Global Steel Trade; Structural Problems and Future Solutions

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The story of Magnitogorsk’s hot-rolling mill is emblematic of the Russian steel industry as a whole. • Investments were made despite market conditions. • Production continued or even increased without regard to domestic demand or serious financial difficulties. • Huge volumes of steel production were exported at very low prices. • Massive volumes of lowpriced steel were diverted from one market to the next in a matter of months. Conclusion Thousands of Metric Tons 3,000 2,500 2,000 Total 1,500 Asia 1,000 500 United States 0 1996 1997 1998 Source: Infomine. 3-17. Magnitogorsk Exports of Hot-Rolled Steel The lack of normal business considerations at the investment, production and selling stages in the Russian steel industry led to volatility in the global steel market and damage to the steel industry and steel workers in other countries, including the United States. While the Russian steel industry has the potential to be competitive in world markets in the long-term, it must address the underlying market-distorting practices to avoid the kind of trade frictions it has encountered in the past. 64 Global Steel Trade: Structural Problems and Future Solutions
3.2 Structural Factors and Japanese Steel Trade Introduction A number of economic and structural factors in Japan’s steel market played a significant role in the U.S. steel crisis of 1998. A decade-long deterioration in domestic steel demand was the primary market development that led Japanese producers to rely increasingly on exports in the 1990s. While resort to export markets in response to weak demand at home may be economically justifiable in principle, the presence of long-standing structural distortions in the Japanese steel market amplified the U.S. steel crisis by apparently helping to sustain low-priced imports into the U.S. market. In the late 1990s, faced with tight fiscal policy, the Asian financial crisis, and the failures of major financial institutions, Japan slipped deeper into recession. Japanese steel consumption declined, and Japanese steel producers turned increasingly to export markets. These temporary economic conditions affecting Japanese steel trade only magnified underlying structural problems in the Japanese market. The combination appears to have resulted in higher volumes and lower prices of Japanese steel exported to the United States. Japan’s major structural problem is its noncompetitive steel market. The key symptoms of the Japanese steel market suggesting a noncompetitive market that can distort Japanese steel trade abroad are as follows: • Production shares among the top five Japanese producers have remained virtually unchanged for twenty-five years. While the remarkable stability of production shares among Japan’s top steel producers has caught the attention of Japan’s Fair Trade Commission (JFTC), the Japanese government has not taken any further action to address concerns about apparent coordination among the major producers. The JFTC noted that despite the fact that total industry production levels fluctuated routinely from 1975 to 1992, “each share among the five companies has hardly fluctuated.” 1 • High and stable domestic prices to major steel customers in Japan have been another outcome of the apparent coordination of steel production. Industry data show that the prices paid by large steel consumers in Japan remained high and remarkably stable over a long period and in the years leading up to and including the export surge to the United States. These numbers support industry reports that producers placed a priority on maintaining domestic price stability, even at the expense of curtailed domestic shipments. • There is a history of international price discrimination between domestic and export markets. As 1999 ended, Japanese steel products were subject to ten antidumping duty orders or undertakings and eight ongoing investigations in a number of countries including Brazil, Canada, Mexico, and the United States. 2 The lack of meaningful competition among major producers in Japan, suggested by the long history of stable production shares and stable domestic prices, allows Japan to maintain a high-priced domestic profit sanctuary, which can affect global steel trade in the following ways: • Revenues from high-priced domestic sales can be used to improve cost competitiveness by, for instance, funding research and development. • Likewise, high domestic prices can be used to sustain low-priced exports over substantial periods of Chapter 3: Behind the Crisis—Japan 65
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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
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 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: Although the production facilities
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
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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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Engaging Korea On Hanbo In late 199
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Korea Korea’s steel industry has
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New Players: China, Ukraine, and In
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government and private sector assis
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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
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ITC considered numerous factors. On
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104. Harry Thuedaus was recently re
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Frank Markus, Successes and Failure
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Decrepit Steel Plant in the Urals,
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2. WTO. At the time of this report,
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Among those who have written on thi
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line pipe markets, the European and
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97. Merrill Lynch, “Steel Industr
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chaebol to downside risk. This crea
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provided after 1991 by domestic ban
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61. Catholic University of Korea Pr
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acquired on economically viable ter
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date of publication in printed vers
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Producers of iron ore and coke, the
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production may be shut down by the
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56. U.S. government sources. 57.
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79. World Bank-Korea, 12. 80. Seong
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24. 24. “Hard Times for China’s
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60. “PRC To Further Cut Steel Out
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132. In terms of crude steel produc
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195. The capacity of the new steel
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