Steel Market Intelligence
Steel Trade – Dealing From the Bottom of a Stacked Deck
Michelle Applebaum
May 19, 2009
847-433-8517
admin@michelleapplebaum.com
Steel Trade – Dealing From the Bottom of a Stacked Deck
Protectionism and Buy America – Search Volume Indices
Source: Google and Steel Market Intelligence
Steel Market Intelligence
1
Steel Trade – Dealing From the Bottom of a Stacked Deck
Trade Restrictiveness Indices by Country, 2005/2006
Hong Kong
Canada
US
South Africa
Switzerland
Australia
Turkey
Tariffs Only
Tariffs & NTBs
EU
New Zealand
Japan
Poland
Thailand
China
Russia
Brazil
Mexico
India
Egypt
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
Note: Red bars show tariff and non-tariff barriers to trade, blue bars show tariffs only.
Source: World Bank and Steel Market Intelligence
Steel Market Intelligence
2
Steel Trade – Dealing From the Bottom of a Stacked Deck
Current Account Balances (in $Billions), 2004-2008
2008
2007
2006
2005
2004
-1000
-800
-600
-400
China
Russia
-200
Germany
0
Japan
200
400
600
United States
Source: International Monetary Fund and Steel Market Intelligence
Steel Market Intelligence
3
Steel Trade – Dealing From the Bottom of a Stacked Deck
Steel Market Intelligence
4
Steel Trade – Dealing From the Bottom of a Stacked Deck
Smoot-Hawley – Cheap Shot “du jour” – average tariff levels went from 5% to 20% on
some 70% of imports – NOT EVEN CLOSE!
Source: Clemens and Williamson (2004), Journal of Economic Growth and Morgan Stanley
Steel Market Intelligence
5
Steel Trade – Dealing From the Bottom of a Stacked Deck
WTO Complaints, 2H 2008 1
WTO Complaints, 2002-2007 1
90
8.0
80
7.0
70
6.0
60
5.0
50
4.0
40
3.0
30
20
2.0
10
1.0
Mexico
Korea
Canada
Colombia
US
Pakistan
Ukraine
Indonesia
EC
Turkey
China
Argentina
Brazil
Japan
Canada
India
Mexico
China
US
India
0
0.0
1 Annualized
Source: WTO,” Report to the TPRB from the Director-General,” March 26, 2009 and Steel Market Intelligence
Steel Market Intelligence
6
Steel Trade – Dealing From the Bottom of a Stacked Deck
WHY WE NEED BUY AMERICA PART 1. The impact of the Reagan-era trade suits – Imports were
running at a 20% share of the market when the first trade cases were filed in January 1982. During
the intervening years, imports peaked at 32% of the market in July 1984, and the VRAs brought
imported steel back to around 20% of the market.
Monthly US Import Market Share, 1981-1986
35.0%
160
VRAs Enforced - 5/85
140
Bethlehem and USW File 201Petition - 2/84
30.0%
LTV Bankruptcy - 7/86
120
25.0%
100
20.0%
Voluntary Restraint Agreements (VRA) Announced
- 9/84
80
15.0%
Bethlehem Files AD and CVD Petitions against EEC
- 1/82
Plaza Accord - 9/85
60
10.0%
40
5.0%
20
Import Market Share
Nov-86
Jul-86
Sep-86
May-86
Jan-86
Mar-86
Nov-85
Jul-85
Sep-85
May-85
Jan-85
Mar-85
Nov-84
Jul-84
Sep-84
May-84
Jan-84
Mar-84
Nov-83
Jul-83
Sep-83
May-83
Jan-83
Mar-83
Nov-82
Jul-82
Sep-82
May-82
Jan-82
Mar-82
Nov-81
Jul-81
Sep-81
May-81
Jan-81
0
Mar-81
0.0%
US Trade Weighted Dollar
Source: Steel Market Intelligence and SteelFacts; including AISI and US Department of Commerce
Steel Market Intelligence
7
Steel Trade – Dealing From the Bottom of a Stacked Deck
WHY WE NEED BUY AMERICA PART 2. Front Running – Why We DO NOT Talk
About Trade Cases – Chinese OCTG shipments nearly TRIPLED in the six months
after trade cases became apparent.
Monthly Chinese OCTG Market Share, 2005-Current
60.0%
EU Duties on OCTG - 4/09
50.0%
40.0%
Canadian Duties on OCTG 3/08
30.0%
20.0%
US Files OCTG Case - 4/09
10.0%
Jan-05
Feb-05
Mar-05
Apr-05
May-05
Jun-05
Jul-05
Aug-05
Sep-05
Oct-05
Nov-05
Dec-05
Jan-06
Feb-06
Mar-06
Apr-06
May-06
Jun-06
Jul-06
Aug-06
Sep-06
Oct-06
Nov-06
Dec-06
Jan-07
Feb-07
Mar-07
Apr-07
May-07
Jun-07
Jul-07
Aug-07
Sep-07
Oct-07
Nov-07
Dec-07
Jan-08
Feb-08
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
0.0%
Source: Steel Market Intelligence, Canadian International Trade Tribunal, American Metal Market and SteelFacts; including AISI and US Department of
Commerce
Steel Market Intelligence
8
Steel Trade – Dealing From the Bottom of a Stacked Deck
Global Differences - Processes for Trade Remedies – Administrative Processes are
LESS VISIBLE and CHEAPER TOO!!!!!
 Europe
– Administrative process; provisional duties can be imposed 60 days after initiation of a
trade complaint. Target regions can appeal; the investigation normally takes less than a
year but must be completed in 15 months. Provisional duties can last 6-9 months.
 US
– Legal process; Commerce determines whether or not dumping/subsidy has occurred
while ITC determines injury or threat of injury. Final antidumping duties usually take 280390 days from the date of petition while countervailing duties normally take 205-270
days.
Source: European Commission, Canadian International Trade Tribunal, US ITC and Steel Market Intelligence
Steel Market Intelligence
9
Steel Trade – Dealing From the Bottom of a Stacked Deck
Steel - New “Protective” Measures Since September 2008
 China
– Beijing eliminated export duties ranging from 5-15% on hot-rolled sheet, plate, strip, heavy sections, coated wire, some alloy
steels and welded pipe effective December 1, 2008.
– China increased the export tax rebate to 13% from 5% for cold-rolled sheet, hot-dipped galvanized steel, electrical steels,
some alloy steels, and high speed bars, rods and wire effective April 1, 2009.
 India
– On October 31, India withdrew a 15% export tax on semi-finished steel.
– In November, the Indian government imposed a 5% import duty on imports of pig iron, semi-finished steel, flat and long
products. Steel products were also given export incentives of 4-5%.
– The government decided to launch an antidumping investigation on Chinese imports of hot-rolled coil in December.
– India eliminated the 15% export tax on iron ore fines in December and reduced the export duty on iron ore lump to 5% from
15%.
– Introduced licensing requirements for imports of certain steel products – some requirements were removed between
December 2008 and January 2009.
 Russia
– In January, the Russian government announced plans to raise import tariffs on construction steel rod and pipe and tube
products.
– In April, the Russian ministry of industry and trade extended its antidumping investigation until July 21, 2009 for imports of
pre-painted steel from China, South Korea, Belgium, Finland and Kazakhstan.
 European Union
– The European Commission (EC) decided to investigate imports of hollow structural sections from Turkey in December.
– The EC decided to put dumping duties on imports of welded tubes and pipes from Belarus, China, Russia, Thailand and
Ukraine in late December.
– In January, the Commission decided to impose temporary duties on imports of bars and rods, hot-rolled, in irregularly
wounds coils, of iron, non-alloy steel or alloy steel other than stainless steel from China and Moldova.
– The EC imposed provisional dumping duties ranging from 15-51% on Chinese imports of seamless pipe in April.
Source: American Metal Market, Steel Business Briefing, WTO,” Report to the TPRB from the Director-General,” March 26, 2009 and Steel Market
Intelligence
Steel Market Intelligence
10
Steel Trade – Dealing From the Bottom of a Stacked Deck
Steel - New “Protective” Measures Since September 2008
 Canada
– In September, the Canadian International Trade Tribunal (CITT) issued antidumping and countervailing duties against
imports of carbon steel welded pipe from China.
– In January, the CITT decided to keep antidumping duties against plate imports from Bulgaria, the Czech Republic and
Romania.
– In December, the CITT came to a decision to maintain antidumping duties on imports of carbon and alloy hollow
structural sections from South Korea, South Africa and Turkey.
 Brazil
– In February, the Brazilian government launched an antidumping investigation into imports of certain flat-rolled steel
products. The investigation will scrutinize imports; especially from Asian countries.
 Ukraine
– The government eliminated a natural gas surcharge used by steel companies on October 1, 2008.
– The ministry of transport froze a tariff for cargo transportation for 1H 2009 while prices of electricity supplied to mining
and steel mills are frozen through June 2009.
 Australia
– In December, Australia launched an investigation against imports of welded pipe from China.
 Philippines
– The Tariff Commission is investigating a safeguard petition that was filed by producers of angled bars this month.
– Introduced a new “mineral ore export permit” for the transport/shipment of mineral ores.
Source: American Metal Market, Steel Business Briefing, WTO,” Report to the TPRB from the Director-General,” March 26, 2009 and Steel Market
Intelligence
Steel Market Intelligence
11
Steel Trade – Dealing From the Bottom of a Stacked Deck
Steel - New “Protective” Measures Since September 2008
 Vietnam
– Decided to impose a 10% duty on imports of boron-added long products in mid April to ensure that imports from China do
not evade the import duty for construction long products which is 15%. Alloy products quality for a 0% duty in the country.
– Increased import tariffs on semi-finished products of iron or non-alloy steel.
 Egypt
– In February, the Egyptian government imposed temporary import duties on imports of cold-rolled sheet, galvanized sheet
and plastic-coated sheet.
 Turkey
– In January, the Turkish government increased import duties on hot-rolled wide strip and plate, cold-rolled plate and sheet,
hot and cold-rolled strip, tinplate and coated products from 5-7% to 13-15%.
 Indonesia
– The Indonesian Anti-Dumping (AD) Committee opened an investigation into alleged dumping of hot-rolled plate from
Taiwan, China and Malaysia in November.
– In April, the AD Committee issued a pre-notification to the governments of Korea and Malaysia saying that it will initiate an
investigation into alleged dumping of HRC.
– Introduction of mandatory standards for steel products (hot-rolled steel sheets and coils and zinc-aluminium alloy coated
steel sheets and coils).
 Argentina
– Introduced non-automatic import licensing requirement, covering steel and metallurgical products.
 Malaysia
– Introduced new technical regulations for 57 steel products, requiring certificates of approval for conformity with Malaysian
Standards.
Source: American Metal Market, Steel Business Briefing, WTO,” Report to the TPRB from the Director-General,” March 26, 2009 and Steel Market
Intelligence
Steel Market Intelligence
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Steel Trade – Dealing From the Bottom of a Stacked Deck
Steel Market Intelligence
13
Steel Trade – Dealing from the Bottom of a Stacked Deck
Myths and Realities – Currency Trade Bill
 Is foreign currency “management” a protectionist act? The currency reform bill would
classify foreign currency “misalignment” as a trade subsidy. There is a lot of noise &
misinformation on the currency bill.
Myths
Realities
•
Protecting against currency management is
protectionist.
•
Currency management is protectionist. Duties would disappear when
management does. Free-trade restoring.
•
Asian countries punished/esp. China.
•
Duties neutralize the protectionist subsidy.
•
Risk of poking finger at our banker.
•
It is not targeted at any country; all countries “level playing field.”
•
Diplomacy works better.
•
Currently are a half dozen countries who would be impacted.
•
WTO Consistent?
•
•
Starting a trade war?
Foreign countries own our currency for stability & safety – NOT because
we’re nice to them.
•
Diplomacy is a great idea but the process has been exhausted over many,
many years.
•
Bill is completely consistent with WTO.
•
Holding trading partners accountable to their agreements and standing up
for our own rights should not be a basis for retaliation; otherwise the
concept of “rules-based” free trade is plowed under mercantilism.
Source: Coalition for a Prosperous America, Tradereform.org and Steel Market Intelligence
Steel Market Intelligence
14
Steel Trade – Dealing From the Bottom of a Stacked Deck
Source: Oanda.com and Steel Market Intelligence
Steel Market Intelligence
15
Steel Trade – Dealing From the Bottom of a Stacked Deck
India – Accusations of “Green” Protectionism
NEW DELHI, May 15 (Bernama) -- India Thursday asked the BRIC members to unitedly oppose the
developed countries' move to impose environmental taxes on the developing nations in the name of
"green protectionism" to tackle climate change, the Press Trust of India (PTI) reported.
Ahead of the first BRIC summit next month in
Russia, Shyam Saran, special envoy to Prime
Minister Manmohan Singh on climate change,
warned that "green should not become a label
'protection' (for the developed nations)".
"We are concerned that green is becoming a new
label for protection. We are now seeing on the
grounds of level-playing field and maintaining
competitiveness, the developing nations will be
forced to take up binding commitment on
emissions reduction or pay tariff," he said.
Source: Bloomberg and Steel Market Intelligence
Steel Market Intelligence
16
Steel Trade – Dealing From the Bottom of a Stacked Deck
Lobbying – Financial Services/Real Estate and Steel, 1990 and 2008
1990
2008
$3,564,212
$755,402
Financial Services
and Real Estate
Steel
$60,475,025
$463,472,524
Source: OpenSecrets.org and Steel Market Intelligence
Steel Market Intelligence
17
Steel Trade – Dealing From the Bottom of a Stacked Deck
Op-Eds – Buy American – Pro vs. Con
5
4
4
3
3
3
2
2
2
1
1
1
1
Steel Market Intelligence
Fo
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N
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Fo
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Source: Steel Market Intelligence
on
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18
Steel Market Intelligence
2
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Steel Trade – Dealing From the Bottom of a Stacked Deck
Editorials – Buy American – Pro vs. Con
4
3
3
2
2
2
1
1
0
Con
Source: Steel Market Intelligence
19
Steel Trade – Dealing From the Bottom of a Stacked Deck
Public Opinion of Trade, 2002 vs. 2007
US
Italy
Argentina
Indonesia
Brazil
Japan
Turkey
2007
2002
Mexico
Poland
France
Britain
Russia
Canada
Germany
S. Korea
S. Africa
India
China
0
10
20
30
40
50
60
70
80
90
100
Note: Bars show percentage of respondents agreeing with the statement that trade is good for their country.
Source: Pew Research Center and Steel Market Intelligence
Steel Market Intelligence
20
Steel Trade – Dealing From the Bottom of a Stacked Deck
US – Respondents Agree “Free Trade is Good for our Economy”
2002
78%
2007
59%
Source: Pew Research Center and Steel Market Intelligence
Steel Market Intelligence
21
Steel Trade – Dealing From the Bottom of a Stacked Deck
EU Countries - Respondents Agree “Free Trade is Good for our Economy”
2002
85%
2007
80%
Source: Pew Research Center and Steel Market Intelligence
Steel Market Intelligence
22
Steel Trade – Dealing From the Bottom of a Stacked Deck
India - Respondents Agree “Free Trade is Good for our Economy”
2002
88%
2007
89%
Source: Pew Research Center and Steel Market Intelligence
Steel Market Intelligence
23
Steel Trade – Dealing From the Bottom of a Stacked Deck
China - Respondents Agree “Free Trade is Good for our Economy”
2002
90%
2007
91%
Source: Pew Research Center and Steel Market Intelligence
Steel Market Intelligence
24
Steel Trade – Dealing From the Bottom of a Stacked Deck
Joint Effort – Eight Global Steel Trade Associations
• Unprecedented – Eight global steel trade associations
from 3 continents submitted comments to the Chinese
Steel Authority suggesting compliance with WTO
agreements as well as :
• The Chinese steel industry should be governed by
market principles
• Chinese steel mercantilist interventions are distorting
global trade flows based on comparative advantage
trading principles
• Subsidies create artificial competitiveness
• Raw material export control creates artificial cost
structure
Steel Market Intelligence
25
Steel Trade – Dealing From the Bottom of a Stacked Deck
China’s Steel Market Distortions – China subsidizes its domestic steel industry causing
excess high-cost capacity that gets exported to others’ markets
Chinese Steel Subsidies and Government Support Practices – A Selection
Grants, equity infusions, unpaid
dividends and other preferential
access to capital
•
Government infusions (18 bn RMB
Ma’anshan)
•
Debt-equity swap (27.5 bn RMB
Anshan, Baosteel, Lanzhou,
Shougang, Taiyuan)
•
Government foregoing dividend
payment (industry profit around 190
bn RMB in 2007)
•
‘In-kind’ contribution: Government
provides productive assets to another
company through govenmentmandated merger (51% stake in 3
MT E’cheng to Wuhan at no cost)
Source: Eurofer and Steel Market Intelligence
Steel Market Intelligence
Access to policy-driven
lending at favorable rates
•
47 companies benefited from
preferential lending through State Key
Technology Renovation Project Fund
including Anshan, Baosteel and
Panzhihua (75 bn RMB)
•
Low cost loans ($3.4 bn for major
listed steel companies such as
Baosteel, Wuhan, Anshan and
Shougang)
•
China Development Bank committed
to provide Anshan with 18 bn RMB
loan including 10 bn at preferential
rates, to promote strategic
development of the company
Preferential tax programs
•
Transparency on central
government programmes
only, not on local level
(tax refunds, tax breaks
and tax cuts foregoing tax
collection worth 7.6 bn
RMB from listed
steelmakers)
Preferential access to inputs,
land and energy
•
Free use of land or at less
than adequate remuneration
(Baosteel, Anshang, Xinyu)
•
State-owned steel
companies provide steel
substrate (HR) to rerollers at
significantly low price levels
26
Steel Trade – Dealing From the Bottom of a Stacked Deck
China has significant disadvantages in steelmaking
 Plus
– Dynamic domestic demand
– Low labor costs
– Very competitive leaders
– Domestic coal supply
 Minus
– Dependence on iron ore imports
– High energy cost
– Low grade product
– Small producers, non-competitive
– Inland industrial network
– Environmental issues
– Transportation costs
– High capital cost
– Fragmented and inefficient supply
chain
Source: ArcelorMittal and Steel Market Intelligence
Steel Market Intelligence
27
Steel Trade – Dealing From the Bottom of a Stacked Deck
China’s Golden Opportunity
 Beijing’s “Silver Lining”
 Opportunity to Restructure Chinese Steel Industry
 Currently 50% of Global Capacity but 70% of World’s Growth
 Industry of Two Halves – Modern Efficient Co-Exists with Backwards and Polluting
 North American Echo – North American Restructuring Took 20 Years
 Entrenched Stakeholders – Unions, Vendors, Political Interests Supported High Cost Players
 According to the China Iron & Steel Association, Chinese steelmakers lost 3.3B Yuan ($483M) in 1Q
2009 and 1.8B Yuan ($262M) alone in March. Some 20 out of 72 (34%) large and medium sized
steelmakers reported losses during the quarter.
Steel Market Intelligence
28
Steel Trade – Dealing From the Bottom of a Stacked Deck
Chinese Market Share of U.S. Imports
2009 YTD
2008
2003
2.8%
16.5%
15.1%
83.5%
84.9%
97.2%
China
Rest of the World
China
Rest of the World
China
Rest of the World
Source: Steel Market Intelligence, Import Administration and SteelFacts; including AISI and US Department of Commerce.
Steel Market Intelligence
29
0.4
0.7
Q
.I/
2
Q 00
.II 3
/2
Q 00
.II
I 3
Q /20
.IV 03
/2
Q 003
.I/
2
Q 00
.II 4
/2
Q 00
.II
I 4
Q /20
.IV 04
/2
Q 004
.I/
2
Q 00
.II 5
/2
Q 00
.II
I 5
Q /20
.IV 05
/2
Q 005
.I/
2
Q 00
.II 6
/
Q 200
.II
I/2 6
Q
.IV 006
/2
Q 006
.I/
2
Q 00
.II 7
/
Q 200
.II
I/2 7
Q
.IV 007
/2
Q 007
.I/
2
Q 00
.II 8
/
Q 200
.II
I/2 8
Q
.IV 008
/2
00
8
20
03
20
04
20
05
20
06
20
07
20
08
Steel Trade – Dealing From the Bottom of a Stacked Deck
Chinese Steel Export Surges
EU 27 Imports from China
3288
9.7
2439
2214 2211
2061
1941
6.5
1653
5.0
837
546
1.1
49 23 31 28 39 22 65
Steel Market Intelligence
108
1854
1317
930
330
492
138126
Source: Eurofer and Steel Market Intelligence
30
Steel Trade – Dealing From the Bottom of a Stacked Deck
Chinese Net Imports Turned into Exports
Chinese Steel Trade Balance, 1994-2012E (Tonnes in Millions)
% of Chinese Consumption
40
13.3%
30
19.1%
10.8%
10.5%
20
8.1%
8.4%
10
4.0%
4.3%
6.9%
5.9%
4.1%
NM
-8.5%
-11.9%
-9.8%
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
0
-10
-20
-30
-40
-50
-60
Source: World Steel Association and Steel Market Intelligence
Steel Market Intelligence
31
Steel Trade – Dealing From the Bottom of a Stacked Deck
Chinese steel consumption growth has outpaced steel capacity growth –
most of the time
Chinese Steel Consumption vs. Production (Tonnes in Millions) –
Assuming Consumption Drops 10%
300
300
250
250
200
200
150
150
100
100
50
50
0
0
Consumption
?
350
2008
350
2007
400
2006
400
2005
450
2004
450
2003
500
2002
500
2001
550
2000
550
1999
600
1998
600
1997
650
1996
650
1995
700
1994
700
Production
Source: World Steel Association, National Bureau of Statistics of China and Steel Market Intelligence
Steel Market Intelligence
32
Steel Trade – Dealing From the Bottom of a Stacked Deck
The “homeless” steel in the global market would have a tsunami effect –
the impact of a 10% Decline in Chinese Steel Consumption – 50MT!!!
 28% of Asian Market
 120% of Korean Market
 71% of Japanese Market
 26% of International Trade
Source: World Steel Association and Steel Market Intelligence
Steel Market Intelligence
33
Steel Market Intelligence
Steel Trade – Dealing From the Bottom of a Stacked Deck
Michelle Applebaum
May 19, 2009
847-433-8517
admin@michelleapplebaum.com