Price: The U.S. Steel shutdown that wasn’t and a call to stop 'valuation cheating'

Based on public news reports, that solution was a big “NO” from the U.S. government. But, given that U.S. Steel and Nippon Steel have acknowledged that this rolling capacity should be taken offline, what should the rest of the American steel industry (and the Trump administration) do now that operations continue?

It didn’t take long for the US government to put its veto power into action as U.S. Steel attempted to stop production altogether at a plant that it committed to keep open until June 2027. U.S. Steel’s decision may have technically complied with the agreement not to lay off any workers. But the Pittsburgh-based steelmaker should not have been surprised that the administration invoked its “golden share.”

Nippon Steel, in the announcement of its acquisition of U.S. Steel, recognized the US government’s right to veto “decisions on closure or idling of U.S. Steel’s existing US manufacturing facilities.” It is curious that U.S. Steel and Nippon Steel would announce what was equivalent to a closure just three months after the deal was finalized. Based on pure political common sense, it was inevitable that this would be the result.

U.S. Steel and Nippon Steel’s move to stop rolling steel at Granite City clearly shows that they did not believe the rolling capacity was commercially viable. When initially announcing the shutdown, U.S. Steel euphemistically explained that it intended to “optimize” its operations. This was consistent with historic trends at the Granite City plant.

U.S. Steel had already idled blast furnaces at the Granite City facility in favor of production at its Big River Steel EAF mill in Arkansas, Mon Valley Works in Pennsylvania, and Gary Works in Indiana. And it laid off more than 1,000 workers. The writing was on the wall for Granite City.

Problem: too much capacity

However, this capacity will now be online “indefinitely.” If you follow this column, you know we are staunch advocates for closing obsolete and unnecessary capacity—wherever it is. Foreign governments will often bend over backwards to keep underperforming, flagship capacity online with lavish funding. Traditionally, the American steel industry has been good about shuttering outdated or unneeded capacity based. Old capacity exits. New capacity (like Big River II) enters.

Keeping unnecessary or outdated capacity online risks oversaturating the US. market. U.S. Steel’s decision to keep rolling slabs at Granite City will spillover on the rest of the domestic steel industry because it does nothing to spur demand. To reach equilibrium, the market may force other American steelmakers to delay facility upgrades, shutter their capacity, or lay off workers.

That outcome would clearly be counterproductive to the administration’s overall goal of reinforcing the domestic steel industry. That said, given the commitments U.S. Steel and Nippon made, the government had no choice but to reverse the closure – especially with it coming so soon after the deal was finalized.

Solution: increased Section 232 enforcement – especially downstream

So, the question becomes this: How can the U.S. government block U.S. Steel’s Granite City rolling mill closure without harming other American steelmakers? Reducing imports should be the first step. Foreign producers continue to aggressively target the U.S. market, especially now as they find themselves displaced by Chinese exports.

Reducing imports can narrow the supply gap when U.S. capacity remains online. As a result, existing Section 232 measures must stay in place and should not be bargained away in any trade deals.

There is also a demand solution. American steel demand has fallen since the Asian financial crisis in 1997 and the admission of China into the WTO in 2001. This is due in large part to imports of downstream products. Foreign steel is incorporated into downstream products that are then shipped to the United States from around the world. This both harms US producers of downstream products and absorbs demand for the domestically produced steel that would have gone into a US-made downstream product.

The administration can continue to foreclose this end run around Section 232 duties with duties on downstream, derivative steel products. In August, the Commerce Department released its first round of decisions to include hundreds of downstream steel products under the Section 232 duties. This is a step in the right direction. More products will undoubtably be included in the future.

These derivative 232 duties will require effective and aggressive enforcement. Currently, Section 232 duties are only applied to the content of the steel (or aluminum) in the derivative product – i.e., the content is the long, flat, and tubular products that are subject to the original 232 proclamation.

Dirty tricks to evade tariffs

Nevertheless, importers are ignoring the actual content and underreporting or undervaluing the steel and aluminum content of their products. Customs will need to work diligently to prevent rampant and notorious undervaluation schemes.

For example, with regard to derivatives, we understand that importers have attempted to subtract out the nickel content of stainless steel, only report the slab value for inputs manufactured from a sheet, exclude the zinc value and coating cost for derivatives made from galvanized steel, or report only the value of the hot rolled going into a pipe (rather than the value of the finished pipe). This is nonsense that just disadvantages the US producers of derivative products and the steel mills alike.

Moving forward, it is essential that enforcement targets and shuts down these attempts to cheat on valuation reporting. Otherwise, the importers of downstream products will get a significant advantage that will continue offshoring of US demand for steel- and aluminum-containing goods and undermine the program and the purpose of the derivative provisions in the executive orders.

Expansion of US manufacturing overall and demand for steel (and aluminum) can only happen through vigorous enforcement that assures that the duties are collected on the full value of the steel (and aluminum) products covered by the 232 – whether or not they are included in a derivative product.

Editor’s note

This is an opinion column. The views in this article are those of an experienced trade attorney on issues of relevance to the current steel market. They do not necessarily reflect those of SMU. We welcome you to share your thoughts as well at info@steelmarketupdate.com.