The top steel executives in the U.S. called the fight against cheap steel imports a “war” in the American Iron & Steel Institute‘s annual press conference at its general meeting in Salt Lake City, Utah. The picture they painted was bleak.
Domestic steel capacity utilization averaged just 70% in 2015. It’s still only at 71.3% capacity utilization for Q1 of this year. They also said 13,000 steel jobs have been lost in the past year. All pointed the finger at global overcapacity.
“Global overcapacity has been a problem for a long time but, today, it is a crisis,” said John Ferriola, chairman, president and CEO of Nucor Corporation and the newly elected chairman of the AISI for 2016. “This overcapacity, combined with declining demand from countries like China is fueling continued high levels of dumped and subsidized imports into the U.S. market. China has subsidized the growth of its steel industry through grants, low-interest loans, free land, low-priced energy and other raw material inputs. Simply stated, the Chinese government is a company disguised as a country and they are waging economic war on the United States.”
Executives from major North American steel companies addressed the media at the general meeting of the American Iron & Steel Institute in Salt Lake City. Source: Jeff Yoders/MetalMiner.
Thomas J. Gibson, president and CEO of AISI, called upon other steel making nations to take action to eliminate global steel overcapacity. Gibson also said the U.S. government should vigorously enforce trade laws to fight against the dumping of cheaper steel products and the implementation of market-distorting policies and practices by other steel producing nations, particularly China.
China’s Still a Non-Market Economy
The executives also said that China must continue to be treated as a non-market economy for anti-dumping purposes according to the World Trade Organization. Read more
New investigations of cut-to-length steel plate from several countries were announced Friday and the Texas Supreme Court rejected a new law that, the court said, preceded the state’s authority to enforce its own air quality laws.
Steel Plate Anti-Dumping Investigation
The Commerce Department has initiated anti-dumping duty investigations of imports of carbon and alloy steel cut-to-length plate from Austria, Belgium, Brazil, China, France, Germany, Italy, Japan, South Korea, South Africa, Taiwan, and Turkey and countervailing duty Investigations of imports of carbon and alloy steel cut-to-length plate from Brazil, China, and Korea.
The petitioners are ArcelorMittal USA LLC, Nucor Corporation and SSAB Enterprises, LLC. The products covered by these investigations include carbon and alloy steel hot-rolled or forged flat plate products (not in coils), whether or not painted, varnished, or coated with plastics or other non-metallic substances (cut-to-length plate).
Texas Supreme Court Rejects Houston Air Quality Law
The Texas Supreme Court said Friday that the heart of a Houston air quality law is preempted by the state’s Clean Air Act, handing a victory to an industry group including ExxonMobil Corp. and ConocoPhillips.
Attorneys for the city of Houston argued that the city was simply trying to enforce the standards set out by the Texas Commission on Environmental Quality, a state agency, by putting in place a parallel enforcement mechanism that would impose fines on the companies even if the Commission chose not to act.
Anti-dumping stories are our bread and butter here at MetalMiner. Nary a week goes by when we don’t cover either anti-dumping or countervailing duties cases brought by domestic metals producers against cheap imports that are getting a helping hand from foreign governments or purposely devalued foreign currencies.
Yet, this week, a major union representing aluminum workers and a major steelmaker took things a bit further. The aluminum industry was first up, when the United Steelworkers union recently filed a petition with the U.S. International Trade Commission for the U.S. to invoke a global safeguard under Section 201 of U.S. trade law and impose tariffs of up to 50% on primary unwrought aluminum.
Imports of Chinese semi-finished aluminum products. Source: The Aluminum Association.
Section 201 is nothing to mess around with. Section 201 requires that the injury or threatened injury to a domestic industry be “serious” and that the increased imports must be a “substantial cause” of that serious injury. Serious business, people. Read more
The trigger to the recent increases in steel prices may have been a report by the World Steel Association that reasoned in its short-demand demand report that the increasing output and capacity utilization rate from February to March 2016 could be indicative of a recovery in the primary steel market’s fundamentals in both the European Union and North American Markets.
Global investment bank Credit Suisse, in its report highlighted four “major changes” that had taken place of late, indicative of a cycle turn. It said one of them was that the inventory cycle had bottomed out globally. Given the extent of destocking and current inventory levels. Restocking could last more than the usual six-to-nine months. Any uptake in demand could further prolong restocking. Read more
In a complaint filed Tuesday with the U.S. International Trade Commission, U.S. Steel Corp.demanded penalties on Chinese steel imports which could include a total ban on imports into the country. U.S. Steel said that Chinese steelmakers conspired to fix prices, stole trade secrets and circumvented duties with false labeling in filing a section 337 petition.
“We have said that we will use every tool available to fight for fair trade,” said Mr. Longhi. “With today’s filing, we continue the work we have pursued through countervailing and anti-dumping cases and pushing for increased enforcement of existing laws.”
How to Prove Unfair Competition?
But what, exactly, is a section 337 petition? What law is U.S. alleging Chinese producers Hebei Iron & Steel Group, Anshan Iron and Steel Group and Shandong Iron & Steel Group Co. violated? The ITC provides us with a handy frequently asked questions page. It reports that “most Section 337 investigations involve allegations of patent or registered trademark infringement. Other forms of unfair competition, such as misappropriation of trade secrets, trade dress infringement, passing off, false advertising, and violations of the antitrust laws, may also be asserted.”
Chinese black hat hacker steals password. Source: Adobe Stock/beebright.
China has been implicated in stealing trade secrets before, and U.S. Steel was one of the victims. In 2014, a U.S. grand jury indicted five members of China’s People’s Liberation Army on charges they stole information from U.S. Steel and other American firms. Computer hacking, espionage and other charges were alleged in federal court in Western Pennsylvania (U.S. Steel is headquartered in Pittsburgh). Other victims of the alleged hacking included the U.S. arm of SolarWorld AG, Westinghouse Electric Co., Allegheny Technologies Inc. and Alcoa, Inc.Read more
U.S. Steel is accusing Chinese steelmakers of intellectual property theft and Germany is subsidizing its electric car industry.
U.S. Steel Files Section 337 Petition
U.S. Steel Corp. has launched a campaign to prevent imports from China’s largest steel producers, it said on Tuesday, the boldest step yet by a U.S. company as a trade brawl with the world’s largest steel producer escalates.
In a complaint to the U.S. International Trade Commission, the domestic steelmaker called on regulators to investigate dozens of Chinese producers and their distributors for allegedly conspiring to fix prices, stealing trade secrets and circumventing trade duties by false labeling.
The petition, known as Section 337 is used to protect against intellectual property theft, listed some of China’s top producers, including Hebei Iron & Steel Group and Anshan Iron and Steel Group and Shandong Iron & Steel Group Co.
“We have said that we will use every tool available to fight for fair trade,” said U.S. Steel Corp President and Chief Executive Officer Mario Longhi in a statement.
Germany Subsidizes Electric Car Development
Germany’s auto industry risks being overtaken by foreign competitors unless it receives greater domestic support, the country’s economy minister said today, announcing a 1 billion euro ($1.13 billion) plan to subsidize electric cars that are seen as the technology of the future.
Electric vehicles have had a sluggish start in Germany, the country where the combustion engine-powered automobile was born. A government plan to get 1 million e-cars on the streets by 2020 is far behind schedule, with just 50,000 sold so far.
“After a long debate we have agreed to a subsidy program that aims to show on the home market that we can master these new drive trains, from plug-in hybrid to battery-powered vehicles, and make them suitable for the mass market,” Economy Minister Sigmar Gabriel said at a news conference in Berlin.
The Steel Authority of India Ltd. and JSW Steel & Essar Steel India filed a complaint with India’s Directorate General of Anti-Dumping and Allied Duties, seeking an anti-dumping investigation as well as the imposition of tariffs on steel imports from six countries. Soon thereafter, the DGAD said it had prima facie evidence of dumping of steel originating from China, Japan, Russia, Korea, Brazil and Indonesia.
Chinese Production vs. Indian Production
China is the world’s biggest steel producer, accounting for around 822 million tons a year. Driven largely by a fast track economy in the past quarter century, China’s steel output has grown by more than 12 times it’s size in the ’80s. By comparison, the EU’s output fell by 12% while U.S. output has remained flat. Of late, China has found itself in the midst of dumping controversies involving many countries it sends exports to, including the U.S., the European Union and Australia.
Chinese steel production is the target of India’s anti-dumping probe. Source: Adobe Stock/zjk.
The Indian probe’s purpose is to establish the “existence, degree and effect of dumping” by the six nations. If found to be true, it will then recommend a minimum amount of anti-dumping duties. The probe covers hot-rolled flat products of alloy or non-alloy steel in coils, as well as hot-rolled flat products of alloy or non-alloy steel not in coils. Most of these products are used in the the automotive, oil and gas line pipes/exploration, cold-rolling, pipe and tube manufacturing industries.
Trade between China and India has been growing but individually, the two are polar opposites so far as global exports are concerned. India’s exports account for just 1.7% of world trade, compared with nearly 12% for China’s. China exported 112 million metric tons of steel in 2015, which was 25% more than India’s total production of steel. India produced 92 mmt of steel in its 2014-15 fiscal year, while it imported over 9.32 mmt of steel, of which, an estimated 30% came from China.
Meanwhile, on the other side of the globe in Belgium, international steel producing countries, too, called for urgent action to curb overproduction.
A joint statement from the U.S., Canada, the E.U., Japan, Mexico, South Korea, Switzerland and Turkey, called calls for “ongoing international dialogue” to remove “market-distorting policies.”
But China rejected suggestions that it subsidized its loss-making steel companies.
India has often used anti-dumping duties and also imposed safeguard duties due to such import surges.
A few days ago, the Indian government extended the safeguard duty on steel imports until March 2018, after having first imposed them in September 2015. There will be no safeguard duties on steel imported at or above the minimum import price (MIP) stipulated by the government.
Anti-Dumping or Countervailing Duties?
Both, anti-dumping and countervailing duties try to rectify the same issue: low-priced imports. But the difference between the two is the real cause of the low price.
Anti-dumping duties are used to tackle “dumping,” a legal definition for imports whose price is lower than their production cost. An exporter sets steel prices lower than production costs and floods other markets with such steel products. If a Chinese producer spends $120 per mt to make cold-rolled steel, and then sells it in the Indian market for $90 mt, while his Indian counterparts are selling their produce for $110, then these imports are based on a predatory pricing model that is either indirectly subsidized in the originating country, or takes advantage of a lower-valued currency and production costs back home.
On the other hand, countervailing duties seek to counter low prices that are an outcome of direct subsidies. The Chinese government, like some others, offers subsidies on exports in the form of tax breaks. As a result, exporters can offer lower prices than domestic producers. Countervailing duties level the playing field by negating the advantage of direct government sponsorship by increasing import tariffs to level the playing field.
Such duties are allowed by the World Trade Organization under the General Agreement on Trade and Tariffs (GATT) but only if dumping is established. Anti-dumping duties have to be removed if the margin between the domestic price and imported price goes below 2%, or when the imports of product from a country account for less than 3% of total imports of the product.
Also, the WTO says safeguard and anti-dumping duties cannot be country specific. So, if India or the U.S. imposes duties on imports from China, the latter can also impose duties on imports from those two nations.
This is what China is now pointing out to India. A few days ago, the world’s top steel maker asked India not to resort to “trade protection measures” and to “strictly follow” WTO rules while investigating cases of dumping by Chinese iron and steel exporters. Steel overcapacity is a worldwide problem which requires a joint effort from all countries, an unnamed Chinese official was quoted as saying by the official Xinhua news agency.
Even as world steel powers gathered in Brussels this week to discuss the massive overcapacity problem and exchange accusations, particularly between the U.S. and China, steel prices continued to rise globally.
In China, that means zombie steel mills are rising from the dead. While Beijing has engineered some steel capacity cuts, its efforts are being undermined by a rise in domestic steel prices that has seen mills ramp up output. Even those zombies, which had stopped production but were never officially closed down. They have clawed their way back from the grave and are producing steel again. Such is life in the people’s republic.
The zombie steel mills are back from the grave! Source: Adobe Stock/James Thew.
Steel wasn’t the only metal threatened by imports, though, this week. The United Steelworkersfiled a safeguard action against imports of aluminum, mostly from China. If found to be in violation of section 201 of U.S. trade law and impose tariffs of up to 50% on primary unwrought aluminum (read, ingots welded together to form “semi-finished products”).
Hey, maybe the zombie mills are just “semi-finished,” too! That is, shut down but never really out of business. Here in the U.S., when a company is in trouble it files for bankruptcy protection. That’s exactly what once high-flying renewable energy company SunEdison, a major supplier of solar power, did this week.
There’s simply no mechanisms to deal with losses that way for these Chinese zombie mills. Yet, China claims to be committed to changing to a market-based economy. That’s why it’s so ridiculous that the World Trade Organization and other international trade authorities are even considering market-based economy status for the evolving Chinese economy.
The United Steelworkers union recently filed a petition with the U.S. International Trade Commission for the U.S. to invoke a global safeguard under Section 201 of U.S. trade law and impose tariffs of up to 50% on primary unwrought aluminum. Producers have, until recently, been reluctant to even attempt aluminum safeguards or petition section 201 for other metals.
This proceeding could have a significant impact on global aluminum producers, particularly from China, and U.S. importers and users of aluminum products.
Are aluminum slabs welded together really “deep-processed extrusions?”
The ITC must decide within 60 days whether the conditions for “critical circumstances” are met and whether to recommend provisional relief. Once the ITC has made its decision on the critical circumstances claim, regardless of whether or not it recommends provisional relief, it will begin an investigation under Section 201 of U.S. trade law.
The underlying ITC investigation typically takes 120 days — although it is allowed to take 150 days for complicated cases — and then has another 60 days to develop relief recommendations for the President of the United States. The ITC’s recommendations are then sent to the U.S. Trade Representative, which formulates a recommendation to the President who then has 50-60 days to decide whether or not to grant final phase relief.
The question for the ITC is whether primary aluminum is being imported into the U.S. “in such increased quantities as to be a substantial cause of serious injury, or the threat thereof” to the U.S. aluminum industry.
Imports of aluminum “semi-finished products,” which can be as little as ingots with minor finishing, from China into the U.S. increased 63% in 2015, according to the Aluminum Association, the trade association of North American producers.
While one high level meeting was going on in Doha, Qatar — in an effort to control the fate of the oil price — another was going on in Brussels, Belgium, seeking to decide the fate of the steel market.
Representatives from around 30 countries including China, Japan, Germany, India, the U.K. and the U.S. met with European Union, World Trade Organization, Organization for Economic Cooperation and Development and World Steel Association representatives met in the Belgian capital in a bid to come up with a package of measures that will curb the huge overcapacity at the heart of the steel crisis, the London Telegraph reports.
Chinese Production Cuts Demanded
The E.U. and U.S. would like to see China agree to cut production and fast but China has said, “Blaming other countries is always an easy, sure-fire way for politicians to whip up a storm over domestic economic woes, but finger-pointing and protectionism are counter-productive.”
This steel plant at Port Talbot in South Wales, U.K., could close if Tata Steel can’t find a buyer. Source: Adobe Stock/Petert2
China even called such allegations a “lame and lazy excuse for protectionism.”
China Cries Protectionism
One could easily have some sympathy for the Chinese position, at least as far as the E.U. is concerned. Environmental legislation-inspired energy costs have been the dead weight dragging down all European steel producers, none more so than the U.K. which is likely to see the last major primary production facility close in coming months, leaving just one electric arc furnace plant.
Officially, the OECD said the meeting will “discuss how governments can facilitate market-driven industry restructuring and … agree on steps to reduce competition-distorting policies.”
According to OECD analysis, overcapacity in steel was above 70 million metric tons at the end of 2015, and new plants are set to add another 47 mmt by 2018. In spite of promises of good intent made in the past, China has continued to increase production. Output in March rose 2.9% over the same month last year hitting 70.76 mmt, an annual run rate of nearly 850 mmt.
On the back of this, iron ore has risen to a high for the year, up 36% since the turn of the year. China, though, is aware of the problem and while they will refuse to be bullied into closing plants they are desperate to implement a plan to cut large chunks of older and less-efficient, more-polluting plants in time.
Importer Nations Can’t Wait for Cuts
The “in time” will not be fast enough for many, though. Beijing is talking of two to three years, fearful of the impact mass layoffs could have on social unrest there. Figures of five to six million job losses are substantial, even in a population as large as China’s, particularly as they would be disproportionately concentrated in a few coal-mining and steel-producing states.
So, the Brussels summit will have little more positive outcome in the short term than the complete waste of time that was OPEC’s summit in Doha. However, rest assured that won’t stop politicians coming away claiming all kinds of goals met and agreements made. The proof will be whether global steel production is any lower as a result by the end of this year as it is today. Most projections are for it to continue rising.