean Market Study, Korean Government Response to Asian export markets led to USTR's Questions, April 1999. falling exports to those countries. 3-34. Korean Steel Exports to the US: • The depreciation of the Korean won fueled the export drive and gave POSCO vs. All Other Korean Producers Korean producers opportunities to lower prices while maintaining a high level of won revenues. Domestic Consumption. The effect of the Asian financial crisis on Korean steel producers in 1998 was significant. Demand from steel-consuming industries in Korea dropped 35 percent, a decline in apparent consumption of more than 13 million MT in 1998 compared to 1997. 68 While some of this loss was borne by steel imports (which declined by 3.7 million MT in 1998 69 ), a number of Korean steel producers had to significantly increase their exports to survive. Exchange Rates. Steel exporters were helped by the rapid decline in the value of the Korean won, which immediately made Korean steel products much more competitive in world markets. The won depreciated by 94 Global Steel Trade: Structural Problems and Future Solutions
approximately 32 percent from 1997 to 1998. 70 As a result, won-denominated export revenue surged in the early part of 1998. While Korean steel exporters did lower their prices in the U.S. market during the course of the year, the positive impact of the depreciated won on export revenues facilitated Korean steel producers’ ability to export in the face of a severely contracting domestic market. These factors also helped bring about a 152 percent rise in Korean finished steel exports to the United States in 1998, or 2 million MT. 71 Korean finished steel exports to all countries rose by 57 percent in 1998, an increase of almost 6 million MT. Exports to the EU, in particular, increased by 1.5 million MT in 1998, about 2000 percent over 1997 levels (although exports to the EU started out at a much lower level than those to the United States). 72 The Financial Crisis Exposes Structural Flaws in the Corporate and Financial Sectors The surge in corporate bankruptcies and the deterioration of banks’ balance sheets brought the problems of the Korean corporate and financial sectors to the attention of foreign investors. Many institutional investors lost confidence in the Korean market and withdrew their investments. The central bank’s steps to protect the Korean won failed, but not before the country’s foreign exchange reserves were severely depleted. The won rapidly depreciated against the dollar—by 32 percent in 1998. 73 When foreign banks declined to rollover their short-term loans, a short-term fundraising gap forced Korea to request assistance from the International Monetary Fund. The ensuing economic crisis in 1998 was the worst the Korean economy has faced in its modern history. Declines in private consumption and new investment led to a 5.8 percent drop in gross domestic product from 1997 to 1998. The government’s attempt to stabilize financial markets by raising interest rates to more than 30 percent caused further hardship. Higher interest costs forced more firms to default on their loans, raising the number of bankruptcies beyond already high pre-crisis levels. Banks severely limited new loans in an attempt to improve their deteriorating capital adequacy ratios. As domestic demand began to decline, capacity utilization rates among manufacturing firms fell to new lows, especially among the country’s chaebol. Activity in the construction and automotive sectors, for example, fell by 41 and 31 percent, respectively, in 1998. 74 Effects on the Korean Steel Industry The Korean steel industry, already suffering from excess capacity, was hit hard by the financial crisis. Apparent consumption of finished steel declined by more than 13.2 million MT in 1998 compared to 1997, a drop of 35 percent. 75 Underlying the fall in demand was a severe decline in steel-consuming industries, such as automobiles, construction, and machinery. Falling demand forced steel producers to reduce production of finished steel by 5.2 million MT, 76 which led to a decline in capacity utilization rates. Overall capacity utilization rates declined by almost 10 percent for crude steel (including declines of more than 6 percent in the blast furnace sector). 77 Mini-mill producers were hit with a 13 percent drop in capacity utilization, from 83 percent in 1997 to about 70 percent in 1998. 78 This drop was particularly painful given the rapid capacity increases during the mid-1990s, i.e., by some 32 percent between 1995 and 1998. 79 Korean Steel Exports to the United States The impact of the crisis on Korean steel exports was immediate and substantial: finished steel exports surged by 5.9 million MT in 1998, an increase of 57 percent over 1997 levels. 80 The United States and the European Union absorbed over 60 percent (about 3.6 million MT) of the total increase in steel exports from Korea. 81 In response, the U.S. industry filed eight antidumping and countervailing duty cases 82 and the European Union filed four antidumping and countervailing duty cases against Korean steel products. Chapter 3: Behind the Crisis—Korea 95
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Preface This report is the product
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Contents Preface ..................
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CHAPTER 1 Overview Introduction Ove
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steel prices and still make money (
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History of Steel Trade Friction The
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• Led by “mini-mill” companie
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New Players in the Global Steel Mar
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CHAPTER 2 The U.S. Steel Import Cri
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The Steel Workers’ Perspective on
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1997: A Cloud Behind Every Silver L
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These productivity increases and sh
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In mid-1998, financial crisis hit R
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concerns regarding purchase allocat
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percent from Korea, and 59 percent
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from Brazil, Japan, and Russia. 58
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finished steel prices is very compl
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Department of Commerce determined t
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The Role of Trading Companies Tradi
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Trading companies viewed these atyp
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Weirton, W.V.: A Community Unites i
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CHAPTER 3 Behind the Crisis Introdu
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Competition has been restrained by
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When the Asian economic crisis sapp
Page 49 and 50: The Russian steel industry has made
Page 51 and 52: steel is traded between the world
Page 53 and 54: estructuring of companies and predi
Page 55 and 56: Under the conditions of introducing
Page 57 and 58: When prices began to escalate after
Page 59 and 60: pension payments) reached almost 20
Page 61 and 62: exports extremely profitable, the b
Page 63 and 64: Trading Companies and the Marketing
Page 65 and 66: these intermediaries, one source es
Page 67 and 68: • Domestic demand for hotrolled s
Page 69 and 70: Although the production facilities
Page 71 and 72: 3.2 Structural Factors and Japanese
Page 73 and 74: apparent in the marked differences
Page 75 and 76: High Domestic Prices The apparent c
Page 77 and 78: outstripped growth in domestic dema
Page 79 and 80: Noncompetitive Domestic Market and
Page 81 and 82: Professor Tilton’s price analysis
Page 83 and 84: The Product Certification System Ad
Page 85 and 86: Three factors contributed to tippin
Page 87 and 88: Collapse of Asian Export Markets At
Page 89 and 90: at a loss. The rationale for pricin
Page 91 and 92: 3.3 Korea’s Steel Industry in The
Page 93 and 94: negotiations for the purchase of Ha
Page 95 and 96: almost 700 percent (Chart 3-31). By
Page 97 and 98: of 1997 and 1998, when capacity uti
Page 99: • Regulating POSCO after privatiz
Page 103 and 104: denominated revenue. For other mini
Page 105 and 106: Rounding Out the Big Three Usiminas
Page 107 and 108: Chapter 3: Behind the Crisis—Braz
Page 109 and 110: Import Licensing System Importers m
Page 111 and 112: they were able to cut their prices,
Page 113 and 114: CHAPTER 4 U.S. Response to the Cris
Page 115 and 116: compared to November 1998 and conti
Page 117 and 118: downstream products. The U.S. indus
Page 119 and 120: for by the WTO. The industry argues
Page 121 and 122: Effect of Excess Inventories Much o
Page 123 and 124: coke but also to the large increase
Page 125 and 126: The Role of the Chinese Coke Indust
Page 127 and 128: CHAPTER 5 Reforms and Restructuring
Page 129 and 130: The current dramatic economic and s
Page 131 and 132: While this analysis is largely corr
Page 133 and 134: these four heavyweights will be abl
Page 135 and 136: Government Initiatives to Encourage
Page 137 and 138: U.S. Firm Takes Over Hanbo Steel Pr
Page 139 and 140: ensure that the commercial banks fo
Page 141 and 142: Again, while these efforts hold pro
Page 143 and 144: Brazil-IMF Reform Program Throughou
Page 145 and 146: CHAPTER 6 New Players in the Global
Page 147 and 148: • Be subject to strong subsidy di
Page 149 and 150: Technological Backwardness. China
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100 kg at present. Per capita consu
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Current Reform Efforts in the State
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wire rod production with an annual
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Notwithstanding the negative impact
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Media reports and interviews with v
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Baoshan is not equipped to provide
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Domestic Consumption In 1998, Ukrai
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two firms, Enakievo and Konstantino
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• Barter. Ukrainian steel compani
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Today India is the world’s tenth
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among steel-intensive sectors, such
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Banks’ Debt and Equity Exposure D
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Tariffs. High tariff rates also con
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new sales growth. 196 By 1998, even
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CHAPTER 7 Avoiding Future Crises In
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propose to monitor additional data
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determination of dumping. In Octobe
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Engaging Korea On Hanbo In late 199
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Korea Korea’s steel industry has
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New Players: China, Ukraine, and In
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government and private sector assis
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Notes Chapter 1 1. Difference of av
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massive layoff data shows 9,550 emp
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also possess weaknesses, which the
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64. Ibid., 145-177. 65. Id. Bethleh
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ITC considered numerous factors. On
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104. Harry Thuedaus was recently re
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Frank Markus, Successes and Failure
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Decrepit Steel Plant in the Urals,
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2. WTO. At the time of this report,
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Among those who have written on thi
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line pipe markets, the European and
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97. Merrill Lynch, “Steel Industr
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chaebol to downside risk. This crea
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provided after 1991 by domestic ban
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61. Catholic University of Korea Pr
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acquired on economically viable ter
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date of publication in printed vers
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Producers of iron ore and coke, the
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production may be shut down by the
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56. U.S. government sources. 57.
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79. World Bank-Korea, 12. 80. Seong
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24. 24. “Hard Times for China’s
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60. “PRC To Further Cut Steel Out
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132. In terms of crude steel produc
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195. The capacity of the new steel
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