Global Steel Trade; Structural Problems and Future Solutions

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Russian and Brazilian steel producers initially faced the 110 additional problem of a loss of Japan 100 price competitiveness vis-à-vis 90 their Asian competitors as Asian 80 currencies fell against the ruble Korea 70 and the real. Their competitive Thailand 60 position improved with 50 depreciations of both the ruble Brazil 40 and the real in the second half of 30 Indonesia 1998, which came at a time 20 when many of the Asian Russia 10 currencies had already begun to Jan ’96 Jan ’97 Jan ’98 Jan ’99 rebound. Although the Jul ’96 Jul ’97 Jul ’98 Jul ’99 depreciation of the ruble came too late in 1998 to be a factor in U.S. steel crisis, the ruble and real depreciations gave Russian 2-5. Index of Currency Values: 1996–1999 and Brazilian steel exporters a (Based on Exchange Rates, January 1996=100) significant price advantage in virtually all steel markets in which they competed, both in Asia and in the United States. In light of the initial devaluation of Asian currencies, steel producers in Russia and Brazil likely saw rising U.S. demand and the strong U.S. steel market as their best opportunity. 1998: U.S. Industry in Crisis Up Sharply in April, Imports Climb Steadily Throughout the Year Beginning in April 1998, steel imports began to rise dramatically, up 21 percent from both March 1998 and the previous April. By the end of 1998, steel imports had increased to almost 38 million MT, a 33 percent increase over the 28 million MT imported in 1997, 5 the previous record year for imports (Charts 2-6, 2-7). Metric Tons Millions 4 3 2 1 0 Jan ’97 Apr July Oct Jan ’98 Apr July Oct Source: U.S. Department of Commerce, Bureau of the Census; American Iron and Steel Institute. 2-6. U.S. Imports of Steel Mill Products Source: Federal Reserve, DRI & Russian Economic Trends (January 2000). Foreign producers have said that they were simply meeting the rising demand in the United States during 1998, demand that they claimed U.S. steel mills were unwilling or unable to supply. General Motors has noted that starting in late 1997, parts suppliers were reporting that certain U.S. steel makers were placing customers on allocation and encouraging them to look elsewhere for additional product. 44 Similar 20 Global Steel Trade: Structural Problems and Future Solutions
concerns regarding purchase allocations and potential shortages were raised with respect to the structurals market. 45 40 30 Strong U.S. demand certainly made for an attractive U.S. market. However, the increase in steel imports into the United States far outstripped the 6 percent increase in U.S. demand. Steel imports increased by 9.40 million MT, compared to an increase of 6.75 million MT in U.S. steel demand—an overhang of almost 40 percent. This pattern held true for individual product categories as well. Demand for Metric Tons Millions 20 10 0 1996 1997 1998 Source: U.S. Department of Commerce, Bureau of the Census; American Iron and Steel Institute. 2-7. U.S. Imports of Steel Mill Products hot-rolled steel in 1998 grew by 3.5 million MT, while imports increased by 4.6 million MT. Demand for structural steel in 1998 increased by 1.2 million MT, while imports increased by 1.6 million MT. With respect to import levels, Father William Hogan, director of Fordham University’s Industrial Economics Research Institute and a noted industry expert, stated: I cannot conceive of any situation where the United States would need 20 to 30 million net tons of finished steel imports. From a peak demand standpoint, the United States would need only about 10 to 15 million net tons of imports, given current U.S. finished steel product capacity. 46 Because the U.S. market could not absorb the import oversupply, U.S. steel mill inventories rose approximately 5 percent by December 1998 compared to pre-crisis levels in autumn 1997. By mid-1999, inventories were up 11 percent compared to autumn 1997 levels. 47 Service center inventories rose approximately 20 percent from the second half of 1997 to the end of 1998—from an average of roughly 6.5 million MT to almost 8 million MT. 48 Noting concerns about steel price declines in the face of strong U.S. demand, as measured by the increase in U.S. apparent consumption to about 130 million MT in 1998, James Collins, former president and now policy advisor to the Steel Manufacturers Association, said: In that phrase “apparent consumption,” the key word is “apparent.” For we know the U.S. market will not have consumed 130 million tons of steel in 1998. How many excess tons are sitting on docks, in bonded warehouses, or in the inventories of service-center distributors? Many are guessing that the overhang on the market is at least 5 million tons of finished steel, certainly enough to depress steel prices to levels below costs of production for many U.S. producers. 1998 is turning into a year in which 9 to 10 million tons of additional imported steel, over and above the 31 million tons imported last year, is the straw that broke the camel’s back. 49 Anecdotal evidence suggests that a buildup of inventories may have also taken place among nontraditional holders of steel, such as traders and importers. Some market observers have alleged that importers brought in and warehoused large quantities of steel during 1998 at the low prevailing prices to avoid problems associated with future trade cases. These observers reported large inventories built up right at or near the Chapter 2: The U.S. Steel Import Crisis 21
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 and 22: 1997: A Cloud Behind Every Silver L
Page 23 and 24: These productivity increases and sh
Page 25: In mid-1998, financial crisis hit R
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
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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
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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
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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
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massive layoff data shows 9,550 emp
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also possess weaknesses, which the
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64. Ibid., 145-177. 65. Id. Bethleh
Page 201 and 202:
ITC considered numerous factors. On
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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,
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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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