Global Steel Trade; Structural Problems and Future Solutions

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added products (or “high-end products”), e.g., hot-rolled and cold-rolled sheet, galvanized sheet, stainless steel and tinplate, has increased. Producers have not adjusted to this shift in market demand and continue to churn out low-end products in increasing volumes (Chart 6-2). Metric Tons (millions) 30 Wire Rods 25 20 HR sheet/coil/strip 15 Plate 10 Welded Pipe and Tube 5 Seamless Tube 0 1993 1994 1995 1996 1997 1998 1999* *Estimate. Source: Metal Bulletin Research/Battelle. 6-2. Finished Steel Output by Product Type, China (1993–1999) As a result of the government’s inability to stem the flow of low-end steel, there has been a substantial increase in inventories. By some estimates, the current rate of oversupply exceeds 10 million MT per year, 22 and accumulated inventories reached 30 million MT at the end of 1999. 23 This has led to serious cash flow problems for firms, and some have resorted to paying their bills in kind through the exchange of steel for raw materials. Such payments may represent as much as 30 percent of total industry sales. 24 Government Import Substitution Goals. This imbalance has given rise to what the Chinese government views as China’s excessive dependence on imports of high-end products. Total steel imports grew from 12 million MT in 1998 (about 10 percent of consumption) to an estimated 15 million MT in 1999 (about 12 percent of consumption). Nearly 70 percent of steel imports in 1999 were high-end flat products including hot-rolled and cold-rolled sheet, stainless steel, galvanized sheet and tinplate. 25 If Chinese producers collectively are unable to determine the right product mix to satisfy demand at home, it is unclear how they will do so to satisfy demand abroad. Metric Tons (millions) 7 6 5 4 3 2 1 0 1990 1992 1994 1996 1998 Note: 1999 figure includes fourth quarter estimate. Source: Metal Bulletin Research/Battelle. 6-3. Chinese Finished Steel Product Exports (1990–1999) Historically, Not a Big Exporter Historically, China has never been and is not now a steel exporter of significance, as the Chinese have focused their attention on the domestic market (Chart 6-3). Given average annual finished steel production of 99 million MT during 1996– 1998 26 and average exports of 4.1 million MT per year, China consumes about 96 percent of its finished steel output. Per capita steel consumption is low by international standards, but it is growing, having increased from 60 kg in 1990 to approximately 144 Global Steel Trade: Structural Problems and Future Solutions
100 kg at present. Per capita consumption is expected to continue growing at this pace. 27 Current total consumption exceeds 125 million MT per year. With such a large and growing steel market, China not only absorbs most of its own production, but is a net importer. Most of the finished steel production that China exports goes to regional markets in Asia. The regional nature of China’s steel exports reflects the high weight-to-value ratio of much of its steel output and the fact that China does not yet consistently meet international product standards, particularly for high-end steel. In large part because of the Asian financial crisis, China’s steel exports dropped approximately 23 percent between 1997 and 1998 (roughly 1 million MT in absolute terms), due to reductions in shipments to what had been China’s largest export markets, Korea and Japan. 28 Impact on the United States. Falling exports to Asia appear to have resulted in some trade diversion to the United States, but not to the extent that China played a significant role in the U.S. steel crisis in 1998. The United States imported 434,000 MT of steel mill products from China in 1996; 433,000 MT in 1997; and 574,000 MT in 1998. In contrast, steel mill imports from Japan rose from 2.3 million MT in 1997 to 6.1 million MT in 1998, and imports from Russia rose from 3 million MT in 1997 to almost 5 million MT in 1998. In 1999, steel mill imports from China increased to approximately 700,000 MT, 29 possibly due to the effect of U.S. antidumping orders on imports of hot-rolled steel from Japan, Brazil, and Russia. U.S. Antidumping Cases. Chinese steel producers have been subject to a limited number of U.S. antidumping actions covering small volumes of trade. A 1997 suspension agreement on carbon, cut-to-length plate settled a case involving Shougang, Wuhan and Anshan and approximately 271,000 MT of trade (about 19 percent of total U.S. carbon cut-to-length plate imports). A 1999 investigation of cold-rolled flat-rolled carbon-quality steel products involved Baoshan and approximately 125,000 MT of trade (about 4 percent of total U.S. coldrolled flat-rolled carbon-quality steel imports). 30 This investigation resulted in an affirmative finding of dumping, but a negative injury finding by the U.S. International Trade Commission. China’s Industrial Development Plans China’s serious structural and performance problems and historically low export volumes might make China’s emergence as a major steel exporter seem unlikely. However, because of the Chinese government’s industrial development plans for the steel industry, there remains concern. China’s leaders have historically viewed a modern and efficient steel industry as a fundamental basis for sustainable economic development. For China’s current economic reformers, a strong steel industry is an indispensable part of China’s overall effort to meet growing demand for steel products in strategic, steel-intensive sectors such as transportation and energy infrastructure, automotive manufacturing, shipbuilding, and other so-called “pillar industries” that will form the backbone of China’s rapidly growing economy. 31 The government’s efforts to strengthen the industry are focused on consolidation and modernization: • Consolidation will concentrate production around the big four producers and eliminate the inefficiencies and wasted resources of small-scale production. • Modernization through plant and equipment upgrades and improved industrywide production methods and management techniques will make steel makers more competitive and more responsive to market demands. Modernization also encompasses efforts to give steel makers a fresh start by reducing their debt burden with debt-equity swaps and to develop China’s top producers into industrial conglomerates that can draw profits from diverse business operations. China’s four largest steel producers—Baoshan, Wuhan, Anshan, and Shougang—are at the forefront of this strategic development effort. Through plant and equipment upgrades and improved production methods, China’s industrial planners hope to accomplish four things: Chapter 6: New Players in the Global Market—China 145
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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
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3.3 Korea’s Steel Industry in The
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negotiations for the purchase of Ha
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almost 700 percent (Chart 3-31). By
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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 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: Technological Backwardness. China
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
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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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