Global Steel Trade; Structural Problems and Future Solutions

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Economic Challenges: Need for Stable Growth and Increased Steel Consumption and Imports An additional barrier to a fully competitive Brazilian domestic steel market is the lack of meaningful levels of steel imports. Import barriers, such as a nonautomatic licensing regime, remain as fully intact as they were during the U.S. steel crisis. In addition, the exorbitant cost of capital prevents potential importers from financing purchases of imported steel. The lack of competition from imports plays a crucial part in keeping domestic prices high. Nonautomatic Licensing Regime Brazil’s use of a nonautomatic import licensing system for certain steel products may contribute to the relatively low level of import competition in the Brazilian market. Brazil requires a license for the importation of nearly any product. Licenses for most products are typically obtained within five days. 100 However, the Brazilian government has made several products subject to nonautomatic import licensing, including steel wire rod and stainless steel. Significant delays in securing import shipment clearance under this system may discourage importers and foreign suppliers. 101 It may also have a chilling effect on the importing of steel products not subject to the nonautomatic procedures given the lack of transparency in Brazil’s decisions to impose such procedures. Capital Costs The high cost of capital in Brazil has a particularly pronounced negative impact on the importation of steel, including steel from U.S. producers. Because of the high expense of borrowing, potential importers cannot afford to finance the necessarily large purchases of imported steel. 102 Furthermore, with interest rates for short-term loans currently hovering between 25 percent and 30 percent, it is simply not economical for producers or traders to maintain inventories. Instead, steel purchasers buy just what they need on a weekly, even daily, basis, 103 forcing them to rely on domestically produced steel. More affordable domestic financing in the form of lower interest rates would provide importers greater opportunity to purchase steel produced by the United States and other countries and would promote a more open steel market in Brazil. The resulting competitive pressures could provide the incentive needed for Brazilian steel producers to complete their restructuring efforts. Macroeconomic Reform A sound economic foundation in Brazil would help to create a more stable currency environment, eliminating the artificial price advantage that Brazilian exports have enjoyed relative to U.S. domestic products. The package of macroeconomic reforms prescribed by the December 1998 Brazil-IMF arrangement (see box, next page) 104 promises to stabilize the Brazilian economy. By controlling inflation without resorting to high interest rates, these reforms allow for more stable and reliable infrastructure development and insulation from future capital flight shocks. Greater infrastructure development in the overall Brazilian economy, along with the planned expansion of Brazilian automotive manufacturing, should absorb some of the expected increases in Brazil’s steel production and thereby reduce the pressure Brazilian steel companies feel to export new production to the United States and other world markets. 136 Global Steel Trade: Structural Problems and Future Solutions
Brazil-IMF Reform Program Throughout 1998, the government struggled to keep its currency, the real, afloat in the face of challenges such as investor flight and international loan defaults. Tactics employed included massive spending cuts and dramatic interest rate hikes. In October 1998, the central bank raised interest rates from 29.75 percent to 49.75 percent in an effort to stem the outflow of capital and relieve the downward valuation pressure on the real. Although inflation was reduced, high interest rates restrained economic growth and stifled domestic demand, including demand for steel products. In December 1998, the IMF and the government of Brazil entered into a 36-month stand-by arrangement involving over $18 billion in loans. Under the arrangement, Brazil and the IMF developed economic policy measures aimed at: • Steadily increasing national savings. • Reducing the burden of public debt. • Facilitating a sustainable decline in interest rates. The Brazil-IMF reform program provides a foundation for the continued strengthening of the Brazilian economy and helps make it more secure from external shocks, such as the attacks on the real in late 1998, and its collapse in January 1999. Chapter 5: Reforms and Restructuring Abroad 137
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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
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The Russian steel industry has made
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steel is traded between the world
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estructuring of companies and predi
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Under the conditions of introducing
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When prices began to escalate after
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pension payments) reached almost 20
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exports extremely profitable, the b
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Trading Companies and the Marketing
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these intermediaries, one source es
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• Domestic demand for hotrolled s
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Although the production facilities
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3.2 Structural Factors and Japanese
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apparent in the marked differences
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High Domestic Prices The apparent c
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outstripped growth in domestic dema
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Noncompetitive Domestic Market and
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Professor Tilton’s price analysis
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The Product Certification System Ad
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Three factors contributed to tippin
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Collapse of Asian Export Markets At
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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 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: Again, while these efforts hold pro
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
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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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