Imports, Weak Markets Hit Domestic Steel Industry
YOUNGSTOWN, Ohio — Weakened demand in select markets coupled with excessively high levels of imported finished goods have created a double threat to domestic steel producers, executives say.
Oil and gas prices are near rock bottom, forcing pipe and tube manufacturers that supply the energy industry to temporarily suspend or reduce their operations. Meanwhile, the electrical power industry is shifting from coal to natural gas as its prime source to fuel electrical generation plants, reducing demand in the coal mining industry.
“That’s an important market segment for plate,” says Scott Pape, president of Kenilworth Steel in Warren.
Heavy-plate steel is used to manufacture equipment in the mining industry, such as bulldozers and underground machinery.
Kenilworth, a master distributor of the plate steel, operates a warehouse on Dana Street in Warren and another in Chicago.
“Energy is one area where demand is really off,” he says. “It’s going to take some time to work through.”
Coal mining is an especially lucrative market for Kenilworth, Pape reports. However, environmental regulations, combined with weakened demand for the resource, have delivered the one-two punch that has left the industry staggering as well as its suppliers.
“It’s down more than 75% compared to levels a decade ago,” Pape says of the coal mining industry. “That’s a huge market for us.”
Another sector of the manufacturing economy that affects plate steel is reconditioning heavy equipment for major industries, he continues. “Steel mill repairs are also off,” he says, because many producers struggling to fend off imports have reduced their budgets, leaving them less to spend on rehabilitation projects.
“You won’t find a lot of manufacturers out there now that say it’s great,” Pape notes. “They might say it’s OK, but not great.”
Construction activity overall is healthy, he says, while the automotive sector is very strong at the moment. “All transportation is good right now,” he says, “especially rail,” an industry that relies heavily on durable plate steel. “Agricultural is off, but that’s not a big part of Kenilworth’s business,” Pape adds.
Domestic producers of plate steel, however, are squeezed by lower-priced imports moving into the United States, Pape observes.
“There are historically high levels of imports on plate,” he says. A strong U.S. dollar has made it difficult for domestic producers to export, while it’s enabled foreign countries to sell their imports for less.
“It’s coming from everywhere,” he says.
Tom Gibson, CEO of the American Iron and Steel Institute, says foreign governments have subsidized their industries for decades, allowing producers to ship their finished products to the United States at lower costs and in high volumes.
This practice, known as “dumping,” is the single-biggest threat to the domestic steel industry, he says. “Trade is the biggest issue,” Gibson told The Business Journal in an interview March 20. “What’s going on is this ruinous surge in imports.”
In 2014, Gibson says, imports commanded 28% of finished steel market share in the United States. “That’s a record high, going back to at least the 1970s,” he reports. “It continues to accelerate.”
Through the first two months of 2015, import market share has risen even higher to 33%, Gibson reports. “U.S steel producers are using 69% of their capacity,” he says.
Pipe and tube, for example, has not only been hit with the collapse of demand in the energy industry, but also has had to compete with a flood of imported products, mostly from Asia.
The American Iron and Steel Institute estimates there are 638 million net tons of steel capacity in the world today, far exceeding demand. Much of this overcapacity is in countries such as China, which are shipping their products directly to the United States, Gibson says.
“Our markets here are relatively strong,” Gibson relates, as he cites the automotive and durable goods markets. Energy, while now injured by a severe downturn, is likely to pick up sometime because of the cyclical nature of the industry.
But imports have increased significantly, leaving domestic producers with less market share, he says.
Korea, China and Russia experienced the largest year-over-year increases in exporting steel to the United States between 2013 and 2014, Gibson reports.
Imports from China increased 68%, he says, while steel from Turkey soared 83% and Korean imports grew by 47%, he reports.
Steel from Russia, however, surged 489% in 2014 compared with 2013.
“The irony was that last year, our steel consumption in the United States was up about 11.7%,” Gibson relates. Shipments from domestic producers, on the other hand, rose just 3%.
The issue at hand, Gibson says, is enforcing U.S. trade laws.
For example, before Congress approves “fast track” trade authority to President Obama, he says, it should include provisions that address issues such as foreign currency manipulation and stronger language on enforcing trade laws.
“We’d also like to see improvements that would allow investigation into evasion,” Gibson says.
Evasion is a tactic used by those countries previously identified for illegally dumping product in the U.S. market and penalized for it. Often, these countries tamper with labeling to mask the country of origin. Or, countries such as China or Korea send steel to another country that is in compliance with U.S. trade laws. There, it might be slightly processed, but then labeled as if it were manufactured in that country.
“We want to make sure that evidence of evasion is dealt with quickly and there are timelines to do that,” Gibson says.
The CEO says that steel production and activity this year should be on par with last year. “It should look a lot like 2014, maybe a slight decline.
Copyright 2022 The Business Journal, Youngstown, Ohio.