US antidumping suit: Wire rod role reversal
It had been rumored for a while and it finally happened - nearly all US rod mills filed an antidumping suit against Chinese, Turkish, and German
wire rods last Thursday (November 10).
The one mill not joining the petition was Cascade Steel in Oregon - who has the smallest rod
production in the US - and the rod mills owned by two
wire companies: Leggett & Platt and Oklahoma Steel &
Wire.
Let us analyze a few salient points.
What is driving the petition? Without question the greatest impetus to this antidumping petition are the overwhelming numbers of Chinese and Turkish rod imports in 2004 and so far this year.
By initiating this action, the domestic rod mills will potentially take out nearly half (49.4 percent to be exact) of the imported rods shipped to the US as per the import statistics year-to-date October 2005. Total imports through October 2005 were 2012004 /mt.
China's share was 517986 /mt;
Turkey's 295278 /mt and
Germany's 180717 /mt. The three countries collectively total 993,981 /mt annually.
The interesting part here is that the majority of the US
wire rod
production is in foreign hands, specifically in the hands of
Brazil's Gerdau Ameristeel (with mills in Perth Amboy, New
Jersey, Jacksonville Florida, and Beaumont, Texas) and Rotterdam-based Mittal Steel (with its rod mill in Georgetown, South Carolina).
Both these companies had been on the other side of the dumping equation a few times, i.e. both had received dumping action with their exports of Brazilian and Trinidadian
wire rods. Almost inevitably, they drew the right conclusions, acquired
production sites in the US and joined the native tradition of filing dumping against these nefarious imports.
How well they have learned to act in this fine North American (steel) tradition.
The potential beneficiaries of this dumping suit will be all petitioners but none more so than Gerdau and Mittal.
Brazil has a dumping suit against their
wire rod exports in place except for certain high carbon grades (e.g. tire cord and high tensile tire bead). Gerdau sells their Brazilian rolled low carbon rods in their home market, which is the entire Western hemisphere except the US. Here they have become the single largest rod producer and really do not want to see any imports. So they shut them out as much as possible and, potentially, increase their prices in the US.
Mittal has a dumping suit in place against their mill in Trinidad. After various reviews the current dumping margin is down to less than three percent - a very manageable hurdle to overcome. Whatever dumping penalties they might have to pay with Trinidadian rods will go, thanks to the Byrd Amendment, to the domestic industry of which one of those recipients will be Georgetown Steel, Mittal's South Carolina plant.
Mittal's German mills have not had a great share of exports to the US.
Germany's tonnage is primarily coming in the form of low carbon rods from Riva's Brandenburg mill. So, Mittal can increase their exports to the US from Trinidad, Czech Republic and
Indonesia, making sure that it does not interfere too much with Georgetown, shift a bit of money from Trinidad to Georgetown, and make sure that prices go up on all fronts.
So the winners are obvious. Who are the losers?
The US
wire industry in general, and the
wire mesh producers in particular. A fiercely competitive market, the US mesh producers have to cope increasingly with imports from
Mexico and, as of late,
China too. Their option of buying competitively priced
wire rods have just become seriously curtailed.
Ukraine and
Moldova are already shut out of the US by a prior dumping suit and now these vital suppliers, because of the new petition, could be locked out of the mesh grade rods market as well. Domestic rod mills will sell to them mesh grade rods only if there is no other choice.
Where is the injury? The petitioners have to demonstrate injury or the threat of injury from the shipments of the "accused" exporting countries.
With the other companies, particularly the international ones, the earnings of the rod mills are part of the consolidated balance sheet for the entire company. Thus, one cannot gauge if the rod mill is losing money or not.
The latest financial statement by Oregon Steel Inc., parent company of fellow petitioner Rocky Mountain Steel in Colorado, however, gives us a little glimpse as to just how well they are doing. The operating income for the Rocky Mountain Steel division for the first nine months of 2005 was $55 million compared with $8 million for the same period 2004. The average sales price for Rocky Mountain Steel for the first nine months 2005 was $635.00 per net ton versus $549.00 per net ton for the same period 2004. These figures do include sales of rails as well. So the question has to be asked: where is the injury?
Level playing field. Level playing field is a favorite expression of any company, steel related or otherwise, that files a dumping suit. They just want a "level playing field.
Consider the playing field for Connecticut Steel, another petitioner in the suit. They roll rods based on imported billets and use a fairly big slice of their
production to make and sell welded
wire mesh. They import billets from worldwide sources at the cheapest possible price, use them in the
production of rods and mesh and cut off the cheapest
wire rod sources for their competitors.
The US steelmakers are only too happy to file against the products of their customers as long as they can import their own raw material freely and without restriction.
There will be a public hearing before the International Trade Commission in Washington DC on December 1, 2005. The commissioners and their staff not believe what they are hearing. There, on the petitioning side they will find the "defendants" of yesterday. Clearly the tables have turned and the accused have become accusers.