NEW YORK Skyrocketing overcapacity in the global steel sector continues to be one of the U.S. industrys main challenges, particularly as weak trade laws and lax enforcement encourage many foreign mills to send unfairly traded volumes stateside, a top U.S. Steel Corp. executive said.
"I think we can all agree that our industrys biggest challenge today remains the state of the global economy and its ongoing impact on the steel industry," Mario Longhi, president and chief operating officer of Pittsburgh-based U.S. Steel, said in a keynote address at the Steel Success Strategies XXVIII conference in New York sponsored by AMM and Englewood Cliffs, N.J.-based World Steel Dynamics Inc.
Demand for steel products in the United States, particularly for markets related to the booming energy sector, is on the rise, according to Longhi. However, with foreign steel mills rapidly ramping up capacity and some choosing to flood the U.S. market with that additional tonnage, domestic steelmakers havent reaped the full benefits of the energy-related uptick, he said.
"Our industry and the U.S. economy are not realizing the full benefits of this opportunity due to recent significant surges of imported tubular products. While the economic recovery of the United States has been slow and uneven, it is still a relatively attractive destination for certain steel products compared to other regions of the world," Longhi said, citing a 52-percent spike in casing and tubing imports and a 42-percent bump in flat-rolled imports between 2010 and 2012.
"As producers around the world scramble to fill their plants, the pressure on the United States market has intensified," Longhi said.
One factor driving the surge in low-priced imports is the emergence of state-owned enterprises in the steel industry that at times operate in contradiction to market fundamentals, he said.
"The bottom line is that for several decades now, many governments have found the temptation to promote steel production," Longhi said, adding that China is at the top of the list in terms of concerns.
"Unfortunately, China is still not a market economy, a fact proven time and again by various investigations into government bodies," he said. "Subsidies, export restrictions of raw materials, currency manipulation and state-owned enterprises both inside and outside their borders are just a few of the actions being taken by the Chinese government, some of which directly contradict (World Trade Organization) obligations and Chinas formal promise to abide by them."
Under its governments policies, Chinas steel production has soared to a projected 748 million tonnes this year from 128 million tonnes in 2000, "which is significantly above their internal demand," Longhi said.
"That production and resulting exports has led to innumerable trade conflicts around the world," he said, noting that "substituting government hopes and goals for market demand and needs has often had results that are all too predictable."
As a result of skyrocketing imports from China, as well as a number of other global steel players, the U.S. trade deficit for iron, steel and ferroalloys totaled $21 billion last year, Longhi said, marking the highest deficit since 2008 and the third-highest of all time.
And that startling trend is going to continue unless Washington steps up and makes a change, Longhi said.
"While policymakers and market participants around the world often agree and say the right things, the words are all too often not matched by actions and reality," he said.
One necessary change is the better enforcement of trade laws already in existence in the United States, according to Longhi.
"We need to do a better job enforcing the trade orders we have on the books, addressing head-on the growing and brazen schemes we are seeing to circumvent trade relief," he said.
Longhi also called for a more proactive approach to trade laws rather than the current method of waiting until the damage has been done to initiate an investigation.
"We need to make sure that industries do not have to wait years and suffer extensive injury, which profoundly impacts jobs, investments, R&D, technology and development, and sustaining capex, before measures can be taken to address proven unfair trade," he said.
Washington also needs to recognize that currency manipulation itself is a form of subsidization, Longhi said, citing the need for federal legislation addressing the issue.
"If American policymakers are vigilant, I believe we can work through the current era of excess capacity and move toward a new era in which success in the steel industry will be driven solely by hard work and innovation," he said.