U.S. Steelmakers’ Trade Case Unlikely to Halt Import Flood

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Trade complaints that imported steel is being sold in the U.S. at unfairly low prices probably won’t staunch the flood of the metal into the country, hurting the profitability of domestic producers, according to Bloomberg Intelligence.

Despite a U.S. trade case filed against China and four other countries, imports may continue to pressure steel prices and volumes for domestic producers, according to a Bloomberg Intelligence note on Monday. Steel profitability fell 71 percent this quarter compared with a year earlier, according to the Bloomberg Intelligence Steel Profitability Index.

A bill that would make it easier for domestic mills and unions to file cases against unfair trade prices hit a major roadblock on Friday after House Democrats rejected President Barack Obama’s trade promotion authority, legislation that includes the trade-case reform backed by steelmakers in the U.S., Caitlin Webber, a Bloomberg Intelligent analyst, said in a phone interview on Monday. While Congress also is considering another separate bill that would reduce customs evasion, the measures are unlikely to ease the import pressure from foreign rivals in the near future.

“In terms of changing the behavior of foreign steel companies, I don’t think that legislation that they are considering will go far enough,” Webber said, referring to the customs-evasion legislation.

Steel Overcapacity

U.S. Steel Corp., the second-largest steelmaker in the country, fell 5.1 percent to $23.31 at the close in New York, the most since April 29. Nucor Corp., the largest producer in the U.S., declined 2.2 percent to $47.50.

It’s hard for trade cases to be effective because companies can find ways to get around regulation, such as by using additives or sending it to other countries before it is shipped to the U.S., according to Kenneth Hoffman, a Bloomberg Intelligence senior analyst.

“Those countries will cut it up or slice it or do some minor changes to it cosmetically and say, ‘It’s our steel, we’ll ship it to the U.S.’” Hoffman said in a phone interview. “At the end of the day what you’re going to have to see in China is for the mills to go bankrupt and to start to consolidate and truly close capacity.”

Chinese Exports

Rising U.S. demand and the stronger dollar prompted Chinese steel mills to turn to overseas buyers, mainly in Europe and the U.S. The Chinese government has tried to curb shipments by encouraging higher-added-value steels and charge export tariffs. Even so, producers were using the same techniques to get around domestic rules and ship steel products globally, Bloomberg Intelligence said.

Chinese steel global exports reached record levels last September. The exports surged to 34.3 million metric tons in the first four months of 2015, exceeding total U.S. steel production of 26.3 million tons.

China accounts for about half of the global steel production and has a capacity of more than 1 billion tons, compared with less than 100 million tons in the U.S., according to Bloomberg Intelligence.