March 31, 2015    Volume 22, No. 5

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Steel Industry CEOs Warn Of A Possible Sectoral Collapse Due To Surging Imports

By Richard A. McCormack

CEOs from the country's largest and most important steel companies along with an executive from the nation's top industrial union were on Capitol Hill on March 26 and used the opportunity to raise alarms about surging steel imports. They told members of the Congressional Steel Caucus that their industry was in a state of crisis and used words such as "gruesome," "destruction" and "dire" to describe conditions that are worsening by the day.

Imports now account for a record share of the U.S. steel market, leading to the recent and rapid closure of American steel mills and the loss of thousands of good-paying jobs.

The situation, they told the Steel Caucus in a unified voice, is far worse than anything they have seen in a generation, as foreign nations, awash in 638 million tons of excess capacity, dump subsidized steel into the United States, the world's most open market.

They all stated that the U.S. government is mesmerized by the allure of "exports" and new trade agreements, and is doing little to enforce existing trade laws. This at a time when exports have stopped growing and U.S. producers are unable to increase their portion of the U.S. market.

The CEOs told 17 members of the Steel Caucus who attended the meeting that lacking a government response, the U.S. industry is at risk of being destroyed, a theme that needs to be amplified to the rest of Congress, the Obama administration and the American public.

"The American steel industry is facing a crisis and we need Congress's help," said John Ferriola, Chairman, CEO and President of Nucor Corp., considered to be the most innovative steel producer in the world.

While U.S. steel output grew by 3 percent in 2014, overall steel imports surged 36 percent. The onslaught has continued through the first two months of 2015. Imports now account for 28 percent of the U.S. market, "the highest level on record," Ferriola noted. U.S. capacity utilization has fallen below 70 percent.

Nucor is getting hammered. Wages for every employee are tied to output, and since imports are displacing U.S. production, workers in some product categories are suffering pay cuts of between 30 and 40 percent.

The last time import penetrations rates were this high "nearly half of American steel companies disappeared," said U.S. Steel Corp. CEO Mario Longhi. The situation is similar today as it was in the late 1990s. "Across the country, once again, mills are idled, plants continue to be shut down, American workers are laid off," he said. "American steel companies are being irreparably harmed by illegal trade practices."

The displacement caused by imports is affecting modern plants that have been built within the past decade. Suspended production and layoffs are cascading through the industry's supply chains and local communities. The announced idling of U.S. Steel Corp.'s Granite City plant in St. Louis, is impacting 2,100 workers and leaving local officials in "shock," according to the local Fox News affiliate. Added one executive attending the Steel Caucus meeting: "We're going to see a period of rampant bankruptcies."

In some steel product categories, import penetration rates have been skyrocketing. Imports of steel pipe and tube products climbed to 58 percent of the U.S. market in 2014. "As of today, there are over 6,000 workers on layoff in the pipe and tube sector," said Douglas Polk, vice president of industry affairs with Vallourec USA in Houston and chairman of the Committee on Pipe and Tube Imports (CTPI). The layoff count is going up every day. "The United States has been the destination for vast volumes of energy tubular imports all arriving at a time when we are experiencing a decline in demand." Large-scale layoffs and plant closings "are unavoidable as we move through 2015 and 2016," said Polk. Most of the pipe sold in the Marcellus natural gas formation has been made by foreign producers.

Imports are not letting up. In January and February of this year, imports of oil country tubular goods and line pipe spiked by another 50 percent, "even though the market was declining due to falling energy prices and the drop in the rig count," Polk noted. Imports from Korea, which does not have an oil drilling industry, are growing at an astronomical rate -- rising to a monthly record of 254,301 tons in January of this year, an increase of 138,000 tons from December 2014. Imports from Korea of energy pipe are up more than ten-fold over the past decade, from 127,468 tons for all of 2004 to 1,572,000 million tons in 2014. In the area of stainless steel, Chinese imports into the United States grew by 115 percent in 2014.

U.S. steel production of 98 million tons last year was less than what China exported to the world at 100 million tons.

China now has more than 1 billion tons of capacity, up from 200 million in the early 2000s, notes Kevin Dempsey of the American Iron and Steel Institute. Almost all of its production is owned by its government and is subsidized; its steel is selling in the global market at one-quarter below world prices.

Other governments are pursuing the same strategy of underwriting new steelmaking capacity and targeting exports as part of their employment and economic development strategies. The American steel executives said Vietnam, Japan, Brazil, India, Turkey, Russia and South Korea are all subsidizing their industries and dumping under-priced product on the U. S. market. India plans to triple its steelmaking capacity over the next 15 years. "All of that excess steel is looking for another market because steel makers want to cover their fixed cost and they want to operate as much capacity that they can," says Dempsey. "They are offering it at prices that people think are too good to beat." The result: U.S. companies "are being crushed."

For one member of the Congressional Steel Caucus, it all sounds too familiar. "I have been a member of the Steel Caucus for over 20 years and coming to these meetings is like watching Groundhog Day," said Rep. Mike Doyle (D-Penn.). "We talk about the same things every year and nothing changes. Nothing ever gets done. We go to the ITC and we testify and the process continues. It's like we are being played for chumps by China and all of these other countries. We can't even pass a Buy USA provision in the U.S. Congress."

It's not like the movie Groundhog Day, countered Nucor CEO Ferriola. "I submit that something has changed: foreign producers have become brazen in violating our laws and the amount of imports continues to grow and the percentage of market share captured by foreign producers is at a record high. So something is changing: It is getting worse despite all of the hearings."

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