October 21, 2001
Steel industry, customers wait on Monday’s ruling
By PAUL M. KRAWZAK
COPLEY NEWS SERVICE
WASHINGTON — The nation’s steel makers could enjoy an economic boost and protection from cheap steel imports if a federal commission rules Monday that imports have hurt the domestic industry.
But if the U.S. International Trade Commission does not find injury, the survival of at least some U.S. steel companies could be in question, analysts say.
After a four-month investigation requested by President Bush and the Senate Finance Committee, the commission will vote Monday. Its six members — three Republicans and three Democrats — will decide whether imports have caused substantial injury to domestic steel makers.
The commission is an independent federal agency. If it determines injury has occurred, it will recommend a plan to the president to reduce imports by the end of this year.
“I suspect they may determine there has been some injury,” said Leo J. Larkin, metals analyst for Standard & Poors. Charles A. Bradford, president of Bradford Research in New York, also expects the commission to conclude that imports have hurt domestic makers.
If injury is found, it will cause an immediate increase in the value of steel company stocks, Bradford believes. Larkin is not so sure. There already is widespread expectation that the commission will find injury, he said. Thus, he expects little immediate reaction from stock prices.
An injury finding also could lead to an improved environment for domestic steel makers. Steel service centers, which import steel, may cozy up to domestic companies out of fear that foreign steel supplies will be cut off in the future, Bradford said.
Some analysts question the long-term benefits of import curbs.
“Long term it’s very, very bad,” said Bradford, who believes protection will put American companies that use steel at a competitive disadvantage with foreign manufacturers. That’s because American companies will pay more for steel than foreign companies, he said.
Larkin added that import limits protect weak American steel makers. “What the remedies will do is keep uneconomic capacity alive, so long-term, the impact is negative in my point of view,” he said.
If injury is found, that means relief is likely. By reducing the volume of imports, relief would cause steel prices to rise. That would benefit healthy steel makers such as the Timken Co. in Canton. Higher prices also would help struggling companies, such as LTV Corp. in Cleveland and Republic Technologies International in Fairlawn, which have sought protection from creditors under bankruptcy laws.
Higher prices for steel would meet a less enthusiastic reception from steel users and consumers. Major steel users such as Caterpillar, the maker of earth-moving equipment based in Peoria, Ill., have urged the commission not to find injury for this reason.
Advocates of import curbs say a negative finding by the commission would be very bad news for steel makers. Most likely, pressure would build in Congress to find a way to help steel companies.
In that situation, Rep. Ralph Regula, R-Bethlehem Township, former chairman of the Congressional Steel Caucus, said his “next effort” would be to work with Bush to negotiate voluntary import limits on steel products similar to those in effect under former President Reagan and former President Bush.
Another vehicle for relief is the Steel Revitalization Act, a bill introduced by Rep. Pete Visclosky, D-Ind., which would reduce imports to pre-1998 levels.
The majority of American steel companies as well as the United Steelworkers of America favor relief. They argue that cheap imports have caused steel prices to fall to 20-year lows. Imports reached a peak of 41.5 million tons, or about one-fourth of U.S. supply, in 1998. They remained at high levels in 1999 and 2000 before declining this year.
Even better-performing steel makers say imports have driven down profits, depriving them of cash to invest in technology and productivity improvements. Since late 1997, 25 steel companies have closed or sought protection from bankruptcy, including Bethlehem Steel, which filed for Chapter 11 on Monday.
During hearings before the commission last month, U.S. steel makers urged the panel to find that a broad segment of the steel industry has been harmed by imports. If the commission agrees, that could lead to protection for a large share of the industry.
“Relief that is partial and leaves many segments uncovered will just funnel imports into all the uncovered segments,” said Roger Schagrin, an attorney who represents American steel companies.
European, Asian and South American steel makers, who oppose relief, argued that the many different types of steel, including sheet and bar, are affected differently by imports and should be viewed individually.
Observers say a key product to look at is sheet steel, which accounts for more than half of U.S. steel shipments. Sheet steel is used in automobiles, appliances and construction. LTV is a major producer of sheet steel. If the commission determines that various types of sheet have been hurt, the decision would benefit a wide swath of the industry.
Each commissioner will vote separately on whether there has been injury and which steel products have been harmed. Under the North American Free Trade Agreement, the panel could decide that Canadian and Mexican imports are not part of the problem and exclude them from any injury finding.
As significant as Monday’s decision will be, whatever remedy is ordered will have more impact. If there is an injury finding, the commission has until the end of November to craft a plan to reduce imports. It could include higher tariffs that increase the price of imported steel, limits on imports, a combination of the two or other measures.
The commission’s recommendations would go to Bush, who would decide what, if any, relief to order by February. Relief could last up to four years.