Steel Orbis: Steel Trade Conference

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Steel Orbis Steel Trade Conference (Session 2
Trade Matters and Legislation) North American
Steel Industry Challenges
Thomas A. Danjczek President Steel Manufacturers
Association San Diego, CA July 11, 2008
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Outline
Steel Orbis Session 2
U.S. Competitiveness China - Comments -
Chinese subsidies - Chinese interference with
raw materials - Auto parts - Circular
welded steel pipe Regulating GHGs Conclusion
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Steel Orbis Session 2
Competitiveness
U.S. - China Steel Future Competitiveness Drivers
Driver U.S. China Comment 1.
Metallics Weak 1/2 imported Technological
(Availability/Price) Scrap exports Freight dev
elopments to U.S. 2. Energy Gas/electric
ity to China Climate change (Availability/Pric
e) constraints policy Limited
nuclear 3. Labor Lack of technical to
China Health care costs 4.
Transportation to U.S. 5. Trade to
China Growth of steel- intensive
goods 6. Environment to U.S. Enforcement?
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Chinas Trade Surplus with the U.S.
Steel Orbis Session 2
Year Chinas Trade Surplus 2001 22
billion (year China joined WTO) 2006 177
billion 2007 262 billion (up 47.7)
The U.S. has lost 3.3 million manufacturing jobs
since 2000 imbalances cannot go on forever.
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Steel Orbis Session 2
Impact of AD/CVD
Percent of the value of Chinese imports covered
by AD/CVD duties?
2004 0.13 2006 0.10
(TAD comment What Protectionism?)
International Trade Commission, based on U.S. DOC
and Customs official statistics
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Steel Orbis Session 2
China Steel Comments

• China has NOT become the worlds largest steel
  producer by accident, or by operation of free
  markets, or comparative advantage
• China is NOT a low-cost steel producer
• China has reached its position through a
  combination of subsidies, mandates, and planned
  intervention
• In finished goods containing steel, Chinas
  exports are expanding by approximately 30 percent
  per year
• Chinese steel market is still reliant on exports
  to absorb overproduction
• Chinese steel industry is overbuilt and
  under-demolished

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China Continues to Interfere with Raw Material
Markets

• Chinas steel policy mandates such interference
• Article 28 Mineral resources belong to the
  state
• Article 30 The state will encourage large
  Chinese producers to construct production supply
  bases of iron ores, chrome ores, manganese ores,
  nickel ores, scrap steel, and coking coal in
  foreign countries
• Article 30 The state will use its power to
  prevent cut-throat competition among Chinese
  mills for raw materials
• Article 30 The export of coke, iron alloy,
  cast iron, scrap steel, and steel billet . . .
  shall be restricted.
• Examples of how China restricts critical exports
• Metallurgical coke
• Ferroalloys and other nonferrous metals
• China has subsidized domestic iron ore
  production, as well as foreign ventures created
  to obtain iron ore from abroad.

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Case Study China Has Supported Auto Parts
Production in Many Different Ways

• WTO-prohibited subsidies
• Transfer technology requirements
• Five-year plans
• Government ownership of auto parts producers
• Preferential financing for auto parts producers
• Research and development incentives
• Restrictions on imported auto parts

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U.S. Imports of Auto Parts and Vehicle Bodies
from China
Source AISI
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U.S. Indirect Steel Trade Balance with China
Automotive Sector
2001
2002
2003
2005
2006
2000
2004
Source AISI
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Recent WTO Case Regarding Auto Parts

• Involves a local content regulation 25 percent
  surcharge on imported auto parts for any car that
  does not comply
• This regulation violated Chinas 10 percent bound
  tariff rate on imported auto parts
• February 2008 WTO issued preliminary ruling
  against China
• Case does nothing about other forms of government
  support for Chinas auto parts industry

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AD/CVD Circular Welded Steel Pipe from China
Steel Orbis Session 2

• On June 20, 2008, ITC - final injury determinant
• - Duties 69.2 to 75.5 for antidumping
• 29.5 to 615.9 for counter civilian
  duties (Average subsidy rate of 37.2)-
  Event First time CVD on steel product from
  China- Numbers See next graph
• Background Filed on June 7, 2007- DOC
  Preliminary on November 5, 2007, with margins at
  0 to 26.4 (Avg 16.6)- Final on May 29, 2008,
  with margins at 69.2 to 75.5
• Conclusion U.S. producers will not allow this
  industry to be undercut by unfair subsidies

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Regulating GHGs Trade Perspectives
Steel Orbis Session 2

• Acting unilaterally creates significant potential
  for trade and investment distortions (carbon
  leakage)
• North American production cutbacks are a bad
  compliance mechanism
• - Environmental and economic lose/lose
• Medium to longer term requires comprehensive
  global sectoral approach
• Until global approaches are in place, N.A. needs
  to level compliance cost obligations
• - Border measures to avoid loss of
  competitiveness

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Steel Trade and Environment Perspectives
Steel Orbis Session 2

• Developing countries gt90 global GHG rise since
  1990
• Canada, US, EU, Japan committed to or considering
  significant short-term GHG reduction mandates
• India not committed to action Russia? Brazil?
  China?
• Steel sector approx 4 of global GHGs
• - China over 50 of GHGs, and growing
• - North American steel lt0.5 of total global
  GHGs High rate of recycling lowest steel
  emitters
• Steel will continues to grow globally
• - 3-5 percent in total 8-10 percent in China,
  India, Russia
• - Could be 3 billion tonnes by 2050 (vs. 1.2
  bT in 2007)

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Climate Change Policy Overview U.S.
Steel Orbis Session 2

• Congress considering cap and trade
• - Unlikely to pass before 2009
• - Lieberman-Warner most likely basis
• Both Presidential candidates support some form of
  cap and trade system
• Various state-level plans inconsistent
• Some momentum for global sectoral agreement
• Industry Position
• - Recognize current-day technology limits and
  time to develop/deploy/diffuse new technologies
• - Supports global sectoral agreement
• - If cap and trade, then
• Carbon intensity standard verifiable
• - Apply to all domestic and imported steel
  sold in U.S.
• Credit/exemption for recycling and process
  emissions

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Conclusions

• China, China, China (Anything else is an
  embellishment)
• More CVDs against China are coming
• Doha talks must not be used to weaken trade laws.
• Need strong and effective enforcement of trade
  laws throughout the NAFTA region
• Need a more effective approach to dealing with
  market-distorting practices in China.
• Need to monitor raw material situation to ensure
  that market forces operate properly.