Once again, Chinese steel imports were the
most hotly debated issue at AMM's third annual China
Summit. For some, the debate felt like déjà
Some attendees complained that the arguments
thrown back and forth between those in favor of "free" trade
vs. those in favor of "fair" trade were getting a little tired.
China's alleged pegged currency and its value-added tax rebate
were just a couple of the well-worn issues that were discussed,
and there proved to be little new information. Indeed, a number
of panelists said outright that much of their presentations
contained information they had given in the past. That doesn't
really get the pulse pounding.
To be sure, the conference provided some
memorable moments-a fired-up Rep. Peter J. Visclosky (D.,
Ind.), for example, saying that the Chinese didn't care about
the safety of their mineworkers, which prompted one Chinese
official to invite Visclosky and the House Steel Caucus to
visit China. And many delegates were surprised by the
uncharacteristically mellow speech by the usually combative
Daniel R. DiMicco, chairman, president and chief executive
officer of Nucor Corp., Charlotte, N.C., in which he emphasized
cooperation with the Chinese.
Most notable, however, was an analyst's
suggestions that, for a variety of reasons, China's steel
exports were approaching their peak and China could become a
net importer of steel again-perhaps within this decade.
Sal Tharani, associate global investment
research analyst at New York-based Goldman Sachs & Co.,
said China's potential for oversupply remains the biggest risk
to the global steel industry, although "slowing production
growth data out of China is encouraging."
Recent data supports that assertion. U.S. imports of steel
products totaled 2.3 million tonnes in August, down 22.2
percent from the previous month, according to preliminary
figures from the U.S. Census Bureau (AMM,
Imports from China fell 26 percent to 326,586 tonnes in the
Could this mark the beginning of the end for
the flood of Chinese steel imports? "Don't base your sex life
on one night," one domestic steel industry source said. "One
month does not make a trend."
Fair enough. It's a safe bet that U.S. steel
imports from China will reach a record high this year-thus far,
imports from China are outpacing 2006 levels by nearly 8
percent, although imports from the rest of the world are
lagging behind the year-earlier total by nearly 24 percent.
But 2007 will mark the peak for U.S. imports
from China because the Asian nation isn't a cheap place to
produce steel, Tharani said, noting that it is forced to import
much of its raw materials. Iron ore prices, for example, will
rise by 30 percent next year, he said.
Coupled with rising freight rates, the
increased cost of making steel will force the closure of small,
inefficient steel plants in China if the country's government
doesn't do so first, Tharani said. The Chinese government has
in the past made promises to shutter old, polluting capacity,
but so far the U.S. industry has been unimpressed with its
Also, China's investment in its steel sector
has shrunk while Bejing has implemented measures to restrict
exports and consolidate the industry, Tharani said.
Perhaps most importantly, however, is the
fact that neither the Chinese nor the United States wants China
to be the world's leading steel supplier. Indeed, most agree
that China would prefer to take better advantage of its cheap
work force by exporting downstream products like washing
machines and cars. If successful on that front, the risk shifts
to steel consumers-already battling, and in some cases losing
out to, products manufactured in China.
"We're fearful of a loss of our customer
base," one steel industry source said. The virtual end of the
U.S. coat hanger industry is just one example of how the
downstream market is losing to its Chinese counterparts.
In the meantime, the domestic steel industry
isn't sitting on its hands watching the calendar. The major
associations say action is needed to stem the tide of Chinese
steel imports. But that's another familiar story-the
legislation the industry so desperately wants on trade and
currency has stalled in Congress, and steel industry lobbyists
say they don't know whether it will get a hearing before
Congress adjourns in December.