April 29, 2016    Volume 23, No. 4

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U.S. Steel Industry Pleads With Uncle Sam To Stand Up For America Before The Industry Is Destroyed By China

By Richard A. McCormack

The United States steel industry is experiencing the greatest crisis in its history due to record import surges and cheap steel that is flooding global markets from Chinese state-owned and subsidized companies. The result is a steep loss of U.S. production capacity along with thousands of jobs. The impact, as described using the terms by those in the industry, has been "devastating" with long-term "severe" economic consequences for the United States. The situation poses "an existential threat" to the U.S. steel industry, notes Steel Dynamics Inc., the $8.8-billion steel producer based in Ft. Wayne Ind.

Steel industry executives, members of Congress from steel producing districts and industry workers are wondering why the U.S. government is not reacting in a significant or meaningful way. They pressed their case in Washington in April, describing the carnage to their companies, jobs and communities.

At least 13,500 steel workers have been laid off over the past year, a figure that does not include the ripple effect of additional job losses in supply chains and local economies.

Companies like ArcelorMittal are reeling. The company reported a net loss of $7.9 billion last year "largely due to the deterioration in global prices as a result of excess capacity in China," CEO Jim Baske told the Congressional Steel Caucus on April 14.

Other steel companies are suffering miserably. "We have seen import surges before, but this time the U.S. steel industry is being impacted by historically high levels of foreign-government subsidized steel being dumped into the U.S.," says TimkenSteel in written testimony presented to a meeting on the steel crisis held by the U.S. Trade Representative and the Commerce Secretary on April 12 - 13. "What makes it worse currently is we cannot see a light at the end of the tunnel. The U.S. steel industry has been decoupled from the modest growth in the rest of the economy."

In 2015, TimkenSteel, one of the world's most innovative producers, experienced a 34 percent decline in net sales. Its earnings were a negative $113.6 million. "This downturn is as deep and long as any we have seen," says the company. "The survival of the U.S. steel industry and the many jobs it supports depends upon improving enforcement tools enacted by the U.S. Congress and fully and aggressively using these tools to address the recent and ongoing import surge."

Global steel overcapacity has reached 700 million metric tons -- "seven times total U.S. production" of about 100 million metric tons, notes Scott Paul, President of the Alliance for American Manufacturing.

"This overcapacity exists largely because of [foreign] government policies," adds the Steel Manufacturers Institute. "These policies have had a direct and damaging impact on the American steel industry and threaten its long-term survival."

The only way to deal with foreign government intervention in the global steel industry is for the U.S. government to intervene on behalf of American producers, said most of the those making presentations to the panels.

With China refusing to reduce its capacity and dumping tens of millions of tons of steel on the global market, the U.S. steel industry is operating at 70 percent capacity utilization, "well below the levels necessary to be profitable," said Paul.

Paul noted that it's not only the U.S. steel industry that is being destroyed by China, but American aluminum, shipbuilding, glass, chemical, paper and rubber producers. China's aluminum production has increased from 11 percent of global output in 2000 to more than 50 percent today. Imports of paper from China nearly tripled from 2012 to 2014, from 23,600 metric tons to 62,400 metric tons. The result: eight uncoated [paper] mills have closed or are in shutdown," said Paul. Like others testifying, Paul recommended that the federal trade agencies stop their "whack-a-mole" approach to import surges by separately addressing a plethora of trade cases being filed by industries.

The whack-a-mole approach "makes no sense," said Paul. The trade cases take too long to adjudicate and by the time the federal government agrees to take action -- and many times it doesn't take any action by siding with foreign producers -- thousands of American workers are out on the street and companies are in bankruptcy.

There is precedent, noted Paul: "President Ronald Reagan, spurred on by a Democratic Congress, adopted a flurry of measures to address an uneven playing field with European nations and Japan. His administration's aggressive action helped revitalize our semiconductor industry and the iconic Harley-Davidson motorcycle company. The Plaza Accord, which raised the value of currencies in Japan and Europe relative to the dollar, had a positive effect in lowering our trade deficits."

No such action from the Obama administration is on the horizon -- and the electorate stews as a result, fueling a vigorous and angry presidential campaign of Republican Donald Trump, who has clearly stated that he will upend the Washington trade establishment.

Said Leo Gerard, CEO of United Steelworkers: "We're sick and tired of having to take the lead on enforcing our nation's laws and ensuring that the commitments supposedly made by our trading partners in trade agreements are actually enforced."

United Steelworkers has participated in 50 trade cases since 2011 and has spent between $75 million and $100 million on legal fees. "These cases have been vital, but they have not been sufficient," said Gerard. "Substantial evasion and circumvention continue to plague our market." The U.S. government "has the tools to act; we just need the will to act."

The result of U.S. government inaction, WTO rulings against the United States, such as the dismantling of the Byrd Amendment and recent decision on South Korean washing machines, is that the American public "is losing confidence in our trade laws, our trade agreements and our trade institutions," noted Gerard. "They're right. Either change is managed or the system may have to be completely dismantled."

Other companies are being impacted by the import surges. Cliffs Natural Resources, a 170-year-old firm that operates five of the eight major active iron ore mining and processing facilities in the United States, has annual rated capacity of 32.9 million tons of iron ore pellet production, representing 56 percent of total U.S. pellet production capacity. The company has idled its Empire Mine in Michigan's Upper Peninsula affecting 300 employees; its United Taconite mine on Minnesota's Iron Range, impacting 500 workers; and its Northshore Mining operation in Minnesota, impacting 470 of the facility's 540 workers. Of its workforce of 3,300, it has laid off 1,300 workers due to import surges from China.

"Many of these communities have been devastated by the impact of this steel import crisis and its effect on iron ore production," says the company in its statement to the USTR and Commerce Department. There are more than 2,000 iron ore industry workers laid off in Northern Minnesota. The situation is "dire," says the company.

The international game is rigged against American producers who adhere to the world's most stringent environmental regulations. "Average particulate emissions from Chinese sintering plants are nearly six times the comparable limits in the U.S.," notes the company. "[A]ir pollution in China is responsible for over 350,000 deaths per year, with much of that pollution coming from the steel industry generally and the iron ore sintering plants in particular. To put that figure into perspective, China's environmental record amounts to a population roughly that of Cleveland, Ohio, perishing as a result of pollution each year!"

U.S. trade negotiators need to take this into account when it comes to "leveling the playing field" with "trade cheaters" and when applying trade remedies on Chinese imports, says Cliff Natural Resources.

Stupp Bros. Inc., which produces steel for skyscrapers and bridges, employed 1,100 Americans before imports started to surge. In the last quarter of 2015, the company laid off more than 500 of them. "This has left less than 30 percent of the original workforce," notes John Stupp, CEO of the family-owned business. Imports account for 50 percent of the U.S. line pipe market and Korean line pipe is selling in the United States "at prices often at half of Stupp Corporation's average selling price," said Stupp.

An October 6, 2015, ruling by the U.S. Department of Commerce that set minimal duties on pipe being dumped into the U.S. market by South Korea, represented "a setback in the ability to adjudicate a proper case for welded line pipe dumping," Stupp added. Korean pipe is now being sold in the U.S. market at prices "below Stupp Corporations' domestically supplied raw material prices." This coincided with a 50 percent decline in U.S. demand for line pipe. The outlook is "bleak," said Stupp, and is further exacerbated by the high value of the dollar compared to Canada, leading to a reduction in exports and increasing imports from that nation.

Mexico is also cheating, said Stupp. "Mexican line pipe producers have been successful in their efforts to artificially erect trade barriers -- utilizing a carve-out in NAFTA for energy products -- severely inhibiting the ability of U.S. line-pipe manufacturers to export to Mexico." He calls these measures "absurd" and "protectionist."

Foreign producers are increasing their U.S. market share for pipe and tube steel products. Total domestic shipments for pipe and tube steel products fell by 38 percent in 2015, but imports decreased by 18 percent. U.S. companies in the sector have fired 10 percent of their workforce in the past year, impacting 4,000 workers. "It is uncertain if these workers will ever have an opportunity to return to their jobs in the industry," says David Seeger, president of JMC Steel Group and board president of the Steel Tube Institute. "In fact, some of the nation's major producers like Allied Tube & Conduit and Northwest Pipe simply ended production of some product lines which resulted in plant closures and permanent layoffs, while Boomerang sought bankruptcy protection."

China's dumping of cheap steel on the global market is having a big impact on local American communities. The city of Canton, Ohio, is in trouble, due to the downturn in the steel industry. "Canton is currently facing a $5.1-million deficit in the City's General Fund operations" due to the loss of tax revenue caused by the layoffs at TimkenSteel, said city mayor Thomas Bernabei. Canton, where TimkenSteel is headquartered, "simply cannot afford to operate without a strong economic partnership with the steel industry."

American Electric Power, the country's largest electric utility, pleaded with the U.S. federal government: "Please do everything in your power to support the trade cases being brought by various steel companies to send the strong message that our workers can compete with any in the world, but the playing field must be level."

The U.S. Congress recently passed legislation directing the Commerce Department and the Customs and Border Protection to start taking action to defend the U.S. industry from the import surge, but nothing has happened, complain the chairman and vice chairman of the House Steel Caucus. "This past year, Congress achieved historic success passing new trade enforcement laws and opening new markets to American-made steel products," said Tim Murphy (R-Penn.), chairman of the Congressional Steel Caucus. "The legislation is in place, the administration has the tools, but now they must take action in order to hold foreign competitors accountable and protect American jobs."

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