Articles in Category: Anti-Dumping

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What happens when an illegal business practice becomes so common and virtually accepted that it ultimately gets difficult to break?

Many U.S. manufacturers would argue that we’re in a period of global trade that features one such practice: trade circumvention. The most slippery aspect of ferreting out circumvention is first defining which segment of industry gets harmed the most, before even knowing what to do about it. Is it the upstream sector, including primary steel, textiles or plastics production? Or the downstream sector, such as the residential washing machine business?

MetalMiner Executive Editor Lisa Reisman makes the case that the lines between upstream and downstream manufacturing have blurred in this new report, Rules-Based Trade Remains Critical to Manufacturing Health.

But first we must understand the basics. Here’s an excerpt from that paper defining the landscape of trade circumvention in a short primer.

What is Trade Circumvention?

According to the Organization for Economic Cooperation and Development, circumvention refers to “getting around commitments in the WTO such as commitments to limit agricultural export subsidies. It includes: avoiding quotas and other restrictions by altering the country of origin of a product; measures taken by exporters to evade anti-dumping or countervailing duties.”

Four steel producers filed a petition last September, charging China with circumventing anti-dumping and countervailing duty orders for corrosion-resistant carbon steel and cold-rolled carbon steel by sending substrate materials to Vietnam for processing and re-export. The claim appears to be supported by trade data (as shown by an spike in Vietnamese cold-rolled and CORE imports after November 2015 while the same Chinese imports drastically decreased after duties were imposed on the latter, for example). Read more

There have been some doubts over India’s stated plans to triple its steel production capacity by 2030. The Indian cabinet recently passed a revamped policy to the extent.

While some have welcomed the document, other sector experts have expressed uncertainty over the projections in the policy.

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Ratings agency Crisil, for example, said in a statement that the ambition to add 182 million tons of new steel capacities over the next 14 years under the National Steel Policy was unlikely to be achieved. Crisil’s doubts seem logical. After all, India has managed to add capacity at the annual rate of 55 million tons in the last decade.

The National Steel Policy 2017 projects crude steel production capacity of 300 million tons by 2030-31 from the present level of about 120 million tons and per-capita consumption of 158 kilograms of finished steel as against the current consumption of 61 kilograms. The policy also sees an increase in domestic availability of washed coking coal by 2030-31.

Crisil Research said that it expects 24-26 million tons of steel capacities to be added over the next five years, leading to aggregate steel capacity to rise to 140-145 million tons by 2021-22. Beyond this, Crisil said, the key factors that would determine the pace of capacity addition would be demand growth, continued government support, and pricing environment against the backdrop of global overcapacity led by China. Crisil has also projected a 6-6.5% growth in steel demand in India over the next five years, lower than the 7% annual growth rate projected by the government till 2030. Read more

Last month we reported that in March, U.S. domestic steel prices generally rose while the GOES M3 price fell. This month, we can safely report the exact opposite price change. U.S. domestic steel prices fell while GOES prices rose in April.

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In our April update, MetalMiner indicated that GOES prices might find a price floor on the back of a large 20,000/mt tender from Bharat Heavy Electricals. That indeed appears to have happened. Moreover, according to a recent TEX Report, GOES prices have continued to climb in China as Baoshan Iron & Steel needs to service the domestic market due to anti-dumping cases preventing Japanese and Korean imports to that market.

The TEX Report also suggests that global inventories remain low and that many countries have come into the market all at the same time, requiring material. This could lead to higher prices, particularly from the Japanese mills for contracts awarded during the second half of the year.

The Gorilla in the Room

The real challenge for domestic GOES prices, however, rests on the results of the Section 232 steel product investigation launched by the Trump administration in late April. The results will likely not come much before January 22, 2018, assuming the Secretary of Commerce takes the allowable 270 days to present findings to the President. At its core, the investigation seeks to address the issue of

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Liquid steel.

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This morning in metals, a big trade finding from last Friday is making the news.

The U.S International Trade Commission (ITC) found that imports of carbon and alloy cut-to-length steel plate from steelmakers in 8 different countries officially harms U.S. manufacturers, thereby “locking in” duties imposed by U.S. Commerce in March for five years, according to Reuters.

According to the ITC’s site and the Reuters report following shortly after the release, the finding applies to cut-to-length plate from Austria, Belgium, France, Germany, Italy, Japan, South Korea and Taiwan.

The exact anti-dumping duties Commerce imposed on eight producers’ products in March range “from 3.62 percent to 148 percent…while imports from South Korea would also face a countervailing duty of 4.31 percent,” according to Reuters. Much more detail on those duties in this MetalMiner report.

What Does It Mean for Steel Plate Prices and Buyers?

“We anticipate the dumping order will help provide support to U.S. domestic prices, at least in the short term,” said Lisa Reisman, executive editor of MetalMiner, “as the case included a fairly broad number of both European and Asian suppliers.”

In many cases, Reisman mentioned, the duty rate appears significant, which will curtail imports from both specific countries and specific producers.

From a short-term pricing perspective, according to Reisman, steel prices have slid across the board this past week, but “certainly this trade case will help support plate prices,” she said.

“Interestingly enough,” she concluded, “according to analysis conducted by Steel Market Update, domestic cut to length plate exports are at their highest level since May 2015.”

India’s steel story continues to shine. The country’s consumption of finished steel goods is expected to grow by 6.1% in 2017 compared with 2016.

According to the World Steel Association (WSA), India’s steel product demand could reach 88.6 million tons in 2017, up from 83.5 million tons in 2016. WSA was also quite positive on India’s steel demand in 2018, projecting a growth of 7.1% to 94.9 million tons.

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Steel consumption in India’s neighboring country China, however, would remain flat in 2017. The WSA estimated a 2% slump in demand for 2018.

The Indian Steel Association, too, has said publicly that the country was well on its way to becoming the second largest consumer of steel, beating the United States to the second spot.

The WSA said in its report that the U.S. was expected to continue to lead the growth in the developed work in 2017-18, based on strong fundamentals, newly announced measures related to fiscal stimuli, and rising infrastructure spending. It has estimated that steel demand in the U.S. will grow by 3% in 2017 to 94.3 million tons and then by 2.9% in 2018 to 97.1 million tons.

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In India, in a further fillip to steel production, the government was contemplating making the use of Indian steel compulsory in all government or public sector funded projects. This would raise the per-capita consumption from 61 kilograms (134.5 pounds) to 160 kilograms (353 pounds) and increase production from 120 million ton to 300 million ton by 2030. The indication of this was recently given by Union Minister for Steel Chaudhary Birender Singh.

After reviewing the performance of Rashtriya Ispat Nigam Limited (RINL), the minister told reporters that “stringent measures” like imposing anti-dumping duty and minimum import price (MIP) had led to imports falling by 39% and exports increasing by 57%.

He added that the India’s national policy on steel would be unveiled soon, after receiving approval of the Union Cabinet.

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The move to make use of “Make in India” steel mandatory by government bodies comes in the wake of the central government’s commitment to support the domestic steel sector, which has been incurring losses during the last couple of years due to excess production and dumping of steel products from China into India.

Incidentally, India was aiming for a steel production capacity of 300 million tons by 2030, while the current capacity is 120 million tons and production was 90 million tons.

The Commerce Department launched an investigation on Wednesday to determine whether a flood of aluminum imports from China and elsewhere was compromising U.S. national security, a step that could lead to broad import restrictions on the lightweight metal.

Commerce Secretary Wilbur Ross said the investigation is similar to one announced last week for steel imports into the U.S., invoking Section 232 of the Trade Expansion Act of 1962.

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“Here’s why we did it,” Ross told reporters, “Imports have been flooding into the aluminum industry and the defense angle is that high-purity aluminum is used in the F-35” as well as other military aircraft and vehicles. In the event of a war, domestic manufacturers might be unable to meet the Pentagon’s needs, Ross said.

The investigation mirrors a probe Commerce launched a week earlier focusing on the steel industry, also invoking section 232 of the act. North American aluminum trade groups have been pushing for such action for the last five years.

The launch of the London Metal Exchange‘s new precious metals contracts will be delayed until July 10, more than a month later than previously announced, it said on Monday.

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The new gold and silver contracts, a mix of daily and monthly contracts designed to enable industrial users to hedge specific dates, were due to go live in early June.

Lighthizer Clears Committee for Confirmation as US Trade Rep

President Donald Trump’s nominee for U.S. trade representative cleared a Senate committee on Tuesday, bringing the administration closely to enacting its full trade policy.

Washington lawyer Robert Lighthizer’s nomination cleared the Senate Finance Committee 26-0. Lighthizer is seen as an ally of the manufacturing industries. The panel also voted to approve a legal waiver for Lighthizer from a 1995 law that prohibits people who did work on behalf of foreign governments from serving as the top U.S. trade negotiator.

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“Bob Lighthizer understands the issues that the U.S. steel industry faces today and we are certain he will make an outstanding United States Trade Representative (USTR),” said Thomas Gibson, president and CEO of the American Iron & Steel Institute, the largest trade group of North American steelmakers. “We thank Senator Hatch and the other members of the Senate Finance Committee for holding an executive session to progress Bob’s nomination. American manufacturers need a qualified USTR and we urge the Senate to promptly confirm Bob Lighthizer.”

Lighthizer’s confirmation now moves on to the full Senate.

Americans for Prosperity and Freedom Partners recently released a report on the prospect of a Border Adjustment Tax being included as a piece of major tax reform, a framework of which is expected to be released today by the Trump administration. AFP and FP are not fans of a BAT.

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The free-market group with ties to conservative billionaires Charles and David Koch said in its report that “It is impossible to predict the real world impact of the BAT because something like this has never been done before. This proposed system is unlike anything in existence and there is a tremendous amount of risk surrounding its implementation.”

Going to BAT

A BAT would certainly be unprecedented. We have previously written about the scheme and how the novel approach to corporate taxes could possibly deliver similar export benefits to those of a value-added tax without actually imposing a national sales tax on every single transaction that American citizens make. A BAT would, rather, tax companies on their imports as part of the corporate tax code rather than impose a sales tax on transactions. Read more

Dean A. Pinkert is a partner in Hughes Hubbard’s International Trade practice. He is a former Commissioner of the U.S. International Trade Commission. Pinkert was nominated by President Bush and confirmed by the Senate in 2007, and was designated Vice Chairman by President Obama in 2014.

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As a commissioner, Pinkert participated in numerous anti-dumping, countervailing duty, and safeguard investigations, including the special safeguard investigation of passenger tires that resulted in import relief for the domestic tire industry and was upheld by the World Trade Organization. He participated in an unprecedented number of final determinations in Section 337 investigations during his tenure, notably dissenting in an electronic devices case that went to President for policy review. President Obama, relying on many of the factors cited in the dissent, overruled the commission for the first time since 1987.

Dean Pinkert

Former ITC Vice Chair A. Dean Pinkert. Source: Hughes Hubbard.

Pinkert spoke with MetalMiner Editor Jeff Yoders by phone about several issues facing metals producers and manufacturers, including global steel and aluminum overcapacity and how the new Trump administration can approach trade and overcapacity issues. This is the final post in our three-part series that covers border-adjustment and tax policy.

JY: The reason you might want to avoid a VAT is that it would apply to all transactions, right? It would be on individuals and not companies.

DP: Think of it as the difference between a sales tax in the United States and an income tax. They are completely different. A VAT is essentially a national sales tax. We have sales taxes but the issue we’re talking about is the corporate income tax. If the U.S. adopted a VAT it would be a huge change so the idea here is to stay within the corporate income tax concept, but make some tweaks so that U.S. companies aren’t disadvantaged relative to foreign companies. Because we’re not talking about a VAT, though, you might get a different outcome at the World Trade Organization when it’s challenged by another country.

A VAT would be a big change. We are getting into some areas of policy that I’m not an expert on here, but there are all sorts of other issues that go way beyond the issue, but from a trade perspective the idea of a border adjustment is supposed to neutralize the advantage that VAT tax countries might have in international trade. The WTO may come to the conclusion that, even though a border-adjustment does have some features of a VAT, it’s still not acceptable because it might be viewed as an export subsidy. Read more

This week, President Donald Trump and the Department of Commerce used executive orders, new anti-dumping investigations, memoranda invoking national security concerns and other executive branch tools to get tough on foreign steel imports.

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Although Trump or Commerce Secretary Wilbur Ross never overtly stated it, the target is clearly China and the global steel overcapacity that it’s the main culprit in creating. China’s steel exports hit a record 112.4 million metric tons in 2015, then dropped slightly to 108.49 mmt last year, as Chinese mills have been chastened by threats of a trade dispute.

Fre trade

The Trump administration is using every tool in the box on steel overcapacity. Source: Adobe Stock/Argus.

To date, the Global Forum on Steel Overcapacity hasn’t caused overcapacity to come down very much. Can a section 232 investigation or other U.S.-only actions change that? The U.S. steel industry certainly seems to think so. Or it’s at least saying, “why not try?”

Steelmaker executives such as U.S. Steel CEO Mario Longhi and SSAB Americas President Chuck Schmitt flanked Trump and Ross at the memorandum-signing ceremony calling for the Section 232 investigation yesterday. The praise was universal from steel producers as one might expect, too. Still, Trump’s latest salvo on trade will renew concerns that China may retaliate.

China’s Foreign Ministry spokesman Lu Kang said today the country needed to ascertain the direction of any U.S. investigation before it could make a judgment. There’s also the fact that Trump now claims that he and Chinese President Xi Jinping are the best of friends.

Chinese steel executives also repeated their mantra that overcapacity is not just China’s problem and it needs global coordination to resolve it, but also said it would be tough to rein in the sector.

“The Chinese government will not set export limits for the steel mills and could not keep track of every mill,” Li Xinchuang, vice chairman of the China Iron and Steel Association, told Reuters.

What may be more effective is rising steel prices in China and what looks more and more like a very real crackdown on pollution and dirty air in China. An early-year surge in Chinese steel prices has lifted the prices of its export products and China has lost its competitiveness with other markets. With coking coal prices increasing, Chinese steel prices could increase even more, which our Lead Forecasting Analyst, Raul de Frutos, pointed out this week.

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On a personal note, this will be my last MetalMiner week-in-review. I have thoroughly enjoyed informing all of you wonderful readers and site users about the latest developments in metals markets these last three years. Thank you for taking advantage of our services. It has been an honor.