A new report attempts to quantify government subsidization of Chinese steel and the Fed has left interest rates alone again.
Steel Associations Release Chinese Subsidy Report
Five of the leading American steel trade associations today released a report documenting that the steel industry in China is heavily subsidized by its government, and the rapid growth in the industry there has been fueled by government subsidies and other market-distorting policies.
The report was released by the American Iron and Steel Institute, the Steel Manufacturers Association, the Committee on Pipe and Tube Imports, the Specialty Steel Industry of North America and the American Institute of Steel Construction.
The report analyzed each of the 25 largest steel companies in China and detailed the amount and types of government subsidies each company received in recent years. The analysis also found that these subsidies and policies have led to tremendous overcapacity and created a highly fragmented domestic steel sector in China made up of many inefficient, and heavily polluting, companies.
The Fed, in a statement after a two-day meeting of its policy-making committee, said that the economy had overcome wobbles this year and that job creation had increased with moderate economic growth. The central bank added that it saw fewer clouds on the horizon as the U.S. entered the eighth year of an economic expansion.
The United Steelworkers and the petitioning domestic steelmakers praised new anti-dumping tariffs against cold-rolled flat steel products, while also saying that the damage from cheap imports has already hurt their operations.
“Today’s final duty orders by the Obama Administration expands fairer pricing conditions on cold-rolled steel products from five countries, combined with duties placed earlier this summer on the same steel import products from China and Japan,” United Steelworkers President Leo Gerard said. “We have nearly 19,000 steelworkers and iron ore miners still on extended layoff status since last year as the remaining steel trade case investigations continue to reduce huge inventories of unfairly dumped and subsidized finished steel imports that have been stockpiled before the case was initiated.”
Cold-rolled steel flat products from five countries received new tariffs. Source Adobe Stock/Jovanning.
The cold-rolled case hit producers in Brazil and the Republic of Korea hardest — South Korea’s POSCO was hit with 64.62% combined anti-dumping and countervailing duties due to a failure to confirm key elements of its response to investigators — but tariffs have already had an effect on steel imports into the U.S. Most of them were already being collected as preliminary duties that became final last week. The initial case was filed last year.
Injury Before Remedy
“The year-long investigation and duty orders show our trade laws need a rewrite in today’s world of steel overcapacity that’s putting American manufacturing workers and miners on layoff in their our own market, while foreign producers keep shipping illegally-subsidized and dumped products,” USW International Vice President Tom Conway told the Times of Northwest Indiana. Read more
Base prices have increased three times since the beginning of 2016. Stainless buyers have already been paying a steady increase in base prices in the transactional market. By now, most contract stainless buyers are at base prices higher than their prior contract period. Master distributors are extracting premiums as metal buyers scramble to fill in any gaps in their supply chains. Another base price increase is expected to be announced after the September anti-dumping duty determination on Chinese cold-rolled, flat stainless steel.
US Mills Enjoying Price Increases
The U.S. mills have the momentum to capture another base price increase. Domestic mills have strong order backlogs. Domestic lead times continue to be longer than the normal six to eight weeks. The impact of the anti-dumping and countervailing duty lawsuits against Chinese cold-rolled stainless has finally occurred.
The latest U.S. Census statistics showed cold-rolled stainless imports into the U.S. from China dropped to under 2,000 metric tons in May, compared to almost 10,000 mt in April. Other Asian importing countries have not significantly increased activity into the U.S. Increased imports into the U.S. from Europe have amounted to less than a 1,500 mt-per-month increase.
The threat of trade cases has made many importers cautious about the U.S. market. Whether domestic or import, the metal buyer should expect to be paying higher overall prices in the upcoming months. Since publishing our July monthly outlook, nickel prices have climbed 12%.
Cover Your Volumes
Even though prices are on the uptick, stainless buyers need to ensure that their volumes are covered. Any manufacturer with spikes in stainless demand may have difficulty in procuring additional material quickly, especially in bright-annealed, polished and thicknesses less than .030 inches.
I strongly urge metal buyers to review stainless flat-rolled requirements to ensure that adequate volumes are secured with your suppliers. Whether import or domestic sources need to be utilized, your suppliers need more transparency than ever before in your flat-rolled stainless steel needs.
The Department of Commerce issued final anti-dumping and subsidy orders on Thursday, affirming and adding on to initial tariffs on cold-rolled steel flat products from Brazil, India, Korea, Russia, and the U.K. The duties are already in effect and will remain so for five years to counteract dumping and government subsidization.
Commerce determined that imports of cold-rolled steel from Brazil, India, Korea, Russia, and the U.K. have been sold in the U.S. at dumping margins of 14.43% to 35.43%, 7.60%, 6.32% to 34.33%, 1.04% to 13.36%, and 5.40% to 25.56%, respectively. Commerce also determined that imports of cold-rolled steel from Brazil, India, Korea, and Russia have received countervailable subsidies of 11.09% to 11.31%, 10%, 3.91% to 58.36%, and 0.62% to 6.95%, respectively.
Some producers in Brazil were hit with 46.5% total duties while some producers in the U.K. will only receive 6.02% tariffs, which will continue to be collected by Customs and Border Protection upon import into the U.S. One producer in the Republic of Korea was hit with 64.62% total duties on cold-rolled imports.
Brazil’s Usiminas Siderurgicas de Minas Gerais did not respond to all of Commerce’s requests for information and, therefore, Commerce calculated a final dumping margin based on adverse facts available of 35.43% and levied 11.09% countervailing duties on the company for a total penalty of 46.52% tariffs.
In the Korea anti-dumping investigation, Commerce found that dumping had occurred by mandatory respondents POSCO/Daewoo International Corporation and Hyundai Steel Corporation at dumping margins of 6.32% and 34.33%, respectively. Commerce calculated a final dumping margin of 20.33% for all other producers/exporters in Korea.
What’s interesting about this investigation is that while Commerce calculated a final subsidy rate of 3.91% for Hyundai Steel, the second mandatory respondent, POSCO, was unable to confirm certain key elements of its response when the Commerce team conducted verification at its headquarters in Korea. Therefore, Commerce calculated a subsidy rate based on adverse facts available of a whopping 58.3% meaning that POSCO gets a total anti-dumping/countervailing duties tariff of 64.62%. Commerce calculated a final subsidy rate of 3.91% for all other producers/exporters in Korea.
The London Metal Exchange is seeing volumes fall while Japan and China spar over anti-dumping duties the latter slapped on the former for electrical steel imports.
LME Capacity, Official Storage Both Fall
The number of London Metal Exchange physical storage units continues to decline in tandem with falling registered stocks. As of July 8 there were 608 registered warehouses for the storage of base metals, down from 621 a year ago and from almost 700 in 2012 and 2013. Reuters’ Andy Home has more.
Total exchange-registered stocks have fallen to 3.6 million metric tons from over 7.5 million over the same time frame, largely due to the LME’s forced attrition of load-out queues at locations such as Detroit and the Dutch port of Vlissingen.
Japan Condemns Chinese Electrical Steel Tariffs
China’s decision to levy anti-dumping duties on electrical steel products from Japan was unjust and regrettable, the chairman of the Japan Iron and Steel Federation said on Monday.
China’s decision to levy anti-dumping duties on electric steel products from Japan was unjust and regrettable, the chairman of the Japan Iron and Steel Federation said on Monday. “Japan has been explaining that exports of the electric steel products from Japan had caused no injury to local industry, but China has rejected our claims,” Kosei Shindo, the chairman of the Japan Iron and Steel Federation, told a news conference.
“Japan has been explaining that exports of the electric steel products from Japan had caused no injury to local industry, but China has rejected our claims,” Kosei Shindo, the chairman of the federation told a news conference.
American Iron and Steel Institute President and CEO Thomas Gibson said in a recent media conference call that the U.S. and other nations continue to experience economic impacts from the Chinese steel oversupply largely produced by China’s state-sponsored companies. He said policymakers must address the “root cause” of the problem.
“We believe that the Chinese government has to get out of the steel business,” Gibson said, “and let its steel industry operate according to market principles.”
Gibson spoke July 13 on a conference call with the press.
In 2015, China’s production of crude steel fell 2.3% from 2014, according to the World Steel Association, but its share of the world’s production grew slightly to 49.5%. Gibson said China’s oversupply of steel reached 112 million metric tons in 2015 and added that some reports estimated excess production would increase this year. U.S. steel companies’ production fell 10.5% last year and approximately 10% of the workforce has been laid off.
Gibson said that nine of the 10 largest steel producers in China are state-owned. While these firms may be selling steel at a loss, China is directing state-owned banks to “continually refinance the debt” and also sweep the debts off the books and this is what’s keeping “zombie mills” open.
In an effort to address declining domestic demand, China announced that it would reduce steel production as much as 150 mmt over the next five years. Gibson said these promises are often empty as China made similar commitments in the past and “each time capacity has actually increased in China.”
Speaking a day after the press phone call to the Senate Banking Committee, Gibson said, “the surge in imports is a result of foreign government interventionist policies that have fueled global overcapacity in steel, more than half of which is located in China… While China is not the only source of the problem, the overcapacity in China is the greatest challenge facing the global steel industry today.”
Heavy-walled, rectangular carbon steel pipes are used mainly as structural members in construction. The Commerce Department recently affirmed earlier preliminary anti-dumping duties on pipe imports from Turkey, Mexico and the Republic of Korea.
The U.S. construction market has remained strong this this year with home construction posting strong gains this summer and low-cost imports of structural pipe have certainly helped general contractors’ bottom lines.
Most of the anti-dumping duties for providers in South Korea and Mexico came in at less than 5.5%, but Turkey was the big importing loser with some of its steel companies hit with duties between 36 and 15%, although one Turkish steelmaker was found not to have dumped at all.
Welded, structural carbon steel pipes are a mainstay of construction but new tariffs will increase the price of of imports from Mexico, Turkey and the Republic of Korea. Source: Adobe Stock/Artzenter.
Republic of Korea
Commerce found dumping has occurred by mandatory Korean respondents Dong-A Steel Co. and HiSteel Co. Ltd. at dumping margins of 2.34% and 3.82%, respectively. All other producers/exporters in Korea will incur a final dumping margin of 3.24%. Read more
Yesterday, the U.S. and Vietnam signed an agreement to resolve two longstanding World Trade Organization disputes over imports of Vietnamese shrimp to the U.S. (the official case numbers are DS404 and DS429).
The agreement provides a framework for the settlement of American court litigation, as well as the resolution of outstanding anti-dumping duty claims covering various administrative reviews of a 2005 warmwater shrimp order. Assistant U.S. Trade Representative Barbara Weisel, Assistant Secretary of Commerce for Enforcement and Compliance Paul Piquado, and Vietnam’s Deputy Minister of Industry and Trade Tran Quoc Khanh signed the agreement yesterday.
A case involving Vietnamese shrimp shows how difficult it can be to quantify value for non-market economy goods. Source: Adobe Stock/Armcreation.
You might ask yourself, what does shrimp have to do with metals? As to how it concerns world trade, this case is important because it addresses the sometimes nebulous question of what exactly is fair in determining the proper prices of exports from non-market economies into market economies like the U.S. You see, Vietnam and China are the only two countries considered by the WTO to be non-market economies.
Market Economy vs. Non-Market Economy
Back in 2005, the U.S. imposed anti-dumping duties on several Vietnamese importers of shrimp. Vietnam asked the WTO to review the duties and, in 2014, a WTO panel found the original anti-dumping order to be inconsistent with WTO rules, including elements of the decision not to remove Vietnamese exporter Minh Phu, a producer that later proved it had not dumped for three years — from the order. In 2015, the panel’s findings were adopted by the WTO dispute settlement body and the U.S. agreed to come into compliance.
The panel faulted “as such” Commerce’s practice in anti-dumping cases of starting with a “rebuttable presumption” that all exporters in non-market economies are government controlled, state-sponsored entities. As we said above, Vietnam and China are the only two countries regarded by the department to be NMEs. As with steel companies in China, some Vietnamese shrimp producers are state-controlled and some are not. The WTO essentially said Commerce must prove that companies it places tariffs on are receiving government support.
A 129 review is the process used to determine how Commerce can make a redetermination that would ensure that its decisions in particular trade remedy cases are in line with the findings of the WTO. In the instance of DS429, the U.S. was faulted by the WTO dispute settlement panel in 2014 for improperly calculating the duties and in May 2015 informed the panel that it planned on coming into compliance with the panel report. The reasonable period of time for the U.S. to conform to the panel report was set to expire on Aug. 22.
Following a request from U.S. Trade Representative, the Department issued a preliminary section 129 determination on May 20, to implement findings of the WTO dispute settlement body. The preliminary decision includes a recalculation of Minh Phu’s dumping rates for 2008/2009 in a manner consistent with the WTO panel’s findings. As a result of the recalculation, Minh Phu’s rate for that period was reduced to zero and Commerce preliminarily found that revocation of the anti-dumping order with respect to Minh Phu was appropriate.
As part of the agreement, Minh Phu and its importers will be required to certify that it is the producer and exporter of any shrimp it exports to the U.S., to ensure that other exporters are not circumventing the anti-dumping order through transshipment.
The lack of a 123 review suggests that Commerce is taking a very narrow approach to implement the as-such ruling on its non-market economy practice by only making changes to these particular cases involving shrimp.
However, Commerce’s final memo on the 129 review does allude to the “as such” challenge. It stops short of pledging to resolve the criticized practice of viewing all producers as state-sponsored beyond these two cases.
Jean-Claude Juncker, president of the European Commission, is reported by the London Telegraph to have warned China that the country’s chances of gaining market economy status are directly related to its steel exports.
In a speech in China, Juncker is reported to have said “I do not want to dramatize this issue… but there is a clear link between the steel overcapacity of China and the market economy status for China.”
Steel Overcapacity Through the Years
China makes more than half of the world’s1.6 billion metric tons of steel but it’s suffering from slowing domestic demand and has turned to exports to dispose of its surplus. In the first quarter of the year Chinese steel exports to the European Union rose 28%, driving prices down by more than 30% according to some reports.
Beijing wants to shut down unprofitable steel production, but the provinces are merely reclassifying the mills and giving them new loans.
Although China has made conciliatory comments, Chinese Foreign Minister Wang Yi said this week the E.U. and China were forming a bilateral mechanism to review, discuss and deal with overcapacity in the steel industry. Beijing may have it’s work cut out for it if it actually wants to force through closures. The government has been trying it reign in excess capacity for some time, restricting credit and urging provinces to close older polluting plants but a recent Reuters article suggests provincial governments are doing anything but cooperating. Read more
The U.S. warned China on Thursday that it had not done enough to qualify for market economy status, especially in steel and aluminum and pushed the two trading partners closer to a full-on trade war between Washington and Beijing at the end of 2016.
U.S. trade diplomat Chris Wilson told the World Trade Organization meeting that the expiration of a clause in China’s original petition to join did not require other WTO members to automatically grant China market economy status on Dec. 11.
Instead, China must establish under each WTO member country’s domestic law that it is a market economy, he said, according to an outline of his remarks seen by Reuters.
“Second, there is little doubt that China’s market reforms have fallen short of the expectations that were held by many members when China joined the WTO,” he said. “This is particularly evident in the steel and aluminum industries where China’s pervasive interventions have led to a significant overcapacity of global supply that is threatening the viability of competitive firms in these industries around the world.”
“Through this bilateral mechanism, the two sides can have … in-depth discussions to find solutions acceptable to both parties and in this way maintain free trade and sustainable development of the global economy,” Wang said.
Wang did not provide details on the planned mechanism.