Mr. F.D. Baysal, President of SEBA International, recently spoke to SteelOrbis, sharing his views on where the world rebar market is heading, what type of structural changes we are going through, what lies ahead of us, and how best the challenges may be handled.
Though I have seen a lot of changes in our steel business during the 30 some years I have been managing SEBA, I have not seen any change as dramatic as that seen since 2008. It seems like the steel business we all have been grown up with has evolved to a new phase. The role of traders as we know it has changed. The steel mills have speeded up their vertical integration and now own most of the companies we used to service and import for. What mills have not been able to own, they have put out of business. This change is even more dramatic in the rebar business.
Rebar mills used to own some of the fabricators in each region, but now they own the majority of the fabricators and even some steel distribution companies. In the USA, before 2008 we had been importing one million to two million tons of rebar (depending on the year) due to lack of domestic capacity. After 2009, demand shrank dramatically. Today, domestic capacity can easily meet the reduced demand. Due to the shrinkage of the market, rebar mills went into survival mode and started to compete with the same fabricators that had supported them for so many years. The competition was so fierce, most privately-owned fabricators had to shut down. As you would understand, it is not possible to compete with a fabricator which is owned by the same mill you purchase your rebar from. Their only chance to survive is through imports, but imports are restricted in most of the jobs that are available today.
The housing market is down and there is no hope until 2013. Commercial jobs cannot obtain financing due to recently imposed banking regulations. The only rebar jobs available are from infrastructure projects financed by the government stimulus program. However, imports are not allowed to be used in these jobs due to the new Buy American requirement. The little business that is out there does not allow use of imports, thus reducing the chance of survival of independent fabricators. Ironically, the government's stimulus program does not serve the independents which traditionally employed more labor than the domestic mills. Rebar's biggest use is in highway jobs, but these have always been closed to imports, like all federally-funded jobs. Even though domestic prices have been slightly higher than prices in the international markets, giving imports a theoretical chance to compete, other factors prohibit healthy trade. It seems imports will have to wait for their chance until such time as demand surpasses domestic capacity again.
The restrictions imposed on imports is part of the protectionism the world appears to be embracing (unfortunately with the USA as the leader). This is a very dangerous game. I am surprised to see how history is so fast forgotten. One should never forget the Smoot Hawley Tariff Act that was imposed in 1930 by the USA, which is acknowledged as an important cause of the Great Depression. So what can a trader do today? I think we should support free and fair trade and give the independent fabricators and distributors a chance to survive. I would like to emphasize the word "fair", as we want the international mills that don't dump their steel to freely sell rebar to our markets. The ‘Buy American' requirement is not helping American labor. It is a short-sighted protectionist law that is only helping the mills which are mostly foreign-owned and employ a much smaller labor force. Traders and independent fabricators should be more politically active in this cause, or else they will see their markets become smaller than they have ever imagined. Even when the economy improves again, the traders may have fewer customers to import for.