The Ferrum Chronicles:
Steel Industry In The United States

March of 2020

Workers from the steel and aluminium industries witness President Donald Trump sign the Section 232 tariffs on
steel and aluminium imports into the United States of America on March 9, 2018.  Also present were Vice President
Michael Pence;  Mr. Steven Mnuchin, the Secretary of the Treasury;  and Mr. Wilbur Ross, Jr., the Secretary of Commerce.
(The photograph was produced by Ms. Joyce Boghosian and was provided courtesy of The White House.)

In the United States of America (and perhaps elsewhere in the world), there is a saying:  “For every action, there is a re-action.”  The idea is that every time a person, a business, or a government does something – or chooses not to do something – that a corresponding
re-action takes place.

Thus, if a supplier raises their price on a raw ingredient, the purchaser is likely to re-act.  The purchaser may, short-term or long-term, absorb some or all of the price increase and lower their profit margins.  Or, the purchaser may pass some or all of the price increase on to their customers to keep their profit margins stable or close to current levels.  Or, the purchaser may seek another supplier willing to sell the same raw ingredient at a lower price.  Or, the purchaser may choose to find an alternative raw ingredient.

While it may not be certain what the purchaser will do, it is exceedingly likely that the buyer will do something.  Even if the purchaser decides to take no action, that decision means that the buyer, in essence, is making a decision to lower their profit margins.

This concept of action/re-action has been in play in the steel industry for years, not just since the Section 232 tariffs went into effort in March of 2018.  (The name of these aluminium and steel tariffs comes from the “Section 232” of the Trade Expansion Act of 1962 passed by the United States Congress and signed into law by President John Kennedy.)

Within the steel industry, the Section 232 tariffs included a 25% tariff to be applied to mill steel imported from most nations into the USA.  This specific steel tariff is not applied to mill steel imported from certain countries, including Argentina, Australia, Brazil, Canada, Mexico, and South Korea.  Separate Section 301 tariffs have also impacted the steel industry in the USA.

Looking at the steel industry today in the USA by focusing only on the recent tariffs – without considering the past history – would not be accurate.

There appear to be five distinct activities occurring at the same time in the steel industry in the USA:  One, the basic steel industry is continuing its transition from chiefly large-scale integrated domestic producers of steel within the country.  Two, governmental actions in a number of countries – chiefly in China – have encouraged development of steel industry sectors for export of products to other countries – the USA, among others.  Three, the implementation of a broad-based tariff on mill steel imported into the USA.  Four, the implementation of tariffs by other nations on other products imported into their countries from the USA.  Five, efforts underway to circumvent the tariffs by focusing on transshipping of steel and fabricated steel products into the USA.

The steel tariff implemented in March of 2018 was in re-action to the impact of the first two items – the transition underway of the basic steel industry in the USA and the development and export policies of China relating to the steel industry.

The trade wars underway through the implementation of those USA tariffs and the increased transshipping of steel and fabricated steel products are then re-actions to the steel tariffs.

Some businesses have done well because of this series of actions and re-actions.  Some workers have had better job security because of these activities.  Others, though, have not been as fortunate.  Businesses and workers in some locales have suffered because of these activities.

In this news column, we’re looking at several of these elements.

As steel production grew in other countries, imports of basic steel increased tremendously into the USA.  To meet the impact of lower prices due to these steel imports, consolidation and automation became common among the major domestic steel producers in the country.

Hundreds of thousands of workers in the USA lost their jobs through these years.

The most recent statistics from two governmental sources indicate that about 140,000 workers were employed in the steel industry in the USA in 2018.  The Federal Reserve Bank of Dallas indicated that 139,800 people worked in the steel industry, while the U S Bureau of Labor Statistics indicated that the number was 140,750 workers.

The World Steel Association reported that China was the largest steel producer country in 2018;  the Association indicated that China produced 928.3 million tonnes of steel in that year.  The USA was ranked by the Association as the fourth largest producer of steel in 2018, with 86.7 million tonnes of steel produced within the country.  India and Japan produced more steel than the USA, while South Korea, Russia, Germany, Turkey, Brazil, and Iran rounded out the top ten steel producing countries, according to the Association.

To put the numbers from the World Steel Association into perspective, the level of steel production in China in 2018 was greater than the amount of steel produced in all of the other nine nations in the top ten – combined.

The American Iron and Steel Institute (AISI) has been a prime supporter of the Section 232 steel tariff.  The members of the AISI include both integrated and electric arc furnace steelmakers as well as associate members who are suppliers to or customers of the steel industry.

“President Trump’s use of the Section 232 trade remedy has helped create a more favorable climate for steel, with imports declining and shipments and production rising since the tariffs’ implementation,” stated Ms. Lisa Harrison, Senior Vice President, Communications of the AISI.  “Steel imports have decreased since the Section 232 took effect, and imports make up a smaller part of the steel market. And, though it has softened in the last few months, capacity utilization is higher now than when the Section 232 took effect. Also, shipments of steel mill products were higher in 2018 than in 2017 and are up in 2019 compared to the same period in 2017. Several idled steel mills have been restarted, and American steel producers have announced plans to invest in new steelmaking capacity.  However, the momentum has been tapering off lately…due to slowing demand – and there is more to be done.”

“Current utilization rates, while improving, are still far below those that prevailed in the decade prior to the great recession, and global steel overcapacity continues to be driven by unfair trade practices, government-owned and controlled steel industries, and other trade distortions,” Ms. Harrison remarked.  “We must continue to urge the U.S. government to fight against unfair trade practices that inhibit the steel industry and our partners from realizing our maximum competitiveness.”

This map from the American Iron and Steel Institute highlights the issue of steel being produced in China,
shipped to another nation – in the examples cited on the map, South Korea and Turkey – and the steel
being converted into steel products for shipment into the United States.

The United Steelworkers (USW) welcomed the Federal government’s actions to implement the Section 232 tariffs on both imported steel and aluminium products.  65,000 members of the USW provide the skilled labor that produces steel and steel products at number of businesses throughout the USA.  The union has strongly backed efforts to stabilize and grow the steel industry within the country.

At a Congressional hearing on March 21, 2018, Mr. Leo Gerard, the then-International President of the USW stated that “We do not seek protection for protection’s sake, but to foster competitive markets and support our national security interests…Unfair foreign trade, global overcapacity, currency manipulation and other factors have undermined our ability to protect this country.”

In a statement from earlier this year, Mr. Tom Conway, the current International President of the USW, detailed some of the deep concerns seen by many workers within the steel industry:

“Make no mistake, [President] Trump inherited real trade problems. For more than 20 years, politicians of both parties failed to fix a broken system.

“Corporations exploited trade agreements to shift family-sustaining manufacturing jobs to Mexico, China and other countries that pay workers low wages and deny them the protection of labor unions.  They made boatloads of money offshoring jobs, but in the process, they robbed U.S. workers of their livelihoods and hollowed out countless American communities, decimating their tax bases and exposing them to epidemics of crime and opioids.

“Cheating compounded the job losses.  China subsidizes its industries, manipulates its currency and then floods global markets with cheaply priced goods, severely damaging U.S. manufacturing in steel, aluminum, paper, furniture, glass and other products.”

In addition, Mr. Conway noted the impact of Chinese trade on Americans in the steel industry and beyond:

“The U.S. lost 3.7 million jobs to China since 2001, 700,000 of them during [President] Trump’s presidency, and the trade deficit actually increased during the first two years of his term.

“The loss of American jobs is no accident.  It’s part of China’s policy to destabilize competitors and boost its own power.

“China subsidizes its industries, giving companies raw materials, land and cash.  Then the companies sell their products abroad at prices that U.S. companies—lacking government handouts—can’t match.

“In addition, China allows its industries to overproduce and flood global markets, further driving down prices with gluts of steel, aluminum and other products. And it artificially depresses the value of its currency to encourage still more overseas sales.”

The Steel Manufacturers Association has also strongly backed the implementation of the Section 232 tariffs.

“The Administration’s Section 232 trade actions, together with its tax and regulatory reform policies, and passage of the USMCA [United States-Mexico-Canada Agreement] have allowed the American steel industry to begin to recover after more than a decade of low capacity utilization and weaker earnings due to repeated surges in imports fueled by global steel overcapacity and unfairly traded imports,” noted Mr. Philip Bell, President of the Steel Manufacturers Association (SMA).

He indicated that the SMA “is the largest steel industry trade association in the United States, representing North American Electric Arc Furnace (EAF) steel producers.  EAF steelmakers account for almost 70 percent of domestic steelmaking capacity using an innovative, 21st century production process that is less energy-intensive and has a lower carbon footprint than blast furnace steelmaking.”

“The tariffs have increased capacity utilization in the U.S., lowered imports and sparked investment,” stated Mr. Bell. 

Utilization rates within the overall steel industry have generally been on the upswing in the past two years.  Capacity utilization rates were down considerably during the Great Recession years and grew back during the subsequent five years.  Another dip then occurred before the Section 232 tariffs went into effect.  Since that time, capacity utilization rates have steadily increased again.

“Capacity utilization is around 80 percent and steel prices are lower now than when the tariffs were announced,” continued Mr. Bell.  “The gloom and doom scenarios of high prices, steel shortages and massive layoffs within the steel industry supply chain never materialized and were wildly overstated.  Until the structural problems of global excess capacity, circumvention and state sponsored capacity expansions are [addressed], the tariffs serve as a way of leveling the playing field in global steel markets.”

Members of the SMA have restarted steel mills and new steel mills are being built, according to Mr. Bell.  He explained that member firms have announced plans to invest more than (US) 10 billion dollars “in new, sustainable, state of the art steelmaking capacity.”

Part of that growth continues to focus on the recycling of steel products and is a key aspect of the expansion of the EAF steel industry in the USA.  Mr. Bell detailed that “Through EAF steel production, more steel is recycled than aluminum, paper and plastic combined. SMA’s 24 EAF producer members and over 100 associate members have operations in 43 states.”

In 2019, Steel Dynamics, Inc. (SDI) announced plans for a (US) 1.9 billion dollar investment in new steel production
in Sinton, Texas.  The site is located in the vicinity of Corpus Christi.  Mr. Mark Millet, Chief Executive Officer of SDI,
spoke highly of this new investment in a video detailing the planned development:  “It broadens SDI’s portfolio. 
It allows us to penetrate the Southwest market of the US and also the growing market within Mexico.”
(The image was provided courtesy of SMS group.)

The recent years have been productive times for some in the steel industry in the USA, while others have been met with challenges.  In late 2019, for example, U. S. Steel announced that it “intends to indefinitely idle a significant portion of its Great Lakes Works operation near Detroit, [Michigan].  The company expects to begin idling the iron and steelmaking facilities on or around April 1, 2020, and the Hot Strip Mill rolling facility before the end of 2020.”  It’s estimated that about 1,500 people are expected to be laid off because of this closure.

The Section 232 steel tariff itself has negatively impacted a number of structural steel fabricators.

“Since the Section 232 tariffs only protect mill material and not fabricated assemblies, they incentivize foreign countries to purchase tariff-free steel, fabricate it, and then ship it into the United States without penalty,” stated Mr. Brian Raff, Director of Communications and Public Affairs at the American Institute of Steel Construction (AISC).  “Structural steel fabricators are the manufacturers in the supply chain who cut, drill, bolt, and weld the steel shapes and plate produced by steel mills to create the actual bridges, buildings, and critical infrastructure projects that use structural steel.”

Mr. Raff noted that the transshipping activities are “circumventing the very trade laws put in place to protect the steel industry.  We've seen substantial increases to fabricated imports in order to circumvent the existing 232 tariffs.”

“While major steel projects have historically been fabricated in American plants, our trade policies have made the American construction market a rich target for foreign steel interests,” Mr. Raff continued.  “Foreign steel producers have expanded from just exporting mill steel, to exporting fabricated structural steel that circumvents some U.S. trade actions and dilutes the effectiveness of tariffs.”

The AISC has indicated that it has not supported or opposed the steel tariffs, but that the organization believes that trade actions “must include downstream users of mill material like fabricated structural steel.”

Steel was fabricated at Hillsdale Fabricators in St. Louis, Missouri, for the construction of the 41st Street Pedestrian
Bridge in Chicago, Illinois.  The finished bridge, seen below, opened in 2018.  This infrastructure project was
honored by the American Institute of Steel Construction and the National Steel Bridge Alliance in 2020. 
(The above photograph was provided courtesy of Kenny Flowers and the photograph below was provided courtesy of the Chicago Department of Transportation, with both photos provided through the American Institute of Steel Construction.)

“While [Section] 232 didn't include fabricated structural steel, Section 301 tariffs now do protect fabricated structural steel from China,” Mr. Raff explained.  (“Section 301” refers to “Section 301” of the U S Trade Act of 1974.)

Efforts by the AISC to further protect steel fabricators were dealt a setback in February of 2020.  A year-long investigation had been undertaken by the United States Department of Commerce on the impact of fabricated structural steel imports from Canada, China, and Mexico.

“While [the U S Department of] Commerce found overwhelming evidence that these three subject countries [Canada, China, and Mexico] were illegally dumping and subsidizing fabricated structural steel into the U.S.,” Mr. Raff noted, “the [United States International Trade Commission (ITC)] ruled 3-2 that there was no injury to the domestic industry, and therefore, there will not be any orders in place to offer our industry the relief it desperately needs. We are obviously disappointed in the ITC ruling.”

There is a relief valve with the Section 232 tariffs.  Businesses that state that they have been or will be harmed by the steel tariff are able to ask the Federal government for exclusion from the 25% steel tariff.

A number of businesses have requested and been granted exclusion from paying this specific tariff.  The exact number of those granted exclusion is not certain because the exclusion requests must be made on each individual size of each individual product of each requesting business.  There have been more than 47,100 entries in the database of requests of exclusions made, pending, denied, and granted by the U S Department of Commerce.

The concept of actions and re-actions within the steel industry will likely continue in the coming years.  As the steel industry continues to go through transition in the USA and strives to deal with the global economy, some businesses will likely see and capture growth opportunities, while others will face difficulties that they may not be able to overcome.

Do you have questions about the steel industry? Governmental regulations?  Company operations?

Your questions may be used in a future news column.

 Contact Richard McDonough at ferrumchronicles@gmail.com.

© 2020 Richard McDonough