In Commodity News 09/04/2015
Struggling US steelmakers are trying to change the rules in their fight against cheap foreign imports.
Because decisions on foreign trade complaints brought before US regulators can’t be appealed, the domestic steel industry is waiting to file cases against importing countries for underpricing the metal.
Instead, it first wants Congress to consider revising how trade cases are weighed. Regulators now look largely at profit levels in deciding on action. Steelmakers want to show that earnings come at the expense of lost jobs and production, threatening long-term competitiveness. They also want punitive damages to help them catch up on losses.
“If you can’t throttle this back, if you can’t get control of the real distortions, no one is going to be able to face that kind of volume and survive,” Thomas M. Conway, a vice president at the United Steelworkers union, said in an interview. “In some ways it is about the survival of basic industry. It’s something the country should be concerned about.”
Trade cases are often filed on the first or last days of a new quarter. This time, producers are trying a new tactic, laying the political groundwork to change how cases are considered and making sure their arguments are solidly in the public consciousness before they file a complaint.
“You can doom a business if you bring it forward and you lose,” US Steel Corp. Chief Executive Officer Mario Longhi said.
While US steelmakers have struggled for decades against foreign competitors, their current predicament is largely the result of the country’s economic strength.
Record Volumes
US steel demand for manufacturing and construction is gaining just as China’s may be peaking and Europe’s remains stagnant. That’s attracting record volumes of excess output to the US The USW union cites Chinese oversupply and imports from other nations including South Korea, Brazil and Turkey. Imports account for about one-third of the $100 billion US steel market.
At the same time, the strong dollar means steelmakers abroad can produce their product at a lower cost, and be paid for it in stronger US dollars.
The end result, companies say, is that they’ve been forced to idle 32% of their domestic capacity, the most since the tail-end of the financial crisis in 2009.
Steelmakers including AK Steel Holding Corp. and Steel Dynamics Inc. have already signaled that first-quarter earnings will decline as a result, and US Steel, the nation’s second- biggest producer, has warned about 6,000 workers of impending layoffs.
Shrunk Paychecks
At Nucor Corp., the country’s largest steelmaker, some mill workers are paid, in part, based on output, and are getting by on paychecks that have shrunk by one-third, CEO John Ferriola said in an interview.
Li Xinchuang, deputy secretary general of the China Iron and Steel Association, said that US steelmakers have only themselves to blame for their troubles. China’s steel exports are rising because they are competitive, according to Xinchuang.
“The final reason for the trade friction is our foreign rivals are not competitive enough,” he said in an interview in November.
“Our trade remedy laws should be fairly applied,” said Richard Chriss, executive director of the American Institute for International Steel, a trade group representing steel importers. “However, many thousands of men and women whose livelihoods depend on the steel supply chain will be hurt by increased, unwarranted restrictions on trade in steel.”
Parallel Tracks
One vehicle for the changes that steelmakers are seeking is a Trade Promotion Authority bill. Senate Finance Committee Chairman Orrin Hatch of Utah wants to present the bill this spring, a spokeswoman said by e-mail.
Now, trade cases move along two parallel tracks.
The ITC, an autonomous federal agency, determines whether a domestic industry is facing harm, looking primarily at company profit. Meanwhile, the Commerce Department decides whether dumping has occurred and if foreign competitors were subsidized. Both the ITC and Commerce must rule in the affirmative before duties can be imposed.
If the changes the steel industry is seeking are made, “it will be easier to file trade cases, and have a greater likelihood of winning those cases, if they’re able to change the criteria that the International Trade Commission has to look at to prove injury,” Caitlin Webber, a trade policy analyst at Bloomberg Intelligence, said in an interview. “They want to have the ITC look at more factors than just profitability.”
