steel market intelligence

Steel Market Intelligence

Steel Trade – Dealing From the Bottom of a Stacked Deck

Michelle ApplebaumMay 19, 2009847-433-8517

[email protected]

Steel Market Intelligence 2


Source: Google and Steel Market Intelligence

Protectionism and Buy America – Search Volume Indices



Source: World Bank and Steel Market Intelligence

Trade Restrictiveness Indices by Country, 2005/2006

0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80

Egypt

India

Mexico

Brazil

Russia

China

Thailand

Poland

Japan

New Zealand

EU

Turkey

Australia

Switzerland

South Africa

US

Canada

Hong Kong

Tariffs Only

Tariffs & NTBs

Note: Red bars show tariff and non-tariff barriers to trade, blue bars show tariffs only.



Source: International Monetary Fund and Steel Market Intelligence

Current Account Balances (in $Billions), 2004-2008

-1000 -800 -600 -400 -200 0 200 400 600

2004

2005

2006

2007

2008

China Russia Germany Japan United States



Source: Clemens and Williamson (2004), Journal of Economic Growth and Morgan Stanley

Smoot-Hawley – Cheap Shot “du jour” – average tariff levels went from 5% to 20% on some 70% of imports – NOT EVEN CLOSE!



WTO Complaints, 2002-2007 1 WTO Complaints, 2H 2008 1

Source: WTO,” Report to the TPRB from the Director-General,” March 26, 2009 and Steel Market Intelligence

1 Annualized

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

US

Chi

na

Mex

ico

Indi

a

Can

ada

Japa

n

0

10

20

30

40

50

60

70

80

90

Indi

a

Bra

zil

Arg

entin

a

Chi

na

Turk

ey EC

Indo

nesi

a

Ukr

aine

Pak

ista

n US

Col

ombi

a

Can

ada

Kor

ea

Mex

ico



Source: Steel Market Intelligence and SteelFacts; including AISI and US Department of Commerce

Monthly US Import Market Share, 1981-1986

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.

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

Jan-

81

Mar

-81

May

-81

Jul-8

1

Sep

-81

Nov

-81

Jan-

82

Mar

-82

May

-82

Jul-8

2

Sep

-82

Nov

-82

Jan-

83

Mar

-83

May

-83

Jul-8

3

Sep

-83

Nov

-83

Jan-

84

Mar

-84

May

-84

Jul-8

4

Sep

-84

Nov

-84

Jan-

85

Mar

-85

May

-85

Jul-8

5

Sep

-85

Nov

-85

Jan-

86

Mar

-86

May

-86

Jul-8

6

Sep

-86

Nov

-86

0

20

40

60

80

100

120

140

160

Import Market Share US Trade Weighted Dollar

Plaza Accord - 9/85

VRAs Enforced - 5/85

Voluntary Restraint Agreements (VRA) Announced - 9/84

LTV Bankruptcy - 7/86

Bethlehem and USW File 201Petition - 2/84

Bethlehem Files AD and CVD Petitions against EEC - 1/82



Source: Steel Market Intelligence, Canadian International Trade Tribunal, American Metal Market and SteelFacts; including AISI and US Department of Commerce

Monthly Chinese OCTG Market Share, 2005-Current

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.

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

Jan-

05F

eb-0

5M

ar-0

5A

pr-0

5M

ay-0

5Ju

n-05

Jul-0

5A

ug-0

5S

ep-0

5O

ct-0

5N

ov-0

5D

ec-0

5Ja

n-06

Feb

-06

Mar

-06

Apr

-06

May

-06

Jun-

06Ju

l-06

Aug

-06

Sep

-06

Oct

-06

Nov

-06

Dec

-06

Jan-

07F

eb-0

7M

ar-0

7A

pr-0

7M

ay-0

7Ju

n-07

Jul-0

7A

ug-0

7S

ep-0

7O

ct-0

7N

ov-0

7D

ec-0

7Ja

n-08

Feb

-08

Mar

-08

Apr

-08

May

-08

Jun-

08Ju

l-08

Aug

-08

Sep

-08

Oct

-08

Nov

-08

Dec

-08

Jan-

09F

eb-0

9M

ar-0

9A

pr-0

9

Canadian Duties on OCTG - 3/08

EU Duties on OCTG - 4/09

US Files OCTG Case - 4/09


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 280-390 days from the date of petition while countervailing duties normally take 205-270 days.

Global Differences - Processes for Trade Remedies – Administrative Processes are LESS VISIBLE and CHEAPER TOO!!!!!


Source: European Commission, Canadian International Trade Tribunal, US ITC and Steel Market Intelligence


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.

Steel - New “Protective” Measures Since September 2008


Source: American Metal Market, Steel Business Briefing, WTO,” Report to the TPRB from the Director-General,” March 26, 2009 and Steel Market Intelligence


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.





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.





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 and Realities – Currency Trade Bill

Steel Trade – Dealing from the Bottom of a Stacked Deck

Source: Coalition for a Prosperous America, Tradereform.org and Steel Market Intelligence

Myths

• Protecting against currency management is protectionist.

• Asian countries punished/esp. China.

• Risk of poking finger at our banker.

• Diplomacy works better.

• WTO Consistent?

• Starting a trade war?

Realities

• Currency management is protectionist. Duties would disappear when management does. Free-trade restoring.

• Duties neutralize the protectionist subsidy.

• It is not targeted at any country; all countries “level playing field.”

• Currently are a half dozen countries who would be impacted.

• 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: Oanda.com and Steel Market Intelligence


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.

Source: Bloomberg and Steel Market Intelligence

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: OpenSecrets.org and Steel Market Intelligence

Lobbying – Financial Services/Real Estate and Steel, 1990 and 2008

1990 2008

$463,472,524

$3,564,212

$60,475,025

$755,402

Financial Servicesand Real EstateSteel



Source: Steel Market Intelligence

Op-Eds – Buy American – Pro vs. Con

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1

2

3

4

5

Wal

l Stre

et J

ournal

New Y

ork T

imes

Was

hingto

n Post

Boston G

lobe

Forbes

CNN

MSNBC

Fox New

s

Pro Con

3

2

1

3

4

1 1

2



Source: Steel Market Intelligence

Editorials – Buy American – Pro vs. Con

0

1

2

3

4

USA Today

Wal

l Stre

et J

ournal

New Y

ork T

imes

Los Angel

es T

imes

New Y

ork P

ost

Was

hingto

n Post

Chicag

o Trib

une

San F

ranci

sco C

hronic

le

Fortune

The Eco

nomis

t

Busines

s W

eek

Barro

n's

US New

s an

d World

Rep

ort

ABC New

s

MSNBC

Fox New

sTim

e

Pro Con

1 1 1 1 1 1

3

1 1 1

2 2 2 2 2 2 2



Source: Pew Research Center and Steel Market Intelligence

Public Opinion of Trade, 2002 vs. 2007

0 10 20 30 40 50 60 70 80 90 100

China

India

S. Africa

S. Korea

Germany

Canada

Russia

Britain

France

Poland

Mexico

Turkey

Japan

Brazil

Indonesia

Argentina

Italy

US

2007

2002

Note: Bars show percentage of respondents agreeing with the statement that trade is good for their country.




US – Respondents Agree “Free Trade is Good for our Economy”

2002 2007

59%78%




EU Countries - Respondents Agree “Free Trade is Good for our Economy”

2002 2007

80%85%




India - Respondents Agree “Free Trade is Good for our Economy”

2002 2007

89%88%




China - Respondents Agree “Free Trade is Good for our Economy”

2002 2007

91%90%



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



Source: Eurofer and Steel Market Intelligence

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 govenment-mandated merger (51% stake in 3 MT E’cheng to Wuhan at no cost)

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


Plus– Dynamic domestic demand– Low labor costs– Very competitive leaders– Domestic coal supply

China has significant disadvantages in steelmaking


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


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.

China’s Golden Opportunity




Source: Steel Market Intelligence, Import Administration and SteelFacts; including AISI and US Department of Commerce.

Chinese Market Share of U.S. Imports

2003

2.8%

97.2%

China Rest of the World

2008

15.1%

84.9%


2009 YTD

16.5%

83.5%




Source: Eurofer and Steel Market Intelligence

Chinese Steel Export Surges

EU 27 Imports from China

0.4 0.71.1

6.5

9.7

5.0

1941

1317

930

2439

1854

3288

49 23 31 28 39 22 65 108

546

330138126

492

837

1653

20612214 2211



Source: World Steel Association and Steel Market Intelligence

Chinese Net Imports Turned into Exports

Chinese Steel Trade Balance, 1994-2012E (Tonnes in Millions)% of Chinese Consumption

-60

-50

-40

-30

-20

-10

0

10

20

30

40

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

4.0%

8.4%

4.1%5.9%

8.1% 6.9%

10.5%

10.8%

13.3%

4.3%

NM -8.5% -11.9%

19.1%

-9.8%



Source: World Steel Association, National Bureau of Statistics of China and Steel Market Intelligence

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%

0

50

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450

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650

700

1994

1995

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2007

2008 ?

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Consumption Production



Source: World Steel Association and Steel Market Intelligence

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

Steel Market Intelligence


Michelle ApplebaumMay 19, 2009847-433-8517

[email protected]

steel market intelligence

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