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Global trade, capacity provide world-class headaches

Jun 30, 2014 | 08:00 PM | AMM staff

Steel executives always take global competition and trade into consideration when making decisions about production, marketing, expansion, acquisitions, products, research and development, and other business issues. Chinese steel production, concerns about global overcapacity, unfair trade practices and potential new export opportunities are weighed in many of the day-to-day moves that steelmakers consider.

“In the first three months of this year, finished steel imports increased by 17 percent from the same period in 2013, capturing an unacceptably high 25 percent of our market,” said Michael Rippey, president and chief executive officer of Chicago-based ArcelorMittal USA LLC and new chairman of the American Iron and Steel Institute, Washington. “The challenges of these imports remain particularly troubling, given that U.S. producers were using only 77 percent of their production capacity.”

The Steel Manufacturers Association in Washington has expressed similar sentiments. “Given the nation’s status as a low-cost steel producer, it is not economically justifiable for the U.S. to be such a large net importer of steel,” a recent SMA policy paper said. “The U.S. enjoys marked advantages in practically every aspect of steelmaking, including access to capital, technology and raw materials; relatively low energy costs; high labor productivity; and proximity to the U.S. market.”

More than eight of every 10 steel executives believe that goods imported from China pose a moderate to great challenge to the competitiveness of their companies, according to a survey AMM conducted last year on behalf of London-based PricewaterhouseCoopers LLP (PwC). That number has not changed much recently.

“Despite China’s massive overbuild of steelmaking capacity and significant slowdown there on the construction and infrastructure fronts—conditions suggesting a pending diversion of products from China’s home into offshore markets—participants in (the survey) show virtually no increase in concern over the importation of goods from China,” said Sean Hoover, metals leader for PwC’s U.S. industrial products practice. “Participants in (the survey) show virtually no increase in concern over the importation of goods from China. Participants in both annual surveys clearly see Chinese goods posing a challenge, with 49 percent of 2013 respondents rating that challenge as ‘moderate’ and 36 percent rating the challenge as ‘major.’” 

About two-thirds of survey respondents said that U.S. trade laws and enforcement measures are effective deterrents to unfair trade practices. 

“Few, if any, industries have been more active on the international trade litigation front over the years than the domestic steel industry,” Hoover said. “Results of the trade suits have been mixed. Filing a trade case is expensive and time- and resource-intensive, but domestic mills have little other recourse to counter what they consider—and must prove—are unfair trade practices.”

John J. Ferriola, chairman, president and chief executive officer of Charlotte, N.C.-based Nucor Corp., spoke out on U.S. trade policy during the AISI’s annual meeting in May. “Steel and other U.S. manufacturers continue to face significant trade and competitive challenges from foreign governments’ trade-distorting policies and practices,” Ferriola said. “A more effective U.S. trade policy is needed to level the playing field and preserve and strengthen our nation’s manufacturing base. We are advocating with lawmakers and government officials on a nearly daily basis to get better enforcement of legislative remedies like addressing currency manipulation in ongoing trade negotiations.” 

About two-thirds of AMM survey respondents said that exporting activity will play a moderate or very important role in their future market development strategies. “Exports continue to play an important role in steel executives’ market development strategy,” Hoover said. “Exports go hand-in-hand with the projected renaissance in American manufacturing and have typically been pursued by domestic mills on an opportunistic basis.”

Earlier this year, an AISI analysis estimated that steel demand would grow 4 percent in 2014 and projected a 4.1-percent increase in shipments, reaching 100 million net tons by year-end. Finished steel imports were projected to increase 3.6 percent, capturing a 23-percent market share. 

Rippey cited a portion of the analysis that showed exports are forecast to increase 3.9 percent in 2014.

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