Global Steel Trade; Structural Problems and Future Solutions

More documents

Recommendations

Info

3.4 The Brazilian Steel Industry: Protection at Home Supports Exports Abroad Introduction Brazilian steel producers have long reaped the benefits of a home market insulated from competition from abroad and lacking any meaningful competition at home. This sheltered domestic market provides the Brazilian steel industry a secure, profitable base from which to compete to increase or retain export volumes irrespective of the kind of market volatility seen in 1997 and 1998. However, to the extent that Brazilian steel companies take advantage of an insulated home market, the potential for unfair trade exists. • Cartel-Like Behavior. Tactics employed by Brazil’s steel sector to manage competition at home include collusion to raise prices. 1 Cartel-like behavior is fostered by segmentation of the market and the maintenance of strong cross-ownership ties to solidify cooperation. • Import Barriers. These practices would not succeed without a number of import barriers, supported by government and industry, to minimize foreign competition, including high import tariffs and taxes, import licensing barriers and “captive” distribution channels. An Oligopolistic Steel Industry at Home Anticompetitive practices among the large Brazilian steel firms allow the domestic industry to operate in an atmosphere effectively sheltered from market forces. This environment enables Brazilian producers to maintain domestic prices at artificially high levels 2 while lowering export prices on certain products to increase or maintain export sales. Of particular concern is the cartel-like behavior of CSN, Usiminas, and Cosipa—three companies that account for almost half of total crude steel production in Brazil. 3, 4 (See boxes, this page and the next.) 5 Cartel-Like Behavior In 1997, Brazilian authorities found that these three producers conspired to fix domestic prices. The Secretaria de Acompanhamento Economico (SEAE)—the Economic Monitoring Secretariat of the government of Brazil—concluded in a July 1997 report that “a cartel had been formed in connection with the increase in sales prices of ordinary flat steel products implemented by CSN, Usiminas, and Cosipa.” 6 Profile: Brazil’s Largest Steel Company CSN, Brazil’s largest steel producer, was established as a government-owned steel company in the 1940s. After transfer of ownership in 1974 to SIDERBRAS (a government holding company) and subsequent privatization auctions in the early 1990s, CSN was free of direct government ownership by 1994. At present, CSN is owned by iron ore producer CVRD (Companhia Vale do Rio Doce, which holds 10 percent) and a consortium of private investors including Bradesco Bank, Vicunha Group, Previ (the pension fund of state-owned Banco do Brasil, Brazil’s biggest bank) and CSN employee funds. CSN also holds 31 percent of the voting shares of Valepar, a company which in turn owns 61 percent of the voting shares of CVRD. CSN is a major Brazilian producer of flat-rolled products, including hot-rolled sheet and strip, coldrolled sheet and strip and coated sheet and strip, and is the world’s largest single-mill producer of tin plate, a type of coated, flat steel product. In 1998, CSN sold 38 percent of all hot, flat-rolled steel, 31 percent of all cold, flat-rolled steel, 75 percent of all galvanized steel and 97 percent of all tin-coated steel produced in Brazil. 98 Global Steel Trade: Structural Problems and Future Solutions
Rounding Out the Big Three Usiminas, Brazil’s second largest steel mill, began operations in 1962 as a joint venture between the government of Brazil and various stockholders, principally Nippon Usiminas. SIDERBRAS acquired a majority interest in Usiminas in 1974. Usiminas was the first steel company to undergo privatization, beginning in 1991. By 1994, Usiminas was substantially privatized. Today, Usiminas is owned by CVRD (23 percent), Nippon Usiminas, Previ, employee associations and various other private investors. Usiminas is the largest producer of uncoated steel products in Brazil and dominates the automotive sector. Cosipa was established as a government-owned steel company in 1953 and was transferred to SIDERBRAS in 1974. Cosipa began privatization in 1993. By 1994, the Brazilian government had sold its remaining directly held voting shares, but retained approximately 25 percent of the preferred shares. At present, Cosipa is owned by Usiminas (50 percent), BNDES (17 percent) and several employee participation investors and other private investors. According to market research, Cosipa and Usiminas share the same major clients in the Brazilian market, namely the large automotive companies. Based on SEAE’s findings, CADE (Brazil’s relevant prosecuting agency) conducted an investigation of the companies and, in 1999, determined that their behavior on that occasion was cartel-like and in violation of Brazil’s antitrust law. 7 As a result, CADE took the unusual step of imposing fines on each of the companies equal to 1 percent of the value of their respective 1996 sales. While this case was based on a July 1996 instance of the big three producers together informing domestic customers of a price increase, 8 there is evidence that the same tactics were employed again less than a year later. 9 These findings confirmed the existence of significant oligopolistic coordination among the major “ordinary” (i.e., carbon) flat steel producers in Brazil. Furthermore, CADE officials discussed mechanisms in the industry through which each steel firm notifies its clients of price increases prior to the actual increase such that each producer can keep tabs on the pricing behavior of its competitors. 10 This coordination of pricing is one of the primary means by which the major Brazilian steel producers have maintained high domestic prices while, at the same time, exporting at much lower prices. Market Segmentation The high degree of segmentation in Brazil’s steel market provides further evidence of the lack of robust domestic competition. As the Brazilian steel industry is currently structured, certain companies tend to specialize in the production of certain product lines. This segmentation of products across companies has been described as “the legacy of government coordination of the industry prior to privatization.” 11 As a result of this segmentation, industry leaders for each major product category have significant pricing influence in the domestic market. In combination with the limited volume of steel imports in the Brazilian market, they can use this influence to keep domestic prices high. According to the recent CADE determination, new competitors “face such huge difficulties in entering the industry as to permit an abuse of market power.” 12 An example is the ordinary flat-rolled steel sector in Brazil, which is dominated by the same companies found guilty of collusion to fix home market prices: CSN, Usiminas, and Cosipa. A recent credit rating report covering the Brazilian steel industry specifically noted that the carbon flatrolled steel sector in Brazil has traditionally been dominated by CSN, Usiminas, and Cosipa. 13 These Chapter 3: Behind the Crisis—Brazil 99
Page 3 and 4:
Preface This report is the product
Page 5 and 6:
Contents Preface ..................
Page 7 and 8:
CHAPTER 1 Overview Introduction Ove
Page 9 and 10:
steel prices and still make money (
Page 11 and 12:
History of Steel Trade Friction The
Page 13 and 14:
• Led by “mini-mill” companie
Page 15 and 16:
New Players in the Global Steel Mar
Page 17 and 18:
CHAPTER 2 The U.S. Steel Import Cri
Page 19 and 20:
The Steel Workers’ Perspective on
Page 21 and 22:
1997: A Cloud Behind Every Silver L
Page 23 and 24:
These productivity increases and sh
Page 25 and 26:
In mid-1998, financial crisis hit R
Page 27 and 28:
concerns regarding purchase allocat
Page 29 and 30:
percent from Korea, and 59 percent
Page 31 and 32:
from Brazil, Japan, and Russia. 58
Page 33 and 34:
finished steel prices is very compl
Page 35 and 36:
Department of Commerce determined t
Page 37 and 38:
The Role of Trading Companies Tradi
Page 39 and 40:
Trading companies viewed these atyp
Page 41 and 42:
Weirton, W.V.: A Community Unites i
Page 43 and 44:
CHAPTER 3 Behind the Crisis Introdu
Page 45 and 46:
Competition has been restrained by
Page 47 and 48:
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 and 100: • Regulating POSCO after privatiz
Page 101 and 102: approximately 32 percent from 1997
Page 103: denominated revenue. For other mini
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
Page 151 and 152: 100 kg at present. Per capita consu
Page 153 and 154: Current Reform Efforts in the State
Page 155 and 156:
wire rod production with an annual
Page 157 and 158:
Notwithstanding the negative impact
Page 159 and 160:
Media reports and interviews with v
Page 161 and 162:
Baoshan is not equipped to provide
Page 163 and 164:
Domestic Consumption In 1998, Ukrai
Page 165 and 166:
two firms, Enakievo and Konstantino
Page 167 and 168:
• Barter. Ukrainian steel compani
Page 169 and 170:
Today India is the world’s tenth
Page 171 and 172:
among steel-intensive sectors, such
Page 173 and 174:
Banks’ Debt and Equity Exposure D
Page 175 and 176:
Tariffs. High tariff rates also con
Page 177 and 178:
new sales growth. 196 By 1998, even
Page 179 and 180:
CHAPTER 7 Avoiding Future Crises In
Page 181 and 182:
propose to monitor additional data
Page 183 and 184:
determination of dumping. In Octobe
Page 185 and 186:
Engaging Korea On Hanbo In late 199
Page 187 and 188:
Korea Korea’s steel industry has
Page 189 and 190:
New Players: China, Ukraine, and In
Page 191 and 192:
government and private sector assis
Page 193 and 194:
Notes Chapter 1 1. Difference of av
Page 195 and 196:
massive layoff data shows 9,550 emp
Page 197 and 198:
also possess weaknesses, which the
Page 199 and 200:
64. Ibid., 145-177. 65. Id. Bethleh
Page 201 and 202:
ITC considered numerous factors. On
Page 203 and 204:
104. Harry Thuedaus was recently re
Page 205 and 206:
Frank Markus, Successes and Failure
Page 207 and 208:
Decrepit Steel Plant in the Urals,
Page 209 and 210:
2. WTO. At the time of this report,
Page 211 and 212:
Among those who have written on thi
Page 213 and 214:
line pipe markets, the European and
Page 215 and 216:
97. Merrill Lynch, “Steel Industr
Page 217 and 218:
chaebol to downside risk. This crea
Page 219 and 220:
provided after 1991 by domestic ban
Page 221 and 222:
61. Catholic University of Korea Pr
Page 223 and 224:
acquired on economically viable ter
Page 225 and 226:
date of publication in printed vers
Page 227 and 228:
Producers of iron ore and coke, the
Page 229 and 230:
production may be shut down by the
Page 231 and 232:
56. U.S. government sources. 57.
Page 233 and 234:
79. World Bank-Korea, 12. 80. Seong
Page 235 and 236:
24. 24. “Hard Times for China’s
Page 237 and 238:
60. “PRC To Further Cut Steel Out
Page 239 and 240:
132. In terms of crude steel produc
Page 241:
195. The capacity of the new steel
show all

Global Steel Trade; Structural Problems and Future Solutions

Create successful ePaper yourself

Delete template?

Save as template?