Global Steel Trade; Structural Problems and Future Solutions

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Productivity and Employment in the U.S. Steel Industry Throughout the 1980s and 1990s, the U.S. steel industry underwent massive restructuring and reorganization, investing well over $50 billion in steel plant modernization, according to an AISI estimate. The restructuring greatly increased productivity, as obsolete and inefficient mills were shut down, aging lines updated and newer, more productive plants brought on line. As steel companies became more efficient, the actual tonnage of steel shipped remained fairly steady, contributing to a decline in employment. 1.5 1.5 1.45 1.45 1.4 1.4 Output Per Hour 1.35 1.35 1.3 1.3 1.25 1.25 1.2 1.2 1.15 1.15 1.1 1.1 Output 1.05 1.05 1 1 0.95 0.95 0.9 0.9 0.85 0.85 0.8 0.8 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Index 1990Q1 = 1.000. Source: Output, Federal Reserve. Output per hour: Employment x average weekly hours (SIC 331). Thousands 2-3. Output and Productivity, Steel Mill Products 280 270 260 250 240 230 220 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Source: Bureau of Labor (SIC 331). 2-4. Employment, Steel Mill Products Two technological trends contributed to the increase in productivity and decline in employment. First, raw steel production shifted from the relatively labor intensive and less efficient open hearth furnaces to electric furnaces. Second, the percentage of total U.S. raw steel production continuously cast increased from 65 percent to 96 percent between 1989 and 1998. Recent developments in thin slab casting by Nucor Corp. and other mini-mills have pushed productivity in flatrolled steel production up even further. The industry also saw a significant shift in demand for steel in the United States in the 1980s and early 1990s as the demand for smaller, lighter automobiles and the growing use of steel substitutes such as aluminum and plastic took hold. This downward trend reversed prior to the 1998 crisis. Steel demand, as measured by apparent consumption, had been strong since the mid- 1990s, and in 1998, demand increased by 6 percent compared to 1997. But the recent increases in steel demand did not offset the decades-long decline in steel employment. 16 Global Steel Trade: Structural Problems and Future Solutions
These productivity increases and shifts in demand over the past two decades have resulted in a significant decline in employment in the steel industry. In the fifteen years between 1979 and 1994, total steel industry employment fell 58 percent, from 570,500 to 239,200, a loss of 331,300 jobs. However, by the mid-1990s, the major restructuring efforts were complete, and the sharp drops in employment leveled off. While finished steel product shipments, as of the late 1990s, were down only slightly from the peaks of the early 1970s, employment in the industry had fallen by more than 60 percent. According to AISI, man-hours per ton of finished steel decreased from about ten in the early 1980s to well below four by the late 1990s. With few inefficient producers left, a very lean and highly productive U.S. steel industry emerged. It is in this context that the industry saw an abrupt decline in employment in 1998 when thousands of steel workers were laid off at the end of the year. Storm Clouds on the Horizon Financial Crisis in Asia The financial crisis in Asia began in mid-1997 in Thailand and quickly spread to Malaysia, Indonesia, the Philippines and Korea. In country after country, currencies collapsed and stock prices plummeted despite efforts at intervention. During the last half of 1997, the Thai baht lost 49 percent of its value against the dollar, while the Malaysian ringgit, Indonesian rupiah, Philippine peso, and Korean won lost 35 percent, 44 percent, 34 percent, and 48 percent of their values, respectively. 21 In the same six-month period, Thai stocks fell 29 percent while stocks in Malaysia, Indonesia, the Philippines, and Korea fell 45 percent, 45 percent, 34 percent, and 50 percent, respectively. 22 Banks began to fail due to over lending and the high costs incurred through dollar denominated debt payments which could not be met after very large currency devaluations. The crisis was the worst economic downturn in the region in thirty years. Three countries—Thailand, Indonesia, and Korea—sought International Monetary Fund (IMF) assistance. In August 1997, Thailand agreed to an IMF Program that included a $17 billion package of loans, provided by the IMF, World Bank, Asian Development Bank, and selected governments. In October, Indonesia agreed to an IMF loan that included $40 billion in multilateral and bilateral support. In December, Korea agreed to $57 billion in multilateral and bilateral support. The economic policies pursued under the IMF-supported program, combined with emergency financial support, helped these countries begin the slow and painful process of economic recovery. In the first year of the crisis, an additional 40 to 50 million people in the region fell below the poverty line, not only in Indonesia and the Philippines, but also in Korea, Thailand and Malaysia, countries that had made considerable strides in alleviating poverty. 23 Millions of children in the region left school as a result of the crisis to either work as laborers or beg on the streets. 24 Fears of widespread hunger and malnutrition in Indonesia arose as government officials in 1998 estimated that 100 million Indonesians, close to half the nation’s population, would be unable to afford food and basic necessities by year’s end. 25 In the years prior to the financial crisis, the massive amount of available capital in Asia encouraged unsound lending practices, which were exacerbated by government interference in the financial sector, crony capitalism, and corruption. 26 Foreign lenders had been rushing in to take advantage of new opportunities in a growing region. For example, total foreign debt in Korea almost tripled between 1992 and 1997, increasing from roughly $43 billion at the end of 1992 to $121 billion at the end of 1997. 27 Chapter 2: The U.S. Steel Import Crisis 17
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: 1997: A Cloud Behind Every Silver L
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 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
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
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