The Rushford Report Archives

February, 2002:  Publius

By Greg Rushford

Published in The Rushford Report 

            Believe the political rhetoric, and you’d think that the U.S. steel industry hates foreign steel. Fact is, that’s not true. Domestic steel makers hate competition. They like the foreign steel that they need to keep their own operations running — particularly slabs of semi-finished foreign steel that the mills use to make downstream products. Somewhere between one fourth and one third of all the steel that passes through American ports is headed for domestic integrated steel mills.

            U.S. minimills don’t care about slabs, as they make their steel from scrap. But the domestic integrated mills care very much. Don’t cut off the foreign raw materials that we need, they say; just cut off the steel that our customers might otherwise buy from foreigners, instead of us. The U.S. steel mills argue without blushing that they should be allowed to have access to foreign raw materials they need — but that their own customers shouldn’t.

            Ask West Virginia’s Weirton Steel about WeBco, its joint venture with the London-based Balli Group to import foreign slabs. This is reportedly one of the few profitable operations that the struggling Weirton has. Actually, I tried twice last month to ask Weirton spokesman Gregg Warren about his company’s imports of foreign slabs. He declined to comment.

            While the U.S. mills’ own need for imports is usually only spoken in whispers within the industry, if at all, recently the veil has been lifted.

            In comments filed on January 4 with the Office of the U.S. Trade Representative in connection with the pending Section 201 case, Washington trade lawyers Joseph Dorn, Duane Layton, and Christine Savage put a wealth of information onto the public record that the rest of us might savor. The King & Spalding lawyers represent AK Steel Corp., California Steel Industries, Inc., Duferco Farrell Corp., and Oregon Steel Mills, Inc., all of which see their profitability tied to access to imported slabs.

            If you believe the domestics, the amazing thing about imported slabs is that the overseas slabs that U.S. steel mills buy are never “dumped.” They are never “unfairly traded.” It is only the imported steel that other steel consumers need — like General Motors, Caterpillar, General Electric, and thousands of small businesses require to make autos, tractors, refrigerators, and just about anything else made of steel — that is “dumped.”

            Slab imports “never” injure them, the importing U.S. steel mills contend. How could they? Ask General Motors, or Caterpillar, or Emerson Electric, or thousands of U.S. small businesses that import foreign steel, if their access to affordable raw materials including steel hurts their businesses. Of course they don’t. You don’t have to have a doctorate in economics to grasp this.       

            You can see what is going on in the King & Spalding lawyers’ own words, as they explained their clients’ need for foreign slabs of steel to USTR Robert Zoellick:

            “First, domestic producers of plate and sheet that have no hot end must import slab to survive. California Steel has depended on slab as its essential raw material since it commenced operations in 1984. Duferco Farrell depended on imported slab to commence its operations in 1999. Lone Star Steel and Jindal USA also are entirely dependent on slab imports.”

            “Slab is not a flat-rolled product. It is a raw material used by producers of plate and sheet. Only steel mills use slab.”

            “Restrictions on slab imports would largely benefit minimills that do not sell slab and that do not compete with slab imports.”

            “Minimills using thin-slab casters do not purchase slab. Their raw materials are mainly steel scrap, pig iron, and DRI, which they import in large quantities. Nucor imported over a million tons of pig iron in 2000, because ‘pig iron is not available domestically.’”

            “Likewise, Nucor urged Ambassador Zoellick in a June 21, 2001 letter to exclude pig iron from the scope of the Section 201 investigation because ‘{p}ig iron is an essential raw material for virtually all steel producers who utilize electric arc furnace technology…’”

            “Nucor defends its resort to foreign pig iron during years of excess domestic BF capacity by showing that the integrated mills choose not to participate in the merchant market for pig iron. The same logic applies to slab.”

            “Accordingly, it would be extremely unfair to impose restrictions on slab imports, which would provide minimills with a significant raw material cost advantage over their domestic competitors. Imposing tariffs on slab would favor the business model of minimills and reject the business model of domestic producers of plate and sheet that rely on slab imports.”

            “Slab imports did not cause any injury.”

            “AK Steel would not have invested $1.1 billion in its state-of-the-art finishing facility in Rockport, Indiana if access to slab imports were restricted.”

            “The business models of California Steel (which has been rolling purchased slab and has invested over $500 million since its inception in 1984) and Duferco Farrell (which has invested $100 million in its rolling facilities during 1999-2001) are predicated on access to imported slab. Indeed, California Steel and Duferco Farrell do not have any BF/BOF or EAF and would not exist today without slab imports.”

            “In short, the President should not impose any import restrictions on slab.”

            “Since the early 1980s Oregon Steel and Geneva Steel have been the only slab producers west of the Rocky Mountains. Oregon Steel, however, depends on slab imports to utilize its rolling capacity, and Geneva ceased producing slab last November.”

            “Every ton of imported slab is used by and benefit’s a member of the domestic industry. Substantially all members of the industry (other than minimills with thin-slab casters) purchase foreign slab.”

            “Injury from increased imports can be remedied solely by import restrictions on plate and sheet. First, import restrictions on plate and sheet would create more demand for captively consumed slab to supply domestic plate and sheet mills. This would increase slab capacity utilization and decrease unit fixed costs of slab production. Second, import restrictions on plate and sheet would lead to higher domestic prices for plate and sheet made from slab. This would lead to higher revenues allocated to slab operations. Thus, no need exists to impose import restrictions on slab.”