Global Steel Trade; Structural Problems and Future Solutions

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Chapter 6 1. U.S. ITC, Suspension of Antidumping Duty Investigation: Certain Cut-to-Length Carbon Steel Plate From the Peoples Republic of China, 62 FR 61773 (November 1997); U.S, Final Determination, Certain Cold Rolled Flat- Rolled Quality Steel Products From the People’s Republic of China (May 2000) 65 FR 34660. 2. The term “state-owned enterprise” in China historically has meant a non-incorporated enterprise “owned by all the people,” but in reality owned by no one and effectively controlled by a government ministry or a local or provincial government. The term “state-owned enterprise” today also includes Chinese companies in which there is stockholding by private or other non-government investors, but where the government (including government ministries and other proxies) retains majority ownership or control. 3. Metal Bulletin Research and Battelle, A Profile of the Steel Industry in China (London and Columbus, Ohio, February 2000), 6. [Hereinafter MBR/Battelle] 4. International Iron and Steel Institute (IISI), 1999 World Crude Steel Production Data (Brussels). 5. “China to Shutter Small Steel Plants, Cut Output,” Reuters, January 10, 2000. 6. “On the Front,” Shanghai Baosteel Group Corporation, September 1999. Iron and Steel Yearbook of China, 1998, 89. Edward S.Steinfeld, Forging Reform in China: The Fate of State-Owned Industry, (Cambridge: Cambridge University Press, 1998). 7. Nicholas R. Lardy, China’s Unfinished Economic Revolution, (Washington, D.C.: Brookings Institution Press, 1998), 28–30, 39–43, 54–56, 83, 119. See also Steinfeld, Forging Reform in China: The Fate of State-Owned Industry. 8. MBR/Battelle, 62. 9. Chinese government officials, interview by Department of Commerce officials, January 10–12 and February 28– March 1, 2000. China-based steel industry analysts believe that industry capacity is as high as 190 million MT. The 140 million MT figure is therefore conservative. 10. Shougang Iron and Steel Research Institute staff, interview by Department of Commerce officials, January 11, 2000, Diaoyutai State Guesthouse, Beijing. 11. Chinese government official, interview by Department of Commerce officials, February 28, 2000, Beijing. 12. MBR/Battelle, 65. 13. Bureau of Labor Statistics (BLS), “Table B–1: Employees on Non Farm Payrolls by Industry.” See also MBR/ Battelle, 137. 14. “China’s Next Leap Forward,” Reuters, January 10, 2000. See also William Hogan, The Steel Industry of China (New York: Lexington Books, 1999), 13. The 3 million plus people employed in the steel industry represent about 3 percent of total state-owned enterprise sector employment. See also The Editorial Board of theYearbook of Iron and Steel Industry of China, 1999 China Iron and Steel Yearbook (Beijing, June 1999), 25, 59. [Hereinafter 1999 China Iron and Steel Yearbook] 15. 1999 employment figure of 153,600 from Bureau of Labor Statistics Data, National Employment Hours and Earnings, Series ID: EEU31331201 (for SIC 3312); 97 million MT U.S. crude steel output figure for 1999 from IISI. 16. Baoshan Corporation officials, interview by Department of Commerce officials, March 1, 2000, Baoshan Corporation headquarters, Shanghai. This figure applies to Baoshan’s core steel operations, before Baoshan’s 1998 merger with several Shanghai-based steel firms that increased Baoshan’s workforce from 11,000 to over 130,000. 17. MBR/Battelle, 4. 18. Ibid. Layoffs in this context are an intermediate form of unemployment that is a transition measure to full separation from the firm. 19. Thomas G. Rawski, “China’s Move to Market: How Far? What Next?” Cato Institute Conference Volume (forthcoming), 10. 20. The private sector is a huge potential employer of displaced state-owned enterprise workers. Private sector activity is expanding rapidly, propelled by decentralization and increased economic and business opportunities. The private sector is now the most dynamic part of China’s economy. However, the development and growth of the private sector remains constrained due to obstacles that limit the flow of resources into the private sector. Private enterprises in China have no access to readily available credit and are subject to predatory taxation by local authorities. The 1998 constitutional amendment that recognizes the private sector as an “important component” of the economy will legitimize efforts by reform-oriented local governments to relax these constraints and promote private sector growth and development. But greater direction and guidance from the top is needed. Ibid., 10–11. 21. MBR/Battelle, 63. 22. “PRC Iron, Steel Industry Restructured,” Daily Report China, FBIS-CHI, March 13, 2000. 23. “PRC’s Steel Industry Heavily Overhauled,” Daily Report China, FBIS-CHI, February 2, 2000. 228 Global Steel Trade: Structural Problems and Future Solutions
24. 24. “Hard Times for China’s Steel Market,” China Online, October 4, 1999. 25. MBR/Battelle, 164–165 and 1999 China Iron and Steel Yearbook 54. 26. Ibid.,62. 27. Ibid.,11. 28. Ibid.,167. 29. U.S. Census Import Data. 30. U.S. Department of Commerce public affairs fact sheets for antidumping investigations of cut-to-length plate and cold-rolled flat-rolled carbon-quality steel from the PRC. 31. “Outline of the Ninth Five-Year Plan for the National Economic and Social Development and the Long-Term Target for the Year 2010 of the People’s Republic of China,” Daily Report China, FBIS-CHI, April 17, 1997. 32. The now defunct Ministry of Metallurgical Industries (MMI) previously controlled production and distribution of state-owned enterprise output, approved large-scale investment projects, and arranged the supply of energy, raw materials and rail transport. MBR/Battelle, 59–60. 33. MBR/Battelle, 60. 34. Massachusetts Institute of Technology Professor Edward S. Steinfeld, and Harvard University, Visiting Professor Thomas Rawski, interview by Department of Commerce officials, January 24–25, 2000, Cambridge, MA. 35. Rawski interview. 36. Gong Zhengzheng, “Steel Gets Support for Upgrades,” China Daily (Business Weekly), July 12, 2000. See also Wang Qi “Where Does China Go After the Fourth Party Plenum,” J&A Securities Hong Kong (October 1999), 18. Mr. Wang refers to 9 billion yuan in interest subsidies for loans to finance technological upgrading and transformation of 512 specially chosen state-owned enterprises and 120 corporate groups in metallurgical, nonferrous metal, petrochemical, textile, machinery and electronics industries. These subsidies are expected to cover 180 billion yuan in loans. 37. “List of PRC Key Construction Projects Unveiled,” Daily Report China, FBIS-CHI, May 14, 1998. Also, “State Sets Key Construction Projects for 1996,” Daily Report China, FBIS-CHI, May 29, 1996. 38. Thomas G. Rawski, “China’s Move to Market: How Far? What Next?” Cato Institute Conference Volume (forthcoming). Rawski points out: The influence of government administrators over investments decisions stands out. At the macro-level, government agencies use annual investment and credit plans to control the size of overall investment. And at the micro-level, efforts to expand the independent management capabilities of enterprise managers and bank executives have failed to eliminate the key role of government offices in investment decisions… Despite huge progress in the direction of market operation, it is not yet possible to classify China’s economy as a market system. China remains outside the realm of market economies because of an unreformed investment mechanism, which remains largely controlled by public officials rather than by the profusion of independent coalitions typical of market systems. Administrative management of China’s investment system leaves its distinct imprint in the form of a seasonal macro-economic rollercoaster…(7,8) 39. Average annual investment in technological upgrading and transformation in the iron and steel industry increased from 7.1 billion yuan during the period 1986–1990, to 19.3 billion yuan for the years 1991–1995, to 25.1 billion yuan for the period 1996–1998. During the period 1996–1998, annual investment declined slightly from 25.8 billion yuan in 1996, to 24.9 billion in 1997, to 24.5 billion yuan in 1998. 1999 China Iron and Steel Yearbook, 38. Making a CPI-based adjustment for inflation, using 1986–1990 as the base period, and adjusting to the mid-point of each averaging period, the corresponding figures are 7.1 billion yuan for 1986–1990, 12.6 billion yuan for 1991–1995, and 10.2 billion yuan for 1996–1998. For the three-year period 1996–1998, the annual inflation-adjusted investment figures are 10.7 billion yuan, 10.0 billion, and 9.9 billion yuan, respectively. The slowing of investment in technological upgrading and transformation is, most likely, a reflection of government efforts to maximize available funds and to be more selective in choosing recipient firms. See IMF, International Financial Statistics, 1999, for yearly CPI data. 40. “Ninth 5-Year Plan Focuses on Seven Major Industries,” Daily Report China, FBIS-CHI, August 31, 1996. All yuan-to-dollar conversions made at the rate of 8.3 yuan/US$. 41. MBR/Battelle, 75–78. 42. Phase III of Baoshan’s construction, covered under the ninth five-year plan (1996–2000), is nearing completion. Under phase III, Baoshan has installed or is in the process of installing two converters with an annual Notes 229
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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
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for by the WTO. The industry argues
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Effect of Excess Inventories Much o
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coke but also to the large increase
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The Role of the Chinese Coke Indust
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CHAPTER 5 Reforms and Restructuring
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The current dramatic economic and s
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While this analysis is largely corr
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these four heavyweights will be abl
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Government Initiatives to Encourage
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U.S. Firm Takes Over Hanbo Steel Pr
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ensure that the commercial banks fo
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Again, while these efforts hold pro
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Brazil-IMF Reform Program Throughou
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CHAPTER 6 New Players in the Global
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• Be subject to strong subsidy di
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Technological Backwardness. China
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100 kg at present. Per capita consu
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Current Reform Efforts in the State
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wire rod production with an annual
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Notwithstanding the negative impact
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Media reports and interviews with v
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Baoshan is not equipped to provide
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Domestic Consumption In 1998, Ukrai
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two firms, Enakievo and Konstantino
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• Barter. Ukrainian steel compani
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Today India is the world’s tenth
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among steel-intensive sectors, such
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Banks’ Debt and Equity Exposure D
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Tariffs. High tariff rates also con
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new sales growth. 196 By 1998, even
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CHAPTER 7 Avoiding Future Crises In
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propose to monitor additional data
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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: 79. World Bank-Korea, 12. 80. Seong
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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