Global Steel Trade; Structural Problems and Future Solutions

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Publicly Owned Steel Companies While there are now several private steel companies in India, the largest steel company by far is the government-owned Steel Authority of India Limited (SAIL). SAIL had a crude steel production capacity of about 10.6 million MT in FY 1997–1998 and employed more than 175,000 people. SAIL’s main strength is its 65 percent market share of domestic hot-rolled production. The emergence of new players in this sector will likely increase competition for hotrolled steel. Since liberalization in 1991, SAIL has invested heavily in modernizing its plants, leaving it with a very high debt burden—about three times equity. The recent government debt writeoff should reduce that burden to about two to one. In addition, SAIL’s decision making process is slow and suffers from significant bureaucracy in the Ministry of Steel. duties were reduced. The government expected its economic reforms to produce rapid and sustained economic growth. This growth, in turn, was projected to drive steel demand to more than 32 million MT by 2000. 137 The government developed a strategy for expanding the country’s steel production to meet and exceed this forecast. 138 Long-term lending institutions, such as the Industrial Development Bank of India, were encouraged to extend financing for new steel capacity in the private sector, and for modernization and expansion of existing public sector plants. 139 Under these expectations of rapid economic growth, massive investments were made in new steel capacity and in modernization of existing facilities (see box below). 140 According to the Ministry of Steel, nineteen new steel projects, many of them greenfield plants, were sanctioned after the industry was deregulated. 141 In the first few years following liberalization, the economy boomed and the steel industry responded favorably to the newly deregulated environment. Apparent domestic consumption of finished steel products grew by almost 6 million MT between 1994 and 1996, (by 22 percent in 1995 and 14 percent in 1996). 142 Consumption and production of finished steel grew in step, both reaching 21 million MT by 1996. 143 Domestic Steel Demand Screeches to a Halt By the mid 1990s, it was clear that the government’s demand projections had been overly optimistic. By FY 1996–1997, the industry was stuck in a cyclical downturn; demand for steel stagnated as growth Privately Owned Steel Producers TISCO is India’s second largest steel producer (after SAIL) and largest private-sector steel company, with a total capacity in FY 1998–1999 of about 3.1 million MT. Along with SAIL, it enjoyed growth in a completely regulated steel market prior to 1991. TISCO is considered to be very well managed and, unlike SAIL, has very good labor relations. Early in the 1990s, it began modernizing its production facilities, replacing all open-hearth furnaces with more efficient basic oxygen furnace technology. TISCO has responded to the emergence of new, more efficient producers such as Jindal, Essar and Ispat by further improving its plants, and strengthening its marketing and distribution network. TISCO is also focusing on moving its product mix toward flat products which have higher profit margins, and on exports to improve sales growth. With plans to complete a new 1.2 million MT cold rolling mill in 2002, TISCO executives are confident that their company will become one of the most efficient steel producers in the world. In addition, there are thousands of smaller, privately owned producers—i.e., small to medium-sized induction and electric arc furnace producers, pig and sponge iron units, rerollers, and stand-alone cold rollers and galvanizers. Having previously relied on protection in the regulated market, many secondary producers have closed since 1991. The survivors, particularly those using electric arc furnaces, face high power costs, uneven quality and limited availability of scrap. 164 Global Steel Trade: Structural Problems and Future Solutions
among steel-intensive sectors, such as consumer durables and capital goods, declined. Moreover, as India’s fiscal deficit grew, the government drastically reduced spending on infrastructure and other public projects, further weakening domestic demand for steel. 144 By FY 1998–1999, apparent consumption of finished steel had reached just under 24 million MT 145 (Chart 6-10), 8 million MT shy of the government’s projections, while domestic capacity had increased to more than 32 million MT. Metric Tons (millions) 30 25 20 15 10 5 0 Finished Steel (production) Total Exports Total Imports Apparent domestic consumption 1991 1992 1993 1994 1995 1996 1997 1998 1999 Source: India Infoline. 6-10. Indian Finished Steel, All Products Impact of the Asian Financial Crisis The Asian financial crisis further exacerbated the industry’s problems. Metric Tons (thousands) 800 700 600 SAIL TISCO ESSAR RINL 500 Domestic Steel Prices. Lowcost imports (mostly from 400 Russia and the other former 300 Soviet Republics) significantly depressed 200 domestic prices. While it does 100 not appear that a large 0 quantity of imports entered FY95 FY96 FY97 FY98 FY99 India, steel consumers could Source: CMA India. pressure domestic producers into lowering prices. Indian steel makers that competed 6-11. Exports of India’s Major Producers against imports from Russia and other former Soviet Republics faced foreign prices as low as $180 per MT. 146 Domestic prices for hot-rolled coil dropped from a high of more than $330 per MT to less than $195 per MT over the course of 1998. 147 Prices of most domestic steel products declined precipitously in 1998, eliminating the profit margins of domestic producers. 148 Declining Exports. Indian producers also faced a loss of demand abroad, particularly in the southeast Asian markets on which Indian steel producers had depended. India’s total steel exports to the region fell by 25 percent from FY 1996–1997 to FY 1997–1998. 149 Total exports fell another 18 percent in the next fiscal year, 150 forcing producers to lower crude steel capacity utilization from 76 percent in FY 1997–1998 to 71 percent in FY 1998–1999 (Chart 6-11). 151 Chapter 6: New Players in the Global Market—India 165
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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
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• Regulating POSCO after privatiz
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approximately 32 percent from 1997
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denominated revenue. For other mini
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Rounding Out the Big Three Usiminas
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Chapter 3: Behind the Crisis—Braz
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Import Licensing System Importers m
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they were able to cut their prices,
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CHAPTER 4 U.S. Response to the Cris
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compared to November 1998 and conti
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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: Today India is the world’s tenth
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
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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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