Global Steel Trade; Structural Problems and Future Solutions

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capacity of 3 million MT; one electric-arc furnace with an annual capacity of one million MT; one hot-rolling mill with an annual capacity of 2.8 million MT; two slab casters with an annual capacity of 2.8 million MT; one cold-rolled mill with an annual capacity of one million MT; one wire rod mill with an annual capacity of 400,000 MT; one hot-dipped galvanizing line with an annual capacity of 350,000 MT; one electrolytic galvanizing line with an annual capacity of 250,000 MT; one silicon strip line with unknown annual capacity; an electrical steel line with an annual capacity of 350,000 MT; a stainless steel cold-rolling mill with an annual capacity of 80,000 MT; and two tin-plating lines with an annual capacity of 400,000 MT. The stainless steel cold-rolling mill is a joint venture that purchased its equipment and technology from Japan’s Mitsubishi Heavy Industries. The 1 million metric ton per year cold-rolling mill—bought from NKK-CAL of Japan—will supply thin sheet, between 0.3 and 1.6 mm in thickness and 730 and 1,430 mm in width, to the automotive industry. The hot-dipped galvanizing and electrolytic galvanizing lines—purchased from Andritz of Austria—will also be used to produce automotive-quality galvanized sheet, between 0.3 and 2.0 mm in thickness and used to produce galvanized sheet for automotive use. Baoshan has also ordered automation equipment from Atlas Technologies of the United States to improve the quality of its automotive sheet, with the goal of supplying 85 percent of domestic demand for such sheet by the end of 2000. Baoshan is currently the only Chinese producer of electrolytic galvanized sheet and one of only two producers of automotive-quality cold-rolled sheet. Baoshan is expanding and one of only two producers of cold-rolled sheet for automotive applications. Baoshan is expanding and modernizing an existing cold-rolling mill with an annual capacity of 700,000 MT that will be used to feed its two new tinplating lines. Baoshan is also upgrading its wire rod production facilities. Morgan Construction of the United States recently completed construction of a mill that produces high tensile-strength quality wire rod ranging in size from 5 mm to 25 mm, with tolerances of 0.1 mm. This mill has an annual capacity of 400,000 MT. MBR/Battelle, 75–78. 43. Ibid., 73, 135. See also World Bank/International Finance Corporation. This joint venture will establish the largest stainless steel coil production facility in China, including modern EAF steelmaking capability, continuous casting technology, and hot-rolling and cold-rolling mills. KTN has supplied state-of-the-art equipment and technology for this project. Initial installed capacity, to begin operation in 2001, will be set for annual production of 72,000 MT of cold-rolled, bright-annealed sheet and strip. Long-term plans are to raise capacity to an annual production level of 440,000 MT of flat-rolled stainless steel products by 2006, which will virtually eliminate imports by then. The cost of this single production line is approximately US$300 million, with a long-term plan for a fully integrated stainless steel mill at a cost of approximately US$1.4 billion. 44. Ibid., 151. 45. Cockerill Sambre of Belgium will supply a 300,000 MT per year galvanizing line, and existing lines will be upgraded to boost annual capacity from 150,000 MT to 250,000 MT and total hot-dipped galvanizing annual capacity to 550,000 MT in 1999. An additional galvanizing line with an annual capacity of 64,000 MT will be installed to produce color-coated galvanized sheet. Ibid., 152–153. 46. Also, during the period 1991–1996, new investment in Wuhan’s cold-rolled mill resulted in an increase in silicon steel annual capacity from 70,000 MT to 265,000 MT. The silicon steel production improvements were supported by Nippon Steel which supplied two twenty-roll Sendzimir rolling stands, a pickling line, and auxiliary facilities for welding, annealing, and finishing. Ibid., 153–154. 47. Ibid., 67–71. 48. Ibid., 137–140. 49. Ibid.,157–158. 50. Ibid. 51. “The Decision of the Central Committee of the Communist Party of China (CPC) on Major Issues Concerning the Reform and Development of State-Owned Enterprises,” Daily Report China, FBIS-CHI, September 26, 1999. See also “Several Questions Meriting Attention in the Current Development of Enterprise Groups,” Daily Report China, FBIS-CHI, February 27, 1998. 52. Synthesis Note by the OECD Secretariat, State Owned Enterprise Reform in China, July 20–21, 1998, 7. 53. Business Overview, Web site available from http://www.baosteel.com; Internet. See also “Baoshan Steel and Dongbei University Launch Software Venture,” China Online, November 16, 1998. 54. Fred Hu “Should China Grow Chaebol?” The Wall Street Journal, December 18, 1997. 55. Organization for Economic Cooperation and Development, State Owned Enterprise Reform in China, Synthesis Note by the OECD Secretariat (Paris, July 20–21, 1998), 7. 56. “Study of China’s System of State-Owned Enterprise Groups,” Daily Report China, FBIS-CHI, March 5, 1999. 57. MBR/Battelle, 78. 58. “S&P Reduces Shanghai Baosteel to Junk-Bond Status,” China Online, September 14, 1999. 59. MBR/Battelle, 64. 230 Global Steel Trade: Structural Problems and Future Solutions
60. “PRC To Further Cut Steel Output Next Year,” Daily Report China, FBIS-CHI, December 23, 1999. 61. “State Orders Merger, Bankruptcy for 12 Steel Firms,” Daily Report China, FBIS-CHI, November 14, 1999. 62. Id. 63. Interviews with Chinese government officials by Department of Commerce officials, January 10–12 and February 28–March 1, 2000. 64. Wei-Wei Zhang, “Transforming China: Economic Reforms and Its Political Implications,” (London, Macmillan Press, 2000), 141–147. See also MBR/Battelle, 11, 160. 65. Lu Zhian, OECD Note, The Reform of the Chinese Steel Industry (October 29, 1999). See also “China’s AMCs Sign Largest Debt-Equity Deal Yet,” China Online, November 12, 1999. See also “China Denies Debt-Equity Swaps Just ‘Word Games’, ” China Online, February 7, 2000. 66. Steinfeld interview. 67. Id. 68. Id. 69. “China’s Debt-Equity Program Has Yet to be Implemented,” China Online, January 13, 2000. See also “China Denies Debt-Equity Swaps Just ‘Word Games’ ,” China Online, February 7, 2000. 70. World Bank, Macroeconomic Update: China (Washington D.C., January 31, 2000), 5. 71. “Chinese Coil Imports Remain Stable,” Metal Bulletin, March 13, 2000. 72. Interviews with steel traders and steel consumers by Department of Commerce officials, January 10–12 and February 28–March 1, 2000. 73. “Tough Measures Target Steel Overcapacity,” South China Morning Post, January 4, 2000. “China Bans New Steel Mills, Pushes Industry-Wide Closures,” China Online, February 3, 2000. 74. Id. 75. Interviews with steel traders and steel consumers by Department of Commerce officials, January 10–12 and February 28–March 1, 2000. 76. To clarify the situation, Department of Commerce officials attempted to discuss licensing and quotas with the State Economic and Trade Commission and the State Development and Planning Commission, but they refused to answer any of our questions. 77. Interviews with Chinese government officials by Department of Commerce officials, January 10–12 and February 28–March 1, 2000. 78. “China Exports Show Clear Signs of Recovery,” The Nikkei Weekly, December 15, 1999. 79. MBR/Battelle, 172–174. 80. WTO rules permit the rebate of indirect taxes, such as a VAT, in the case of an input used in production for export, provided that the rebate is not excessive, i.e., does not exceed the tax imposed on the input when used for production of goods for domestic consumption. 81. “Import Substitution for China Steel Firms Up,” China Online, March 15, 2000. 82. MBR/Battelle, 75 and 174. 83. International Iron and Steel Institute, 1999 World Crude Steel Production Data, available from http:// www.worldsteel.org/trends_indicators/countries.html; Internet. 84. Total industrial production in 1998. During the first half of 1999, non-ferrous production accounted for 9.8 percent of total production. Subtracting the later value from the former yields as estimate of 4.1 percent. Ekspert Russian Metallurgy, Chapter 1.1, 7 and Chapter 3.1, 35. 85. Metal Bulletin Research Ltd. and InfoMine, A Profile of the Steel Raw Materials Sector in the Ukraine (London and Moscow, December 1999), 6. [Hereinafter Metal Bulletin Research Ltd., and Infomine-Ukraine] 86. Ibid., 63. 87. Id. 88. Ibid., 87. 89. Richard Levine, The Mining Journal Ltd., U.S. Geological Survey, Ukraine (Reston, VA, December 1999). 90. “Ukraine-Steel and Mining Sectors-an Overview,” International Market Insight Reports, Financial Times Asia Intelligence Wire, February 11, 2000. 91. Metal Bulletin Research Ltd., and Infomine-Ukraine, 75. 92. Ibid., 79. 93. Levine. 94. Id. 95. Technical Assistance to the CIS (TACIS) is an EU program designed to assist Russian steel makers move toward European standards, 1999. [Herinafter referred to as TACIS] Notes 231
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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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determination of dumping. In Octobe
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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: 24. 24. “Hard Times for China’s
Page 239 and 240: 132. In terms of crude steel produc
Page 241: 195. The capacity of the new steel
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