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Trade winds

Jan 27, 2017 | 06:00 PM | Gregory DL Morris

Trade cases boost some sectors, while others still struggle, but extruded aluminum and steel coils have come roaring back as the new Trump administration in Washington is bringing in individuals to key posts who give industry officials cause for optimism when it comes to global dealings.

As an anxious era dawns in the United States and worldwide, major global commodity metals firms look back to important wins in trade cases in recent years but also have substantive concerns about the next few. A few segments such as extruded aluminum and several types of coil steel have made significant gains after winning relief from unfair offshore competition. Yet other segments, such as rebar and oil country tubular goods (OCTG) continue to struggle despite the efforts of producers and associations to level the playing field.

Global trade and the revival of U.S. manufacturing were issues that both sides in the recent U.S. presidential campaign returned to early and often. The new administration in Washington at first blush seems to be nominating individuals to key posts who give industry officials cause for optimism. Those include Robert E. Lighthizer as U.S. Trade Representative, Wilbur Ross for Secretary of Commerce, and Peter Navarro for National Trade Council.

That said, even the incoming chief executive’s supporters acknowledge that he is mercurial at best, and he makes no secret that he is spoiling for a fight with China over trade and financial policy. There is a fine line between robust policy and outright confrontation, and nuance can hardly be said to be a quality of the new president. Only time will tell if he can stop at posture and not tumble into provocation.

As that reality show is played out, industry leaders say they are keeping their heads down and sticking closely to their scripts. In speaking with AMM, they are eager to champion their successes. But they are very worried that the progress in specific product lines or industry segments can be mistaken for uniform health across the industry. In short, some things are good but it cannot be said that all is well.

One case in point is extruded aluminum. Exactly five years ago that sector was under siege from large volumes of imports from China, according to Jeff Henderson, president of the Aluminum Extruders Council. “The orders were successful and the imports from China largely came to a halt.” Though not entirely. “The big issue since then, and especially recently, has been enforcement. Primarily that has been trying to circumvent trans-shipments.”

Looking on the bright side, battling those brush fires has kept extruders and the association on point, and ready now that the expiry review is due. Testimony in support of at least maintaining if not strengthening the orders is being given in late January and into February. A decision could be issued as early as March.

Similarly, steel has seen good successes in cold-rolled, corrosion-resistant, and hot-rolled coil trade cases in recent years. “We also were gratified to see legislation at the end of 2016 and the beginning of 2016 that gave Congress more tools,” Philip K. Bell, president of the Steel Manufacturers Association (SMA), says. “Regulators were given additional revenue, staff and clarity on how to define and enforce injury in global trade.”

Even with that, there were no slam dunks. “We were disappointed that armed with the new tools the first opportunity to intervene, was a case regarding Worthington (Industries Inc.), and regulators chose to pass,” Bell notes ruefully. “That had a chilling effect because we saw it as a clear-cut situation. However, it let both companies and us know that we still had work to do.”

That remains the case in all sectors, notably extruded aluminum. “We have just had some cases of circumvention that have just been clarified in the first weeks of the new year,” Henderson says. “We spend most of our time working with enforcement. All industries have to come out and make a case for potential violations. That is our role at the council. The beauty of our bureaucracy is that there is always someone on watch. In these trade cases it is the Department of Commerce for evasion or circumvention of treaties or conventions. In the case of trans-shipment, that is a criminal offense and falls under the jurisdiction of Customs, in the Department of Homeland Security.”

Before enforcement gets to the level of filing complaints, Henderson says that association members and their customers have to be vigilant and make reports. “We give guidance to members and their customers on how to make reports,” he adds. “We often collect multiple reports and bundle them to file with regulators. It helps to say to them, ‘here’s the data to substantiate our claims.’”

One of the grim realities of global trade, especially in commodity metals, is that protective tariffs or import rules do not have the effect as cease-and-desist orders. In more than a few situations individuals, companies and even some countries seem to maintain that it’s only illegal if you get caught.

“One of the things we have struggled to understand is the culture or objectives of other competitors,” Henderson says. “Some exporters to the U.S. have been so brazen that they send bulk email messages offering metal. When we reply asking about prices and duties, they will just plainly state, ‘oh, don’t worry about duties, we will just trans-ship or relabel.’”

Given the recyclability of aluminum and steel, it can be difficult to track shipments. Metal is metal, at least within grades. “We have seen situations where aluminum has been remelted to billet and then re-extruded,” Henderson says. “It is hard to imagine the cost of that vs. the gain, but it seems the bottom line for some exporters is not to make money, it’s to employ people back home. To do that they need to move volume and buy market share. Some people honestly seem not to know that what they are doing is illegal, while others clearly do. There are schemes to mess with the alloy just enough to evade the rules.”

Despite all that, Henderson focuses on the gains and the recovery for his members. “The good news is that we have seen 600 million pounds a year of demand come back to domestic mills,” he says. “That has been very good news for a segment struggling to come out of the recession.”

Even more important, he adds, is that “industry has taken that recovery and invested back into equipment. We have seen new mini-extruders, especially for transportation applications. That cycle has already lapped itself several times. Extruders now find themselves able to take advantage of opportunities for growth. They have the quality control and the training. That is how trade orders help an industry.”

Overall, aluminum is a healthy industry, according to Charles Johnson, vice president of policy at the Aluminum Association. Demand is higher by 36 percent since 2009 and jobs are up 3 percent despite some major closures. The strongest sectors, he notes, are transportation, including automobile, aviation and rail, as well as sustainable packaging and green construction. On aggregate, the industry has spent $2.6 billion on plant expansions and enhancements.

“We are strong advocates of free and fair trade,” Johnson says. “Historically we have held that position. Our global trade issues begin and end with overcapacity and overproduction from China.” As evidence he states that seven smelters, representing an eye-watering 60 percent of primary metal capacity in the U.S., have been closed since 2015.

“We are increasingly concerned as we see China ramping up subsidized primary and semi-fabricated capacity,” Johnson says. “We are taking steps to address that with the government.”

Steel, too, has had plenty of successes, Bell at SMA states. The industry’s own efforts in competitiveness, together with the boost from successful trade cases have meant better outlooks for steelmakers. That in turn has led to rising share prices for the publicly traded companies.

“Yes, demand can go up,” Bell says dryly. “Actually, demand was not bad in 2016, but a lot of that was gobbled up by unfair imports. We are seeing capacity utilization being sustained at about 70 percent. That seems to be the new normal. And the speculation surrounding share prices has got to survive contact with that reality.”

Bell is quick to cite recent major investments by Big River Steel and Commercial Metals Co. putting capital into both assets and technology. “We want an industry that stands on sound fundamentals of operational competitiveness, not just on trade cases—although those are important as we have seen. At one point imports were as much as 30 percent of demand. That is now down to about 21 percent thanks to trade cases. There is definitely enough capacity for domestic mills to meet all projected growth.”

As in aluminum, the successes in a few segments of steel cannot be misinterpreted to indicate that all sectors are fine. “Oil country tubulars and rebar are still struggling. We welcome the emphasis on trade that emerged from the presidential campaign. Both candidates focused on trade in general and steel in particular. That makes sense, ” Bell says.

He stopped short of claiming any consensus, but seemed hopeful that trends were favorable to steelmakers. “Another bright spot is the sense of coming to grips with global overcapacity,” Bell notes. “Within the Group of 20 there is a new group looking at overcapacity. I just hope they focus on net reductions, not just a few closings that are offset by other new capacity.”