Global Steel Trade; Structural Problems and Future Solutions

Professor Tilton’s price analysis has been criticized by representatives of Japanese integrated producers on
the following grounds: (1) The big buyer price difference is partially explained by the overall long-term
appreciation of the yen since the Plaza Accord in 1985; (2) big buyer prices include only Japan’s largest,
most sophisticated steel consumers, whereas the U.S. contract price includes many smaller, less demanding
customers; and (3) big buyers in Japan prefer their traditional integrated suppliers due to a high level of
customer service and product customization. 42 Representatives of Japanese firms have also noted concern
with the reliability of the reported big buyer prices themselves. 43
While these factors may influence high domestic prices to major customers, they cannot alone explain the
sheer size of the price differences involved—particularly given Japan’s weak domestic market. First, the
yen has fluctuated substantially since 1985. Yet big buyer prices have remained high and stable in
comparison with other prices in Japan, Japanese export prices, and prices in other major markets such as
the United States. Second, the contention that the big buyer price is limited to a select group of the most
sophisticated customers is at odds with the fact that sales to big buyers reflect a substantial majority of
integrated producers’ total sales, which is not disputed by representatives of Japanese integrated
producers. 44 It is also at odds with the information indicating, as noted above, that the reported big buyer
prices are for commercial-grade ordinary steel. Finally, while factors such as customer service and
production customization may influence price (as Tilton’s analysis recognizes), 45 even those analyses, such
as antidumping analyses, that take company-, product-, and market-specific differences into account find
substantial pricing differences.
Barriers to Imports
Although Japanese domestic prices have long been at levels well above prices prevailing in other markets,
imports into Japan have remained low by international standards. Of course, high domestic prices could not
hold if importers were able to take advantage of these high prices. Several factors—including distribution
barriers, product-certification requirements, and alleged international market-sharing arrangements—can
be identified that limit Japan’s steel imports, and as such can help explain the existence of a noncompetitive
domestic market.
Japanese steel import penetration has historically remained at less than 10 percent, below import levels in
the United States, Korea, and the EU. 46 While imports were increasing gradually up to 1991, they fell
sharply through the rest of the 1990s as domestic demand dropped. The fall in imports was in fact even
steeper than the fall in overall domestic demand: while domestic apparent consumption declined nearly 30
percent over the past decade, imports plummeted by 50 percent, from nearly 14 million MT in 1991 to 6.6
million MT in 1998. As a result, even as measured against a declining Japanese steel market due to the
prolonged recession, imports became increasingly less significant relative to domestic shipments. Imports
comprised 9.6 percent of domestic apparent consumption in 1991, and just 7.4 percent in 1998. 47
The decline in imports since 1991 cuts across most major product groups:
• Imports of hot-rolled steel fell from 3.5 million MT in the early 1990s to 2.2 million MT by 1998.
• Imports of long products, including structural shapes and wire rod, fell drastically, from over a million
MT in 1991 to less than 200,000 MT in 1998. 48
For certain products, both imports and domestic apparent consumption fell so severely as to render trends
in product-specific import penetration rates almost meaningless. For instance, despite a meager overall
import penetration rate of just over 7 percent for all steel products, import penetration of hot-rolled steel
had by some measures increased to nearly 40 percent by 1998, despite the substantial drop in hot-rolled
steel imports noted above. This is because the already-small Japanese merchant market for hot-rolled steel
had plummeted to just 6 million MT in 1998, down from 10.5 million MT in 1991. 49
Chapter 3: Behind the Crisis—Japan 75