For the steel industry right now, weak demand and bloated inventories are more significant issues than imports. The potential for weaker consumer spending during second half 2001 combined with normal seasonal slowing will make it difficult to achieve any sustained price relief in the near term. So, the timing of the six-to-eight month Section 201 investigation appears out of sync with our view of the market.

Now that President Bush has made a formal request for a Section 201 investigation, the International Trade Commission (ITC) has six months to conclude its research and formulate recommendations. If the ITC determines the U.S. steel industry has been injured seriously as a result of import pressures, the president will have another two months to decide unilaterally whether or not to impose the ITC's recommendations.

Trade barriers almost always reduce the global competitiveness of the industry in question. The only long-term winners in commodity markets are low cost producers against a global cost curve. New barriers against steel imports may bring short-term relief, but the domestic steel industry's long term interests are best served by accelerating its focus on cost reductions. It seems likely that many of the U.S. mills hoping to be salvaged via trade barriers could be primary targets for permanent shutdown under a global capacity rationalization plan.

Also, any increases in steel prices through government mandate and trade barriers could impose a non-competitive pricing paradigm on the steel-consuming segment of the economic value chain. The inflationary ramifications of this policy appear in direct contradiction with the Fed's underlying policy mandate. In addition, sustaining steel prices at levels above the global market could contribute to the exodus of steel-consuming manufacturing jobs in search of globally competitive raw materials.

If the Section 201 process does result in import reductions, it will come off current import levels already depressed by weak pricing, reduced domestic end demand, and numerous anti-import petitions currently in process. Ordering of domestic and imported material driven by price increases led to an over-supplied market by the middle of last year, when imports totaled 37.4 million tons. Importers have been backing out of the over-supplied market since late last summer. Total imports of finished steel product were down 26% through April compared to last year, and market feedback suggests a stronger than normal potential for more weakness in coming months. Latest available data shows imports through April running at the lowest annual rate (27.9 million tons) since 1995, when U.S. buyers purchased 24.4 million tons of foreign-made steel.