Four U.S. steel producers announced earnings this past week. During their earnings conference calls held with analysts the steel mills addressed questions/concerns regarding foreign steel being exported to the United States. The domestic mills filed trade cases against corrosion resistant steels (such as galvanized and Galvalume) as well as cold rolled and hot rolled steels. During the past few months the U.S. Department of Commerce has begun the process of issuing “preliminary determinations” on each of the suits and the countries named within those suits.
During the mill conference calls with analysts you heard comments regarding “unfairly traded imports” (SDI, Theresa Wagler) impacting the bottom line for each of the mills.
In the Nucor earnings call, CEO John Ferriola said, “It is not an exaggeration to say that the global steel industry is in a crisis. The crisis is the direct result of foreign governments, particularly China, blatantly subsidizing their steel industries.
In further violation of international trade rules, this glut of global steel production has lead to the dumping of steel products into the US market. Despite the highest level of domestic steel consumption since 2006, the American steel industry capacity utilization in 2015 was around 70% and pricing for most steel products essentially collapsed.”
He then went on to speak about the duties announced by the US DOC, “Regarding the preliminary duties announced by the commerce department, we are satisfied with the duties applied to products from China in the corrosion resistant and cold rolled cases, but we are extremely disappointed in the other determinations and believe that the facts support higher duties. However, we are confident that the government will be more aggressive in its final determinations after further analysis is done.”
Ferriola, responding to a question from analyst Tony Rizzuto of Cowen & Company, said the company believes the final decisions on the trade cases will be tougher and more broad based, “Well, let me start by saying that we take a hard look at the data, and as we view the data, and as we are anxious to go back and present it to the commerce department, we feel confident that we can prove a stronger case than came out in the preliminaries. So, we’re pretty confident that as they look at all of the facts.
“Remember that during the preliminary findings, they see only some of the facts presented by, frankly, from the countries that we are looking to gain some duties from, so they don’t see the whole picture.
“We have an opportunity during this period to present our case. We’re confident that when we get to present our case, and get a more balanced view in front of them they’ll come out with a stronger duty determination in the final determination.”
Richard Teets of Steel Dynamics, responding to a question by Timna Tanners of Bank of America Merrill Lynch, spoke about the final determinations as being the time when the US Department of Commerce could take the time to consider more information, “Just made some real quick observations that from a timing perspective, we have preliminary rulings on the corrosion resistant on both the antidumping and countervailing. And that the final determinations, we asked them to be aligned as an industry. And those who’ve come out the middle of May, the ITC will likely rule on final injury in July. Just why would the industry ask for the alignment of the two to-determine final determinations by the DOC. That would be – because we think that not all the information was taken into account, we believe that like findings in Taiwan on Galvalume and so forth weren’t necessarily correct and give the Department of Commerce more time to review the information that was submitted to fairly evaluate it and possibly revise the information and upon review, and so therefore we believe there’s a better value coming there.”
SDI believes the trade suits are already resulting in lower import volumes. Mark Millett of SDI replied to Ms. Tanners with, “Then if you look at the market generally, imports early in the year, around about 34% of our domestic consumption. That eroded to about 30% in the fourth quarter, with a lot more activity to be determined here in this month or next month. So, we strongly predict that imports will continue to erode. Will they get back down to 21% or 23% in the near term? Probably not. But again, [indiscernible] (59:30) a million tons here and a million tons there added to the marketplace that is meaningful.”
SDI pointed out that much of the tonnage being impacted by the trade suits was value-added products such as coated steels which carry a much higher selling price than hot rolled steels.
Roger Newport “On the trade case front, the steel industry has made some progress in recent months, but not to the level we have anticipated. For example, in a corrosion-resistant trade case, the preliminary duties levied against China were quite in line with industry’s expectation. Yet, the preliminary anti-dumping duties for other countries were rather disappointing…”
Later in the call Mr. Newport stated, “If we look at imports, looking back over time, normally, imports have been about the low 20% of our market. Look back even early, just even a few years ago, it’s down about 20%, 22%. 20% to 22%. Currently, it’s been running around 29%. We peaked at, I think, a quarter last year around 34%. So, imports have definitely been an issue. We have taken on several things, actions, to address it. One is the trade cases. We have three trade cases that have been filed. We have countervailing duties have been assumed on all three of those cases, and we’re still waiting for anti-dumping duties to be assessed in the hot rolled and cold rolled cases which we expect to happen here in February and March.”
AK Steel did not address the mills’ attempts at presenting a stronger case for the final determinations and the ultimate determination to be made by the International Trade Commission.
Mario Longhi, CEO of US Steel, also spoke on the subject of foreign steel imports and the fact that the mills have agreed to extend the dates for final determinations, “…so that we can have the investigators at the Commerce Department properly do their job and have the conditions to assess what the premiums [duties] actually should be….” He went on to say, “And our expectation is that it’s going to be more meaningful than what we’ve seen with some of those players [countries other than China]. As you see, one of the biggest heavy hitters over there is China, and in that particular case, we’ve been prevailing quite significantly. It’s a complicated process. And you know, Commerce has limited resources at this time. So we have to make sure that they do have all the proper information and that they don’t succumb to the devious approaches in a way in which some of the other countries and companies have articulated their answers. So I think that what we see is that we do have the condition to come out in the end with very meaningful margins on all of the major fronts that we’ve engaged. And that should have a meaningful impact coming into the second half of this year.”
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