Steel Products Prices North America

Why Steel Imports Surged During 2014: A Service Center Opinion

Written by John Packard

After Steel Market Update (SMU) produced our 11 month analysis of flat rolled steel imports into the United States, we received a number of comments about reality versus the perception behind the numbers. Calendar year 2014 should go down in history as the second largest number of foreign steel tonnage shipped to the U.S. by foreign producers in history. In our recent article we expect 2014 total steel imports to exceed 43 million net tons surpassing 1998’s 42.5 million tons. As a side note, the year with the most flat rolled imports was 1998 at 29.6 million net tons (AISI).

We received the following note from a steel service center executive associated with one of the major national service center chains in North America. In the note the author puts into perspective what conditions created the surge in imports and then forecasts what will happen during the first six months 2015:

“Once the dust settles on 2014 and we have all of the figures in for imports, their % of total, etc, I think it’s important to keep a certain perspective in mind. While the figures are daunting at face value, there were very specific circumstances involved in the 1st 9 months of 2014 which weighed heavily in the causes. One could easily look at the figures and cry foul, and say the tons were too high, and this hurts the US producers. However, if you look at the position the US mills were in for the period Jan-Aug/Sep (extreme winter weather problems and unplanned outages), how many more tons could they really have produced, assuming imports weren’t in place??

In my opinion, there were 2 catalysts which put the import engine in place for 2014:

1) Hard stances taken by the mills for 2014 contracts, led to a much lower level of contracts being consummated for 2014. This was a deliberate move on the mills part, in an effort to shore up prices on contracts, which they believed had become “too loose and cheap” relative to Spot in the past years. There was nothing wrong with their doing this, as they have every right to sell in the manner they choose to. As a result, this put a lot of tons up for bid, and many buyers chose to buy foreign in addition to buying on the domestic spot market. Many buyers had not been active in the foreign market for some time, since they were satisfied with the domestic supply chain, and therefore they now found a whole new avenue for supply which had been untapped prior.

2) Extreme winter weather and various unplanned outages in 1Q 2014. Mills found themselves in Feb-May with significant production problems including: lack of Iron Ore due to frozen Great Lakes, transportation problems (rail & truck) for both incoming and outgoing goods, and significant production outages due to equipment problems (including USS declaring “Force Majeure” with their issues).

In addition to 1 and 2 above, Automotive sales growth put even further strain on the FR mills. In light of what was occurring, buyers were moving even further into imports not only for price differential reasons, but also because mills were running so poorly, to the point that surety of supply was disrupted over a sustained period. To my knowledge, mills made every ton of steel they could between Jan-Aug, and if it weren’t for imports, buyers would genuinely have been in serious trouble. It is for this reason that I believe US mills did not proceed with dumping suits on CR and Galv, since the facts weren’t on their side. Lastly, once the foreign supply chain engine gets on the track, it takes a long time for the process to reverse, and there can be a lot of pain in the meantime for domestic producers. Buyers spent a lot of time qualifying and trialing import alternatives, and now those supply chains are in place.

Fast-forward to today, and I believe the circumstances are markedly different. If imports continue at the current pace, then I believe that the US mills will indeed face real injury, including not being able to run at full capacity, due to heavy levels of low-cost imports. They will more likely have genuine facts on their side for a case, if they can show that imports are taking more than their historical share, that US mills can’t sell as much as they can make, and that prices are below home market levels.

In summary, I believe the 2014 story on imports is much more nuanced and complex than the headline numbers otherwise might reveal. However, I believe 2015 (at least 1st half) will turn out to be a more classical case of excess levels of imports causing over-supply in the market and thus actual harm to US producers. This process already began to emerge in the latter part of 2014 and will continue as we move forward.”

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