Global Steel Trade; Structural Problems and Future Solutions

More documents

Recommendations

Info

Industry restructuring in the 1980s and 1990s led to an increasing mini-mill presence in the U.S. industry. Initially producing low end products such as concrete reinforcing bar (rebar), mini-mills now produce a wide range of products including hot-rolled sheet, cold-rolled sheet, plate-in-coils, wideflanged beams and high quality bar products. 64 Cost advantages and willingness to price aggressively had resulted in mini-mills dominating 27.0% 34.2% certain segments of the market 73.0% 65.8% such as high quality bar or, in the case of rebar and 1982 1990 structural beams, taking them over completely from domestic 42.7% integrated producers. 65 57.3% 1998 Mini-mill Integrated Note: Integrated production = open hearth + basic oxygen furnace. Mini-mill production = electric furnace. Distinction between integrated and mini-mills has blurred with some integrated electric furnace production. Source: American Iron and Steel Institute. 2-16. Share of Raw Carbon Steel Production, Integrated vs. Mini-mill According to this theory, sharp declines in scrap prices set the stage for the 1998 crisis. The mini-mills’ significant cost advantage on their chief input product enabled them to price aggressively in order to increase sales and market share (Chart 2-16). 66 Unable to meet low mini-mill prices, U.S. integrated producers were driven from the market and forced to lay off workers. In this scenario, steel imports did not drive down prices in the U.S. market; foreign steel companies were forced to follow the mini-mill lead or be driven from the market. There was no U.S. steel crisis per se, only a crisis for U.S. integrated producers caused by increased domestic competition within the U.S. market. However, U.S. mini-mills did not lead the price declines for hot-rolled steel in the U.S. market. Following a small dip in the fall of 1997, prices charged by Nucor, the leading U.S. mini-mill, remained flat until the summer (Chart 2-14). During that same time, import prices of hot-rolled steel from Brazil, Japan and Russia fell steadily. 67 The role of mini-mill price competition was addressed in the ITC’s injury determination in the hot-rolled steel investigation. In discussing whether increased competition within the domestic industry accounted for the price declines in 1998, the ITC stated: It is significant that the hot-rolled steel prices of Nucor (which is regarded by the domestic industry and importers alike as an established and efficient mini-mill and widely looked to as a domestic price leader) declined dramatically during the latter half of 1998 as subject import volumes increased at their fastest rate during the period of investigation. Nucor’s prices recovered only as the subject imports exited the market. These facts suggest that factors other than increased competition within the domestic industry contributed to the significant price declines in the latter part of the investigation period. 68 In addition, although average scrap prices in 1998 were 17 percent below scrap prices in 1997, financial data reported by Nucor, the largest volume mini-mill producer of flat-rolled steel, suggests that the overall mini-mill cost reductions were not that large. 69 In its 1998 annual report, Nucor stated that “the major component of cost of products sold is raw material costs” and that the “average price of raw materials was substantially unchanged in 1998, 1997 and 1996.” 70 Furthermore, Nucor states that “[s]crap and scrap substitutes are the most significant element in the total cost of steel” and that “their average cost in 1998 was comparable to the $145 per gross ton in 1997.” 71 The price relationship between scrap prices and 26 Global Steel Trade: Structural Problems and Future Solutions
finished steel prices is very complex and declines in scrap prices do not necessarily lead to declines in finished steel prices. 72 The explanation of 1998 as an “integrated mill crisis” ignores the fact that mini-mills were also hard hit by low-priced steel imports in 1998—in some cases, even harder than their integrated mill counterparts. 73 In examining the domestic industry in 1998, the ITC noted: Indeed, the same trends for the industry as a whole are also apparent in the separate results of both integrated mills and mini-mills. …In fact, mini-mills fared even worse than integrated mills from 1997 to 1998. …The worse financial performance of [mini-mill] producers reflects in part their greater dependence on the merchant market, where imports are concentrated. 74 The ITC did not find that the industry’s poor performance in 1998 was driven by increased domestic competition rather than the effect of increased imports. Mini-mill competition was an important condition of competition in 1997, yet the domestic industry performed well that year. The incremental increase in mini-mill capacity from 1997 to 1998, particularly in light of the substantially larger increase in mini-mill capacity from 1996 to 1997, does not account for the bulk of the downturn in the domestic industry’s financial indicators from 1997 to 1998. Thus, while we recognize increased competition within the domestic industry has contributed to the domestic industry’s poorer performance in 1998, it only partially explains the substantial declines in the domestic industry’s performance in 1998. 75 General Motors Strike. The 1998 strike at General Motors also played a role in the price declines and industry misfortunes seen that year. The strike came at a sensitive time, as financial crises abroad impacted the world steel market and as U.S. imports were beginning to increase. When the strike began in June 1998, it was also unclear how long it would last and what effect it would have on U.S. mills and other suppliers. According to G. Mustafa Mohaterem, GM’s chief economist, the GM strike resulted in a considerable loss of revenue for U.S. integrated mills given the fact that GM purchases almost all of its high-quality, highpriced steel from integrated mills in the United States and Canada. 76 In addition, the uncertainty about the length of the strike exerted downward pressure on prices in the steel market. 77 In the end, the strike lasted only fifty-four days. While some short-term shutdowns and layoffs were attributed to the strike, the strike appears to have had a relatively limited impact on the steel market outside the cold-rolled and corrosion-resistant steel segments of the industry where most of GM’s purchases are concentrated. 78 Taking into account increased GM purchases after the strike, mills in the United States and Canada lost roughly 400,000 MT of sales to GM as a result of the strike. 79 Even assuming that none of these lost sales were offset by increased steel consumption by other U.S. automakers, the lost volume represents less than half of 1 percent of total U.S. apparent consumption in 1998 and accounts for less than 1 percent of flat-rolled steel shipments. 80 Even during the strike, the unadjusted 620,000 MT figure only represents approximately 3 percent of total steel apparent consumption and approximately 7 percent of flatrolled apparent consumption in those two months. For comparison purposes, the increase in imports of steel mill products in 1998, compared to 1997 exceeded 9 million MT, while the increase in imports of flatrolled products in 1998 exceeded 5.5 million MT. The ITC considered the effects of the GM strike in making its determination in the investigation on hotrolled steel from Japan and acknowledged that by having some effect on overall demand in 1998, the strike Chapter 2: The U.S. Steel Import Crisis 27
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 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: from Brazil, Japan, and Russia. 58
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
show all

Global Steel Trade; Structural Problems and Future Solutions

Create successful ePaper yourself

Delete template?

Save as template?