Steel imports expanding again; WTO rejects Byrd Amendment

Tom Stundza -- Purchasing, 10/7/2004

The U.S. and the World Trade Organization (WTO) in Geneva continue to battle over rules governing steel imports, which actually are rising again. The WTO closed August business with an authorization of trade retaliation by the European Union, Korea, Brazil, Canada, Chile, Japan, India and Mexico to force return of steel duties illegally collected by the U.S. under the Continued Dumping and Subsidy Offset Act, also know as the "Byrd Amendment."

Here's the timeline: In September of 2002, a WTO dispute settlement panel found the Byrd Amendment in violation of several provisions of various world trade agreements. Four months later, the WTO Appellate Body upheld most of the panel's findings. And, 19 months later, approval for trade retaliation for U.S. failure to comply with those rulings was announced.

Various steel groups, led by the American Iron and Steel Institute, and the United Steelworkers union expressed "strong objection" to the ruling, claiming the WTO has overreached its authority. "The Byrd Amendment is good law and good policy," says the group's press release, saying it has helped the U.S. industry to once again compete in the world marketplace.

"It is unfortunate that this dispute has come as far as retaliation authorization," says Daniel Ikenson, trade policy analyst at the think-tank Cato Institute in Washington. "Despite opposition to the law at its inception from President Clinton and advocacy for repeal from President Bush, the U.S. Congress seems to have drawn a line in the sand over this issue," Ikenson explains. "It is proving difficult to pry Congressional hands from a tool that allows them to quietly subsidize their business constituents."

Interestingly, the WTO authorization to seek trade relief equal to 72% of the duties collected by U.S. Customs was issued the same day that Commerce issued a preliminary report that seven-month steel imports had risen 33% when compared to the same period last year. This meshes with data that world crude steel production stands at 590 million metric tons for the first seven months of 2004. This is 8.2% higher than for the same period of 2003, a year when production totaled 965 million metric tons.

International trade in steel increased by 2.6% in 2003 compared to 2002, reaching a new record of 326 million metric tons, or 29% of world steel supply. That record is expected to be broken this year or next—since global consumption of finished steel products is projected to increase by 6.2% in 2004 and by 4.5% in 2005, according to estimates by the Economic Studies Committee of the International Iron and Steel Institute (IISI).

Global steel trade by China led the 2003 increases, up 48% in 2003 over 2002, accounting for 17% of total world steel imports, according to IISI data. However, China is switching from high steel-import activity this year to steel exports. That's because steel prices in China, while still strong, are lagging international prices, and especially U.S. prices. As a result, Chinese steel producers—who began the year importing steel products—now are increasing exports to take advantage of the strong pricing in other markets. In fact, steel exports from China hit an all-time one-month record in May, up 19.5%, to 3.4 million metric tons, with 73% of the total going to Asian markets, according to Steel Business Briefing, the London-based online news service. Arrivals into the U.S. from China were up 44% through June so analysts are assuming that the high prices in the U.S. will attract more tonnage from China in months to come.

Steel imports through June of 15.6 million net tons were 31% higher when compared with 10.8 million tons through June 2003. Importers were led by the European Union, which shipped 2.5 million tons to the U.S. market, a 25% increase from 500,000 tons in the first six months of 2003. Japan shipped 657,000 tons, a 36% increase in a year-over-year comparison. North American Free Trade Agreement (NAFTA) partners Canada and Mexico also raised shipments into the U.S. Canada was the largest supplier with 2.9 million tons sold across the border, an 8% increase while imports from Mexico rose 26% to two million tons. Other major U.S. suppliers at midyear were Brazil at 1.63 million tons, up 72%; Turkey at 990,000 tons, up 81%; South Korea at 739,000 tons, up 17%; Russia at 692,000 tons, up 321%; and China at 458,000 tons, up 4%.

"With robust demand and record-high prices, along with shortages of some steel products a constant refrain from many steel consumers, there is only one conclusion to be reached about the U.S. steel market: Imports will increase even more in coming months," says David Phelps, president of the American Institute for International Steel, which represents importers and exporters in Washington. Phelps cites the rising demand and increased prices for steel worldwide, shortages and increased prices in the domestic supply of steel and "the resulting damage to U.S. steel consumers" as evidence in support of expanded imports.

Purchasingdata.com reports that buyers have expanded their interest in sourcing metals outside the U.S. with PURCHASING's Buying Outside North America Index rising to an average 60.9 so far this year from 54.9 for all of 2003 and 52.3 in 2002 (when the Section 201 tariffs were in full force). Unsurprisingly, the AISI already is grousing about 2004 import levels. "The rate of growth of imports once again is outpacing the market's gains in consumption," says AISI 's chairman, David Sutherland, president of Ipsco Inc. in Lisle, Ill.

Still, analyst Peter Marcus at World Steel Dynamics in Englewood Cliffs, N.J., says, "The globalization of the raw materials procurement and end-product manufacturing process has made steel an interchangeable global commodity." He says the "average quality of steel products continues to rise," which will keep international trade a major factor in the steel marketplace.