Global Steel Trade; Structural Problems and Future Solutions

at a loss. The rationale for pricing so aggressively in the U.S. market had to stem from the very significant
declines in Japanese exports to Asia as a result of the Asia crisis, which caused a decline of 2 million MT
of Japanese exports to the region from 1997 to 1998.
While marginal cost pricing might be expected in periods of downturn, especially for a high fixed cost
industry such as steel, the ability to sell at marginal cost for a long period cannot be sustained. Japanese
producers may have an advantage over U.S. firms in that they are able to sell at marginal cost for longer
periods. The reason for this lies in part in the noncompetitive nature of the domestic Japanese steel market,
which tends to allow prices for domestic sales of steel to remain constant and relatively high. In a more
competitive domestic environment, Japanese producers would have competed for domestic market share,
not just foreign market share, and this would have driven down domestic prices and affected the producers’
cash flow.
Price-cutting on key products such as hot-rolled steel and structural shapes during the export surge are
particularly illustrative.
Hot-Rolled Steel. The price of Japanese hot-rolled
steel exported to the U.S. started its decline in
early 1997, around the time of the reported
decision to boost hot-rolled steel exports and well
before the softening of prices in the U.S. market
(see box) .105 The average unit values of Japanese
hot-rolled steel imported into the United States
dropped from more than $400 per MT in the
spring of 1997 to less than $300 by mid-1998. By
the second half of 1998, when the largest volumes
were imported, the price of imported steel had
fallen to around $250 per MT (Chart 3-26).
Per-unit yen revenues on exported hot-rolled steel
declined as a result of these cuts (Chart 3-27). In
early 1997, Japanese producers
were earning revenues in the
45,000–50,000 yen range per
MT of hot-rolled steel exported
to the United States. 106 Yen
revenues on exports declined
gradually from that point, then
bottomed out at approximately
30,000 yen per MT by the
second half of 1998. By this
time, exported hot-rolled steel
was being sold at less than half
the price charged to big buyers
in Japan’s domestic market,
whose price was holding steady
at 71,000 yen.
Structural Products. The drop
in yen revenues for exported
structural products follows a
Average Unit Value ($/metric ton)
$550
$500
$450
$400
$350
$300
$250
Hot-Rolled Price (left scale)
Import Volume (right scale)
$200
Jan 96 Jul Jan 97 Jul Jan 98 Jul Jan 99 Jul
AUV = Average unit values.
The Export Drive’s Ultimate Impact:
Global Market Instability
The more dire the situation in Japan’s home
market, the greater the need to increase exports
until the point where Japanese export volumes
and export pricing can help undermine even a
large market experiencing strong levels of
demand, such as that in the United States during
1998. It is no wonder then, that first among the
factors identified by World Steel Dynamics as
destabilizing prices in the U.S. market in 1998 was
the fact that “Japanese import offerings have been
extraordinarily high for most of the year [1998].”
Source: U.S. Department of Commerce, Bureau of the Census.
3-26. U.S. Imports of Carbon Hot-Rolled Steel From Japan:
AUVs in $/Metric Ton and Import Volumes
Chapter 3: Behind the Crisis—Japan 83
500
400
300
200
100
0
Metric Tons (thousands)