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M. Murat Eryilmaz CEO, SteelOrbis

CEOLetter

SummerDoldrums?

he summer season is upon us, and with it, the annual slowdown in the steel industry during which vacations, routine maintenance, lackluster demand, and a slow news cycle are the defining characteristics. But this summer might be quite diﬀerent for a couple product groups that are in the midst of trade cases. e antidumping case against OCTG imports into the US from nine countries and the antidumping/countervailing case against rebar imports to the US from Turkey and Mexico will both receive final determinations from the US Department of Commerce this summer. In July, US OCTG producers await either confirmation of South Korea’s “unfathomable” zero percent preliminary margins, or steeper levies that better match the other eight countries in the suit. A month later, final rebar margins will determine how much participation Turkey maintains in the US import market—preliminary margins were less than 3 percent—and whether Mexico, which saw margins ranging from around 10 to over 60 percent, will re-

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main shut out of the US market. Both outcomes will have substantial impacts on their corresponding sectors. US OCTG producers, already selling at thin margins to US customers, have not raised their prices in several quarters—despite a boom in demand from the energy sector. at could change if steep enough margins are assigned to their foreign competitors. As for the US rebar market, imported rebar at attractive prices has not prevented US mills from raising transaction prices, but it has tempered the frequency and amount of their increases, especially during the first quarter of each year when a deluge of imported rebar has routinely flooded US ports. Of course, the consequences of either steep margins or “slaps on the wrist” cannot be fully predicted. Imports are but one ingredient in the steel market, and as with recipes, ingredient shifts can make the final product better, worse, unchanged, or something else entirely—there’s no way to truly know until you taste it.

So as traders, domestic and foreign mills, distributors, end-users, and everyone else with a stake in the outcomes of these cases waits at the edge of their seats for a conclusion to the year-long trade case drama, they should consider that a ruling seemingly in their favor might not benefit them in the long run. Or it might benefit them in ways they couldn’t imagine. So perhaps it’s not the best idea for each side of the trade cases to decry the other as being “unfair” or “dishonest” or “greedy”. If anything, globalization is a series of millions of bridges—economic, political, communicative—so while burning them now might feel good, it could have unintended consequences in the future. With warm regards,

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Contents

20 Standing their ground

24 Spies like us

NAFTA at 20

Surviving “Buy American” Far East concerns

Interview / Standing their ground Piotr Galitzine, Chairman of TMK IPSCO, discusses the many facets of the import threat

Cover Story / NAFTA at 20 One of America’s best ideas…or worst?

News Focus / Spies like us US accuses China of spying on US Steel and other manufacturing firms

Steel Scope / Surviving “Buy American” Could the US pipeline boom thrive under imposed standards?

Aceros Noticias / Far east concerns How increased steel imports from China are aﬀecting the Latin American steel industry

Steel Scope / When steel attacks A rash of steel plant accidents has many in the market concerned

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Volume 7; Issue 3

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16 Interview / Barriers to success SteelOrbis Brescia speaks with Michele Amenduni, Chairman of Tecnotubi Spa, Zinchitalia Spa, and Amenduni Steel Tubes Group, about factors that are impacting the Italian steel industry

45 Interview / Why free trade is crucial An exclusive interview with Kim Marti Subirana from Celsa Group, the president of IREPAS at the SteelOrbis Spring 2014 Conference & 70th IREPAS Meeting

46 Interview / Survival of the fittest SteelOrbis Istanbul discusses how the role of the steel trader is evolving with Dirk Weyrather, managing director for emerging markets at C&F International

49 Interview / Growing past the peak Han Weidong, President Assistant of the Youfa Group, discusses how the slowdown in Chinese production is aﬀecting the pipe market with SteelOrbis Shanghai

6 Steel News 8 Market Analysis 15 WSD Strategic Insights 18 Bull & Gloom 28 Light Gauge Stories 30 World Economic Report 42 Events 48 Import/Export Roundup 50 Supply Lines 53 Steel Marvels 54 Trade Law Watch 56 Fabricator’s Corner 60 Crossword 63 Price Reports 64 Editor’s Corner

Prime is published by SteelOrbis Elektronik Pazaryeri A.S. Mustafa E. Say Director Murat Eryilmaz

Editorial Director Burcak Odabasi

Editor-in-chief Katie Memmel

GM - Americas Brock Watson

Editors Margie Palmer, Baris Yarsel, Çağan Orhon, John Fitzgibbon, Luca Veronesi Editorial Headquarters United States 832 Camino Del Mar Ste 2 Del Mar, CA 92014 Turkey Ataturk Cad. Seref Yazgan Is Merkezi No: 72/18-19 Kat 7 Kozyatagi/ Istanbul Designed by SteelOrbis US

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USA: +1 (713) 589-6049 Italy: +39 (030) 376-2340 China and Far East: + 86-21-5385 3535 Turkey: +90 216 468 10 50 E-mail: content@steelorbis.com Advertise: advertise@steelorbis.com Website: www.steelorbis.com e points of views expressed in the articles in Prime are those of the authors. Questions may be made by indicating sources. Prime is distributed to SteelOrbis subscribers free of charge.

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Volume 7; Issue 3

SteelNews Japanese steelmakers consider building wire rod processing plant in Mexico In early March, Japanese steelmaker Kobe Steel announced that it had signed a memorandum of understanding with its trading affiliate Shinsho Corporation, Japan companies Metal One Corporation and Osaka Seiko Ltd, and US-based Republic Steel to consider establishing a joint venture in Mexico to process steel wire rod into steel wire of cold heading quality. e five companies will discuss and consider business plans for a joint venture aimed at starting operations in mid-2015. According to Kobe Steel, auto production in Mexico reached 2.93 million units in 2013, nearly double the 1.5 million cars made in 2009, and solid growth is anticipated in the coming years. One after another, Japanese auto parts manufacturers are setting up operations in Mexico. is is creating increasing demand for cold heading quality steel wire, which is used to make automotive fasteners and other cold-forged parts. Demand in Mexico for cold heading quality steel wire has so far been met mainly by exports from the US and Japan. Anticipating growing demand, the five companies aim to set up a production and sales unit in Mexico that can quickly supply high-quality steel wire to their customers.

Illegal iron ore exports and steel thefts cost Mexico $1.5 billion in 2013 Exports of Mexican iron ore by criminal groups resulted in losses for US$1 billion for the domestic steel industry in 2013, according to a statement from Alonso Ancira, president of the National Chamber of Iron and Steel Industry (CANACERO), in early March. Ancira recognizes that organized crime has taken over mines mainly in Michoacán and Oaxaca states. “Insecurity had exceeded the limits in Michoacán,” he said. Last year

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EXTRA, EXTRA...

10 million tons of iron ore from illegal mines were exported to China. In addition to iron ore, Mexico had faced the theft of steel products in-transit (mainly by trucking), amounting to US$500 million in 2013. At that point, steel companies had a 6 percent cost overrun based on low expectations of security, mainly with rebar, wire rod, and flats. From 2004 to date, the theft of steel products fell 77 percent, but the theft of steel is still present in State of Mexico, Nuevo León, and Tamaulipas states, according to figures from CANACERO.

US Steel execs refuse to discuss company with Canadian public In a March letter to the Hamilton, Ontario city council’s Steel Issues Committee, US Steel executives said the company “respectfully declines to participate in current or future Steel Committee meetings as we believe a civic forum is not an appropriate venue in which to discuss matters relating to our internal business transformation issues.” e council revived the committee after US Steel permanently shut down its last Hamilton blast furnace, ending steel making at the former Stelco plant. After being denied the chance to question the company, councilors and the senior government members were reportedly worried about the future of company pensions and the broader impact on the city if the company were to leave Canada.

California steel foundry files for bankruptcy In mid-March, California-based steel foundry Pacific Steel Casting Co. filed for bankruptcy, attributing the move to the laying oﬀ of nearly 200 undocumented workers—a third of its workforce—in late 2011. e company, which manufactures steel parts for heavy-duty trucks and construction Volume 7; Issue 3

equipment, filed for Chapter 11 protection in US Bankruptcy Court in Oakland as its executives started to look for buyers. Company spokeswoman Elisabeth Jewel said that Pacific Steel Casting expects to receive oﬀers “shortly” for its three plants in Berkeley. Pacific Steel Casting also owes $31.4 million to about 1,300 current and former workers who sued the company in 2011. e company settled the lawsuit for about $5.4 million in January but “was not in a financial position to immediately fund the settlement,” its bankruptcy lawyers said in court papers.

Judge shuts down Nucor’s latest appeal against Big River Steel In the latter part of March, it was announced that Nucor’s latest attempt to roadblock the construction of rival steel plant Big River Steel was shut down. Mississippi County Judge Randy Carney rejected Nucor’s appeal of the January ruling in which the Arkansas Department of Environmental Quality lifted a construction stay relating to the issuance of an air permit. e construction of Big River Steel’s Osceola, Arkansas plant was still on hold as developers continued to lock down financing. Once construction commences (as early as June), it will take 22 months to complete. John Correnti, CEO of Big River Steel, said to local reporters: “Nucor can do what Nucor wants to do. ey can keep up these legal gymnastics, if you will, until the cows come home.” Mexican steel industry to invest US$3 billion in next two years In early April, the Mexican steel industry estimated that it will invest US$3 billion as a whole between 2014-2016, largely due to positive economic expectations, especially as a result of energy reforms.

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Gerdau announces new US division president During the first week in April, Gerdau Long Steel North America announced that Guilherme Gerdau Johannpeter, president of Gerdau Long Steel North America, was being promoted to executive vice president and will join Gerdau’s Executive Committee. In this role, he will be responsible for the Gerdau Special Steel business division (units in Brazil, Europe, North America and India). Mark Marcucci continues to be the executive leader of the global special steel business division and will report to Guilherme Johannpeter. Peter Campo, vice president of supply chain for Gerdau Long Steel North America, would also be promoted to president of the business division, eﬀective immediately. Iron ore shipments on US Great Lakes fall 43 percent in March e Lake Carriers’ Association announced in April that massive, thick ice formations on the Great Lakes limited iron ore shipments in March to 1.1 million tons, a decrease of 43 percent compared to a year ago. Shipments from US Great Lakes ports fell even more, 52 percent. Some of the ore that was loaded in March did not reach its intended destination until well into April, they said. Two vessels that departed Duluth/Superior at the western end of Lake Superior on March 26 did not arrive in Gary, Indiana, until April 7. Under normal circumstances, the 797-mile voyage takes about 62 hours. An iron ore cargo loaded in Escanaba, Michigan, on March 5 destined for Cleveland, Ohio, a voyage of 545 miles, was in transit for 12 days rather than the normal 50 hours. rough March, the Lakes ore trade stood at 3.5 million tons, a decrease of 33

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percent. e decrease would be more, but in an eﬀort to maintain steel production, 370,000 tons of iron ore moved in February, usually a month with no shipments. e ice on the Lakes was not the only challenge faced. e sub-zero temperatures nearly paralyzed the docks and one cargo took more than three days to load. e vessel should have been full in about 6 hours.

Nucor and Reliance push for new anti-trust trial In early May, the $156 million final judgment against Nucor Corp. Reliance Steel & Aluminum Co., American Alloy Steel Inc. and JSW Steel (USA), for conspiring to drive competitor MM Steel LP out of business was delayed by US District Judge Kenneth M. Hoyt after the defendants indicated they wanted a new trial. As per the ruling, the delay will last until two weeks after he rules on all the defendants post-judgment motions. As SteelOrbis previously reported, Judge Hoyt initially increased the $52 million jury verdict against the steel firms, finding that they violated federal antitrust laws through an organized boycott to cut oﬀ MM Steel’s customers.

Another round of US surface transportation investment announced On May 16, US Transportation Secretary Anthony Foxx announced that applications to the US Department of Transportation for its sixth round of Transportation Investment Generating Economic Recovery (TIGER) grants totaled $9.5 billion, 15 times the $600 million set aside for the program, demonstrating the continued need for transportation investment nationwide. e Department received 797 eligible applications, compared to 585 in 2013, from 49 states, US territories and the District of Columbia. e announcement comes weeks after Secretary Foxx unveiled the GROW AMERICA Act, a four-year surface transportation reauthorization bill that would create millions of jobs and lay the groundwork for long-term economic competitiveness. “ese applicants confirm what I saw as I traveled through eight states and 13 cities as part of my Invest in America, Commit to the Future bus tour last month – America is Volume 7; Issue 3

hungry for infrastructure investment,” said Secretary Foxx. “e continued overwhelming demand for these grants demonstrates that communities want the kind of longterm funding our GROW AMERICA Act provides to build transportation projects across the country.”

AISI expresses “serious concern” at Obama administration’s stance on currency manipulation On April 16, omas J. Gibson, President and CEO of the American Iron and Steel Institute, issued a statement regarding the Obama Administration’s April 15 announcement that it would not label China as a currency manipulator: “While the US Treasury Department noted ‘serious concern’ in their report, failing to label China a currency manipulator continues to put the US manufacturing sector at a great disadvantage against our foreign competitors. Our industry can compete with any other in the world, but we cannot compete against governments. e Administration has once again avoided its obligation to demonstrate to China that the US will no longer sit idly by while China continues to utilize unfair, trade-distorting practices, like currency manipulation, to advantage its industry. “ “e US plays by the rules and adheres to its WTO obligations when some of our trading partners do not. By failing to label China a currency manipulator, the Administration implicitly acquiesces in a trade-distorting practice that aid China’s steel exports to the global market, which is already saturated with significant excess capacity and has resulted in high levels of imports to North America.” Gibson continued: “Since the Administration has once again decided not to act, Congress should take action to pass the bipartisan currency bill which provides a real solution to this problem. Furthermore, Treasury’s inaction highlights the need for any new trade agreements, like the Trans-Pacific Partnership (TPP), to have currency disciplines with some real teeth as has been demanded by a majority of the members of both the US House of Representatives and the US Senate.” SO \

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SteelNews

During an assembly of CANACERO, chairman Alonso Ancira said that with new investments, companies aﬃliated with the association will strengthen the position of the steel sector in the Mexican economy, which currently accounts for 2.4 percent of national GDP and 17 percent of manufacturing GDP.

MarketAnalysis

Spring brings lackofclarity to globalsteelmarket

Price trends were all over the place depending on product and region, giving not much indication where trends were headed for the remainder of the year.

RAWMATERIALS

Mixed bag of trends mark US scrap market in spring In the middle part of March, US scrap prices in both the East Coast and Midwest regions followed another downward trend for the second month in a row, with many wondering if the market had reached bottom, or if prices would decrease again in April. East Coast domestic prices for HMS I/II (Philadelphia), had fallen by approximately $20/lt, while shredded scrap prices ticked down approximately $5/lt, to $365$375/lt, and for busheling ticked down $10/lt. A similar trend had been seen in the Midwest (Pittsburgh/Cleveland) region, where prices for shredded scrap came down by $15$20/lt. At that point, scrap dealers believed the stream of incoming shredded scrap from export yards had finally dried up, as those yards seemed to have a renewed focus in pursuing oﬀshore orders. At the same time, it was still believed prices in April could be sideways to down, with some citing a belief that the market could drop by as much as $30/lt. e most widely speculated range, however, seemed to be down $10-$15/lt.

But at the end of the month, an Ohiovalley mill booked an order for shredded scrap at a price that was up $25/lt from levels seen in the early part of the month. Bad weather, short supply and hindered flow into the yards seemed to be the primary driving force behind higher prices, and at that point, SteelOrbis sources concurred that one thing was certain—prices were definitely not going down, and the new forecast switched to “strong” with prices firming between $10$20/lt from levels seen in early March. In early April, scrap prices in the Ohio Valley settled up between $10-$20/lt while a similar trend was seen in the Philadelphia area, where prices settled up approximately $10/lt. Looking ahead, it was believed that although May prices could soften slightly, the correction was likely not to falter more than $5-$10/lt in most regions. But two weeks later, dealer sources said a new outlier had emerged which could shake things up. In the early part of the month, one US mill had placed and received an order for significant tonnages of shredded scrap only to wind up rejecting approximately 40 percent of that order due to quality issues, and many questioned whether that could flip the market trend. But when May buys did start to take

place, pricing activity was a mixed bag. Prices within the East Coast/ Philadelphia area and Pittsburgh-Cleveland areas held at sideways, but toward the end of the first week of the month, shredded scrap prices in the Chicago region trended down approximately $15/lt to $383-$388/lt, while other regions started to indicate they’d likely trend down $10$20/lt as well. Scrap flow into the yards had increased markedly in the past few weeks and many believed prices throughout the US would soften throughout the summer. For regions that did hold at soft-sideways, the month of May could prove to be scrap dealers’ “last hurrah”. Looking at the year-on-year comparison, that wasn’t surprising. At that point, prices in the Ohio Valley were trending up approximately $35-$40/lt from prices seen during the same period last year, while prices in the Philadelphia region were up $20-$30/lt. As the month progressed, the market seemed to favor lower prices for June. On the other hand, scrap flow into the yards had improved quite a bit in recent months, and the million dollar question was whether there would be enough mill demand to support that flow. e general expectation was that June scrap prices would trend at soft-sideways, and were likely to come down approximately $10/lt/ But at that point, Philadelphia prices remained at $340-$350/lt for HMS I/II, $375-$385/lt for shredded and $390$400/lt for busheling, while PittsburghCleveland area prices were holding at $370-$380/lt for HMS I/II and $410$420/lt for shredded scrap and $420-$440/lt for busheling.

Chinese scrap and iron ore prices hold onto stability in May During the week ending May 6, prices in the main local steel scrap markets in China halted their declining trend, remaining stable

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Volume 7; Issue 3

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Turkish scrap market pushes for downtrend In early May, Turkish steelmakers had postponed their scrap purchases and succeeded in forcing ex-US HMS prices down to $374/mt CFR from $378/mt CFR by resisting offers. As of the second week of May, the new price level started to be found on the high side and Turkish mills began to ask for lower prices. However, US scrap suppliers had not responded to this pressure for lower prices and instead tried to hold their offers firm. In answer, Turkish buyers started to adopt the same tactics as before regarding import scrap offers and remained quiet in the week in question in terms of activity. In addition, the supply-demand equilibrium in the Turkish scrap market also provided support for the Turkish mills’ waiting stance. On the other hand, although suppliers in Europe and in St. Petersburg did not cut their prices, some scrap deals were concluded from these sources in Turkey toward the end of that week, with HMS I/II 80:20 scrap prices standing in the range of $373$376/mt CFR. Turkish mills started the 20th week by concluding scrap purchases, mostly from the Baltic region, with prices remaining at $373/mt CFR for HMS I/II 80:20 scrap. In addition, an-ex Houston, US scrap deal was concluded in Turkey’s Iskenderun region at $379/mt CFR for HMS I/II 80:20. Due to its higher quality, ex-Houston scrap prices were $3-$4/mt higher than cargos from the East Coast of the US. With this transaction, it was observed that ex-US scrap prices remained unchanged over the first two weeks of May. Meanwhile, it was observed as of May 13 that scrap flows at US yards increased significantly in the previous few weeks and US domestic prices started to indicate signs of softening. According to the scrap market report posted on May 20, Turkish mills almost completed their import scrap bookings for June shipment. Turkish steelmakers accelerated their scrap bookings for June shipments after prices settled at $370-$375/mt CFR Turkey for HMS I/II 80:20 scrap. Most import deals in Turkey were concluded from the Baltic region and the US, with transaction levels remaining unchanged during the 20th week of the year. Volume 7; Issue 3

In the meantime, a major Ukraine-based billet supplier had been carrying out overhaul work and billet supply in the region has contracted, resulting in a lower Ukrainian origin billet supply volume for Turkey. In addition, the strong political tensions in Ukraine were also a reason why Turkish buyers were hesitating to conclude import billet deals from the country. ese declines in import billet activity in Turkey resulted in increased scrap demand among Turkish steelmakers in the prior two weeks until May 20. On the other hand, Turkish producers were targeting lower prices in their scrap purchases for July shipments since there were no positive developments in Turkey’s local and export finished steel markets. Accordingly, the Turkish mills were expected to negotiate on prices with scrap suppliers for new purchases in the coming period. Meanwhile, A3 scrap oﬀers from the Black Sea region to Turkey are at $350-$360/mt CFR, indicating no changes on weekly basis.

LONGPRODUCTS

Plans to firm up US rebar prices stall out in late spring US domestic rebar spot prices hovered in the range of $33.50-$34.50 cwt. ($670$690/nt or $739-$760/mt) ex-mill in midMarch after mills made it clear that prices would remain unchanged for the time being. However, sources told SteelOrbis that mills were becoming less and less amenable to quiet side deals for certain customers, even though imports were still a “thorn in their side” and raw material costs were dropping. Many welcomed this new era of stability while others, including many at the end-use end of the supply chain, didn’t believe mills’ autonomy from strong market forces could last. However, after predictions for weeks pointed to yet another downtrend in scrap prices for April, a flurry of inventory-building buys in the scrap market reversed expectations—and long product prices in the US were expected to follow suit. Oﬃcially, Nucor no longer takes scrap trends into consideration when setting new rebar prices, but

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MarketAnalysis

in the given week, while transaction activity in the market showed some improvement. After the Labor Day holiday, buyers and sellers returned to the domestic scrap market, resuming trading activity. However, traders held various attitudes regarding the prospects for the future market, with some inclined to raise their scrap selling prices, while some other traders were choosing to sell at current prices to bring in funds and others were maintaining a wait-and-see stance as regards the future market. During the week ending May 13, prices in the main local steel scrap markets in China remained on a stable trend, while transaction activity in the market was at decent levels. While demand for scrap from domestic steelmakers was good, some steelmakers started to lower their purchase prices for scrap, which was thought that it might push down scrap market prices in the coming period on that time. Meanwhile, the ongoing declining trends in iron ore and semi-finished steel prices would also exert a negative impact on scrap prices. On the iron ore side in China, during the week ending May 15, prices of imported iron ore in China continued their decreasing trend, while transaction activity for imported material was mostly more sluggish than in the previous week. At the same time, traders’ oﬀers of domestic production iron ore in the Tangshan district and in Liaoning also indicated a declining trend, with buying activity for domestic ore also on the slack side. On May 15, Indian fine ores of 63.5 percent grade were oﬀered at $117.60/mt at Qingdao port. Meanwhile, quotations of 66 percent iron ore concentrate in Tangshan stood at $119.30/mt and prices of the same material were at $102.90/mt in Beipiao, both excluding VAT. Due to concerns over the investigation by the China Banking Regulatory Commission into the financing of trading of iron ore imports, steelmakers and traders in China were unwilling to build up their iron ore inventories. Many steelmakers wanted to lower their purchase prices in order to reduce their costs. A few traders stated that the demand they were receiving for imported iron ore was not so slack.

MarketAnalysis

sources told SteelOrbis that they wouldn’t pass up an opportunity to follow market expectations upward. Rebar transaction prices could rise by as much as $1.00 cwt. ($20/nt or $22/mt) in the next week or two, sources believed, with US mills falling in line with whoever announced first. By the beginning of April, mills were forced to take another factor into consideration before setting new rebar price levels: after a period of relative calm in February, all the beat-the-clock bookings for import rebar in the US from Turkey hit ports throughout March, and traders expected more in April as well. According to US import license data, 142,988 mt of Turkish rebar arrived in March, following a total of 43,503 mt in February (preliminary census data) and 125,365 mt in January (census data). Although traders told SteelOrbis that much of the tonnage consisted of customer-direct orders, there were enough position buys available to affect US mills’ pricing decisions. If mills tried to add another $1.00 cwt. ($20/mt or $22/nt) or so to the existing spot range, sources said, it would widen the already-wide margin between not only Turkish positions at the port, but future offers of $29.50-$30.50 cwt. ($590-$610/nt or $650$672/mt) DDP loaded truck in US Gulf ports as well. After more than two weeks, US-based customers still awaited an announcement from mills. A $1.00 cwt. increase in wire rod prices—a market that was also dealing with high import volumes but much weaker domestic demand—the previous week gave many in the rebar market hope that an uptrend would soon materialize. As April wore on, it became apparent that mills were waiting for the US Department of Commerce preliminary ruling in the trade case against Turkey and Mexico. But US domestic rebar producers were hoping for steeper margins against Turkish rebar imports, and sources told SteelOrbis that they were unsure if a 2.64 percent levy would be enough to stem the flood of Turkish rebar into the US. Based on current import offers of $29.50-$30.50 cwt. DDP loaded truck in US Gulf ports, that would amount to less than $1.00 cwt. ($20/nt or $22/mt), which would still leave Turkish import offers far

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below current US domestic spot prices. Mexican offers, on the other hand, were expected to vanish from the market after being slammed with margins ranging from 10.6666.70 percent. Meanwhile, US rebar mills started to feel the first tinges of resistance from customers who were relieved that import options were still on the table. Speculation of a transaction price increase died out, which led many to believe mills had decided against it. Predictions of a sideways-to-down price trend for scrap in May removed another incentive to raise prices, but even if no increase was forthcoming, mills were still expected to keep a firm grip on the current spot price range. By early May, US domestic rebar mills issued a “silent” price increase, ranging anywhere between $0.50-$1.00 cwt. ($10-$20/nt or $11-$22/mt), depending on the region. While most distributors had to pay “something” more—lifting the general spot range by an average of $0.75 cwt. ($15/nt or $17/mt)—some had a reprieve for the time being, and still paid prices available in the previous week. Regardless, most in the market expected mills to announce an official increase as soon as scrap prices settled in May, with projections holding at a softsideways trend. But even if scrap prices dipped, rebar mills would still most likely increase prices, even by a small amount, according to sources. Finally, in mid-May, Gerdau Long Steel North America released an “official” increase of $1.00 cwt. for June shipments. Sources told SteelOrbis that Gerdau was not pushing Volume 7; Issue 3

for the increase early, but they were “coincidentally” out of several rebar sizes until the end of the month. A similar increase was expected from Nucor and others within a week, and little resistance was expected in pushing that increase through. Until then, the general spot range remained unchanged at $34.25-$35.25 cwt. ($685-$705/nt or $755-$777/mt) ex-mill, although sources confirmed that most transactions were taking place at the higher end of the range, if not $0.25 cwt. ($5/nt or $5.50/mt) above to account for the largest of the silent increase amounts. Although Nucor was expected to join Gerdau in its rebar price increase for June shipments, nothing but crickets was heard in the market, leading many sources to infer that Nucor was bowing out of the uptrend push. Scrap prices did not firm as many hoped and the prospects for June were dim; as such, it was not entirely certain whether Gerdau would be able to push their full increase through at all—some even thought they might quietly rescind it. Not helping matters in the US domestic market were downtrending Turkish offers. Traders had been able to negotiate prices down by about $5/mt on the CFR level, but because they did not raise sales prices in the US the last time CFR offers increased, there was no change in futures offers. Mexican rebar prices firm after brief mid-spring plunge e domestic price of Mexican rebar increased $33/mt in late March to reach

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works projects expected from the government had not yet tendered. e end of May brought Mexican rebar prices back up, as oﬀers increased $10/mt to reach $665/mt ex-mill. Some producers had a slight hope that infrastructure projects could increase demand for long products, but in addition to that there were investment projects of great significance such as ports, airports, roads and railways, among others, which were still in the bidding phase. As such, investors did not yet felt comfortable betting their capital in these plans and works, expecting that not only infrastructure projects will boost the construction sector. Other factors that will drive investment activity in real estate development included shopping centers, industrial parks, and oﬃce developments.

Turkish rebar market affected by exchange rate and weak demand in May In early May, it was observed that exchange rate and weak demand negatively impacted the Turkish rebar market. As of May 8, according to market sources, prices in the Turkish domestic rebar spot market continued their downward trend. Traders revised their oﬀers downwards with the exchange rate of the Turkish lira declining to 2.07 against the US dollar on May 8, while prices weakened amid low demand. Market sources stated that competition between traders increased in the diﬀerent regions in Turkey, with aggressive downward price adjustments being witnessed. While the sales of Turkish steel producer Kardemir still continued, the producer revised prices in its domestic rebar sales, which were opened on April 18 at the price level of TRY 1,259/mt ($608/mt) ex-works, to TRY 1,238/mt ($598/mt) ex-works, both excluding VAT. Kardemir attracted orders for a total of 24,000 mt of rebar as of May 8. SteelOrbis was informed that Turkish producer Icdas’ 12-32 mm rebar prices in Turkey’s Marmara region were at TRY 1,254/mt ($606/mt) exworks, while its rebar prices in Biga, Canakkale in northwestern Turkey were at TRY 1,242/mt ($600/mt) ex-works, both excluding VAT. However, market sources reported as of May 8 that the producer was concluding Volume 7; Issue 3

transactions below the prices in question due to the weak demand in the market. On the other hand, rebar offers from Turkey’s Iskenderun region to the Iraqi market remained unchanged on weekly basis and were still at $580-$590/mt ex-works. Iraqi buyers postponed their purchases in the first of May due to the parliamentary elections but market sources reported that new transactions were concluded on the second week of May and that demand in the market was improving. According to a price report posted on May 12, prices in the Turkish domestic rebar market indicated some decreases amid slack transaction activity. Market sources state that on May 12, local steelmaker Icdas’ rebar offers which were at TRY 1,226/mt ($586/mt) for the Marmara region and at TRY 1,212/mt ($580/mt) for Biga and Canakkale, both ex-works and excluding VAT, were significantly below its list prices, with deals being concluded at these levels. A report a few days later mentioned that according to market sources, prices in the Turkish domestic rebar market continued their downtrend. In the weak demand environment, the price declines in the spot market did not ended at that time, while, despite availability shortages for some materials, traders were finding it difficult to keep their prices firm. On the billet side, market sources indicated that domestic producers’ billet prices in the local Turkish market trended sideways on weekly basis at $525-$545/mt ex-works. In Turkey’s Iskenderun region the supply side had been expected to increase. However, an Iskenderun-based steelmaker, which was unable to provide supplies to the market for a while, could not produce sufficient volumes as of the 20th week, resulting in a continuation of the supply shortages in the local market. Meanwhile, Turkish billet export offers were at $525-$540/mt FOB. On the other hand, ex-CIS billet offers to Turkey stood in the range of $510-$525/mt CFR, though no new deals were heard so far, while Turkish buyers were expecting a price cut for import offers. In the 20th week of the year, according to market sources, Turkish rebar offers to the export markets remained unchanged on weekly basis at $565-$575/mt FOB on ac-

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MarketAnalysis

$675/mt ex-mill by the first week of April. Despite the uptrend in prices, the domestic construction industry was still unable to reverse the crisis that it has suffered through since mid-2012. During the first month of 2014, the value of the output generated by construction companies fell 3.9 percent over the same period of 2013 and 0.27 percent from the previous month, according to official sources. As a result, the production value of construction companies saw nine continuous months of decreases in annual comparison. Sectors particularly affected in January were specialized jobs construction, down 12.5 percent; and construction of civil engineering, down 4.5 percent. However, Mexican mills expected demand to recover in the US market, which would help lift the prices of rebar exports. Later on in April, Mexican rebar prices continued to increase, lifting up to $715/mt ex-mill. Some distributors reportedly offered rebar to end-users at levels up to US$825$850/mt, but sources told SteelOrbis that domestic demand would not support these costs. e reality was that the situation for Mexican rebar was very complicated due to the local construction sector, where traditionally almost 60 percent of the production of this product is directed. Moreover, the principal destination market, the US, brought preliminary fees up 66.7 percent on rebar imports from Mexico. Mexican mills were already searching for alternative foreign markets for their rebar exports. Additionally, apparent domestic consumption of rebar during the first two months of 2014 fell 7.3 percent (469,577 tons vs. 506,607 tons in 2013), while production fell almost 2 percent (589,500 tons vs. 600,480 tons in 2013). By the first week of May, the domestic price of Mexican rebar dropped $60/mt to reach US$655/mt ex-mill. As sources anticipated weeks before, the preliminary ruling in the US antidumping case against Mexico effectively eliminated Mexico from that market, causing prices in the domestic market to fall sharply. Additoinally, the housing construction sector was not showing any signs of picking up. During the first four months of 2014, 40 percent of construction firms in Mexico were out of work because the public

MarketAnalysis

tual weight basis. Demand mainly remained slack in both the domestic and export markets since the previous week. Meanwhile, Turkish producers accelerated their scrap purchases for June shipment, while import HMS I/II 80:20 scrap prices for Turkey were at $370-375/mt CFR as of May 16. Demand showed most improvement in the UAE rebar market in the week in question, while it was reported that rebar deals totaling 75,000 mt from Turkey to the UAE were concluded at $575-$582/mt CFR on actual weight basis and for June shipments. On the other hand, market sources said that demand in the Egyptian rebar market was very low, with buyers postponing their purchases ahead of the presidential elections on May 26-27. ere was a slow improvement in transaction activity in Iraq, Turkish rebar producers’ main export market, while a producer from Turkey’s Iskenderun region concluded a deal for 10,000-15,000mt of rebar at on average $585/mt ex-works to the Iraqi market. Chinese long product prices trend downward in May During the week ending May 19, rebar and wire rod prices in the Chinese domestic market indicated an overall downtrend, while transaction activity remained at good levels, speeding up inventory consumption across the market. On May 19, rebar futures contract (1410) oﬀers closed at RMB 3,080/mt ($503/mt) at Shanghai Futures Exchange, down by $18/mt week-on-week. Traders in the Chinese domestic rebar and wire rod market were lowering their prices in order to speed up inventory consumption as pessimism in the real estate sector and iron ore market exert a negative impact on the finished steel market. With lower inventory levels, traders would expect to face reduced risks. Meanwhile, banks were adopting a strict approach as regards repayment of loans by traders and steelmakers, resulting in tighter liquidity in the steel market. Furthermore, rebar futures prices indicated a significant decline, also contributed to the prevailing pessimism regarding the future prospects for the domestic long steel market.

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FLATROLLED

US flats mills hold the line on spring price increases In the first part of March, US domestic hot rolled (HRC) and cold rolled coil (CRC) prices were stable but sources expected oﬀers for HRC to dip below the $30.00 cwt. ($661/mt or $600/nt) ex-mill mark within in the next 60 days. And just when prices got a bit too low for mill comfort, the price increase announcements started coming. In the middle of the month, flats mills throughout the US started sending out price increase announcements to the tune of $3.00 cwt. ($66/mt or $60/nt), but many questioned how much—if any— of that would stick. Why? Because despite mills’ attempts at firming the market, spot prices for US domestic HRC had ticked down by about $1.00 cwt. ($22/mt or $20/nt) since the first part of the month, to $29.50-$30.50 cwt. ($650-$672/mt or $590-$610/mt) ex-mill with deals slightly below the average range still available on larger orders. Many in the market were not surprised at the soft trend in spots prices, as it mirrored a similar downtrend in US domestic scrap prices. e general consensus in the flats market was that the increase announcements were merely a way to stop the proverbial bleeding and to put a bottom on the months-long HRC downtrend. Prices for CRC, however, were holding stable at $36.50-$37.50 cwt. ($805-$827/mt or $730-$750/nt) although buyers said they

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were holding off on placing orders until the proverbial dust settled. If scrap prices in May did tick down, they said, CRC producers would likely maintain a sideways, let alone increased, price trend. And while the first increase seemed to come and go without much fanfare, by April, firming scrap prices boded well for flats mills, who were becoming increasingly strict in passing the increase off to customers. Both HRC and CRC buyers had started to pay higher prices, with the best deals only being available for those interested in booking significant tons. At the end of the first week in April, flats mills rolled out a second price increase to the tune of $1.25 cwt. ($28/mt or $25/nt), effective immediately, although many suspected this was merely a tactic to ensure increase number one was fully absorbed. One week later that goal was accomplished, as additional price firming was seen within both market segments. And it wasn’t until two weeks of back-to-back price firming that the markets started to level out. At that point, the most commonly reported range for HRC was $33.00-$35.00 cwt. ($728-$772/mt or $660-$700/nt) while the most commonly heard transaction range for CRC spanned between $39.00-$40.00 cwt. ($838-$882/mt or $760-$800/nt), both ex-Midwest mill. Service center and distribution center sources said most market players did their buying when prices bottomed out, and at that point, orders were only being placed on an as-needed basis. Mill order books were healthy, according

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Mexican flat steel prices maintain modest uptrend Mexican domestic cold rolled coil (CRC) prices increased by $14/mt in the end of March to reach $851/mt ex-mill in the first week of April. According to sources, the optimism of local flat steel producers was finally starting to reflect in market prices. e automotive and auto parts industry in Mexico estimated growth this year of 5 percent compared to the negligible 1.7 percent growth in 2013. Sources told SteelOrbis that this would strengthen the supply chain of local steel suppliers. “is year is very important for companies in the sector since 100 percent of the steel used from the outside now has an additional component: the steel that will be used, some of it not imported, will be supplied by AHMSA (with its Fénix Project and Ternium’s plant in Pesquería),” said one source. Meanwhile, Mexican domestic hot rolled coil (HRC) prices increased US$28/mt in the previous three weeks to settle at $720/mt ex-mill in early April. Apparently the reforms approved by Congress started to revive domestic demand for flat steel products. Local producers told SteelOrbis that structural reforms, especially energy reform, should en-

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courage greater local content that will raise the development of industries in Mexico, especially small- and medium-sized companies. However, they stressed that “with energy reform, we will have more competitive costs and so we will be able to compete against other markets and reach new markets—we’re on the right track.” In the next two weeks, the price of Mexican domestic CRC increased $15/mt to reach $866/mt ex-mill. While sources applauded the rally in prices, they said that over the previous few days prices stagnated. However, steel producers still believed that along with the rise of the automobile industry, steel industry production would keep rising this year, with expected production of around 18.5 million tons. “Many automakers from diﬀerent countries have been installing in Mexico and that will bring a greater demand for steel,” said one source. “e biggest challenge is the recovery of consumer confidence, which has delayed their purchases of durable goods, including vehicles, for another time, due to recent tax changes.” Mexican domestic HRC prices also continued to increase, by $28/mt to settle at $748/mt ex-mill. Sources in the flats sector were very optimistic because they say they could supply practically all the steel required by the automotive industry, which would help them raise the national value in the industry and eliminate the need to import materials from other countries. Large investments of Altos Hornos de México ($2.3 billion in the Fénix project) and Ternium ($1.2 billion in the Pesquería plant), whose plants will operate at 100 percent capacity in the second half of the year, were focused on the production of high strength steels with specifications that had so far required imports. Mexican CRC continued to increase throughout May, bumping up $25/mt to reach US$891/mt ex-mill. Domestic flat steel prices continued to trend upward, and sources said that Mexican auto assembly plants were taking advantage of disadvantages other countries faced in their auto industry, such as Colombia, where CCA Mazda recently ceased operations. “In Mexico, the industry pays wages that are half, or even one-third of those currently Volume 7; Issue 3

paid in Colombia, manages to produce at half the cost they have in Colombia, and has a turnover of up to 20 times what is produced in Colombia. All this allows you to have a critical mass for both plants and especially important for suppliers,” said a representative of the Latin American automotive sector. Near the end of May, however, Mexican HRC prices only increased $6/mt to settle at US$754/mt ex-mill, a modest increase compared to the previous report’s strong jump; the dwindling of the trend was attributed to a drop in Mexican domestic auto sales. However, BMW and Hyundai were reportedly looking to build new plants in Mexico with a combined investment of US$2.2 billion, producing around 100,000 units per year each. Sources told SteelOrbis that while HRC demand from these plants is far oﬀ in the future, the plans point to the sustaining overall uptrend for flat steel products in Mexico. Mexican CRC also saw a modest increase in late May, rising $6/mt to reach $897/mt ex-mill. However, sources said the upward price trend was still showing discretion. Mexico has become one of the best in vehicle manufacturing, obtaining eighth place as a producer and the fourth as an exporter of vehicles, auto industry sources said. Although there might have been caution on the part of domestic consumers by the effects of recent tax reforms, Mexico sells abroad almost double the number of cars that they consume domestically.

Spanish flats market shows improvement in April In late April, SteelOrbis learned from market sources that, even though demand in the Spanish flat steel market showed a slight improvement, it was still too early to talk about a full recovery. Meanwhile until April’s third week, local flat steel prices trended sideways, and sources believed this was the most suitable price policy given the market conditions in the time period in question, while import prices moved up by €10-20/mt ($14$28/mt) over the same period. Hot rolled coil (HRC) domestic prices in Spain were standing at €430-440/mt ($593-$607/mt), while domestic cold rolled coil (CRC) and

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MarketAnalysis

to industry insiders, and strong-sideways scrap prices were keeping raw materials costs firm. In the middle part of May, Mexican hot rolled coil (HRC) producers raised their oﬀer prices, bringing their new approximate price range within $1.50 cwt. ($33/mt or $30/nt) of US domestics. at wasn’t exactly a surprise, according to SteelOrbis sources, who had long believed that mills located south of the US border would want to cash in on firmed prices in the US domestic market. Spot prices for both HRC and CRC were still holding stable, but by the end of the month, the top range of HRC prices had narrowed by approximately $1.00 cwt. ($22/mt or $20/nt), bringing prices to $33.00-$34.00 cwt. ($728-$750/mt or $660-$680/nt) ex-Midwest mill. Order books were still relatively healthy, according to industry insiders, who said no one was paying $35.00 cwt. ($772/mt or $700/nt) anymore.

MarketAnalysis

local hot dip galvanized (HDG) coil prices were at €500-510/mt ($690-$704/mt) as of April 22. All prices were ex-works and for May deliveries.

Demand steady in Turkish flats market In early May according to a market report, demand in the Turkish cold rolled coil (CRC) market remained at low levels over the previous week, while prices in the local spot market increased by $10/mt compared to two weeks before. Market players stated that, while there was not any real increase in demand, CRC prices followed the increasing price trend seen in the domestic hot rolled coil (HRC) market. Meanwhile, Turkish producers’ CRC oﬀers were still in the range of $680-$690/mt ex-works, indicating no changes on weekly basis. As of May 13, Turkish HRC mills seemed happy with domestic market conditions. Demand in the Turkish hot rolled coil (HRC) market was still at medium levels, with market prices remained unchanged on weekly basis. Market players have accepted producers’ price increases, while the weakening of the dollar against the Turkish Lira is seen as a sign that prices would maintain their strength. In addition, while for a long time buyers used to place orders once every two months, they completed their orders for June and were already starting to place orders for July. is is viewed as reflecting increasing demand in the second quarter of the year. On the other hand, demand for HRC received by Turkish mills was still at medium levels, while the mills’ HRC prices increased by $10/mt week on week and were at $590$605/mt ex-works as of May 13. e producers, having started to take orders for July, indicated that they were pleased with the market conditions. In mid-May, during the 20th week of the year, demand in the Turkish domestic cold rolled coil (CRC) spot market showed a slight revival as buyers accelerated their purchases, thinking that price increases in the local hot rolled coil (HRC) market might be reflected also in further rises in CRC prices, following hike of $10/mt in CRC prices in the 19th week. However, CRC prices in the domestic

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spot market remained stable in 20th week. In the meantime, Turkish producers’ CRC offers were also still in the range of $680$690/mt ex-works, indicating no changes as compared on weekly basis. Toward the end of May, tightness of availability resurfaced in Turkish HRC spot market. According to the market report, which was posted on SteelOrbis’ website on May 21, demand was still at medium levels in the Turkish hot rolled coil (HRC) spot market, while prices remained unchanged on weekly basis. Supplies of HRC and hot rolled pickled and oiled coil (HR P&O) were on the tight side due mainly to delays in deliveries by producers, according to market sources. On the other hand, no tightness was observed in availability of cold rolled and coated products in the Turkish domestic flat steel market. Again, as of May 21, demand for HRC received by Turkish mills was also still at medium levels, while the uptrend in producers’ prices was believed to came to a halt. Producers were finding it difficult to gain acceptance for their new price levels and so they were continuing to conclude deals for July production with $5-$10/mt discounts. Market sources stated that, with the discounts, buyers found price levels to be satisfactory and booking activity was at decent levels. Producers’ offers remained unchanged on weekly basis and were at $590-$605/mt in the 21st week of the year.

UK flats market reflects poor demand levels In early May, it was observed in UK that demand was still poor in the flat steel market. Market players stated that European producers wanted to increase their third-quarter production prices for the UK market but conditions as of May 8 in the market were not suitable. HRC prices in the local UK market could still be found in May 8 at GBP 410/mt ($697/mt) ex-works for June production and excluding 20 percent VAT, indicating no changes month to month. Meanwhile, HRC oﬀers from other regions of Europe to the UK stood at GBP 390-410/mt ($663-$697/mt) CIF for shipments in August. Volume 7; Issue 3

India’s election puts flats market on pause Local Indian hot rolled coil (HRC) prices in the 21st week of the year remained at around INR 40,500/mt ($690/mt) ex-works as buyers and steel mills moved into pause mode awaiting signals from the new Indian government which takes charge in May, traders said on May 20. On the demand side, steel mills were waiting for signals from the new government which could boost consumption across sectors, while, on the supply side, buyers were weighing the price competitiveness of domestic HRC versus imported HRC. ere were too many variables in the market and hence buyers remained cautious resulting in low transaction volumes.

Chinese flats market continues its downward trend During the week ending May 14, the Chinese domestic cold rolled coil (CRC) market continued its overall slight downward movement, while transaction activity remained at poor levels. While the months of April and May traditionally constitute the peak production season for the automotive and household appliance sectors in China, transaction activity for CRC products in the Chinese domestic market in the April-May period of the current year did not indicate any significant improvement, with demand from downstream users remained slack. Meanwhile, most traders held a pessimistic view of the prospects for the future market and considered that the oﬀ-season for business might arrive earlier this year. Due to pressures from inventory and shortages of funds, traders were willing to sell at lower prices. During the week ending May 13, hot rolled coil (HRC) prices in the Chinese domestic market indicated slight downticks, while transaction activity remained at low levels. During the given week, HRC demand in the Chinese domestic market from downstream industries was slack, with buyers purchasing only in line with their needs. In addition, some traders were short of funds and so they were placing far fewer orders. Some tightness on the supply side was seen as regards thick specifications of HRC. SO\

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Out-of-whack steel pricing relationships

e are currently witness to what WSD considers to be steel pricing anomalies—i.e., pricing spreads that are not sustainable. Here are some examples. • e huge price premium for HRB in the US versus the world price and the Chinese mills’ ex-works price. e figures per metric ton are $760, $545 and $455 respectively. (Note: If there was a liquid futures market for these products, we suspect that many “investors” would seek to play these spreads). • Steel scrap and merchant pig iron price appear quite high versus the international prices of iron ore and coking coal. As indicated in the graphic below, the premium for the steel scrap price at about $100 per ton is lofty. (Note: Might the spread narrow because iron ore and coking coal rise in price and the steel scrap price stays flat?) • US shredded steel scrap appears at least $50 per ton, if not $75 per ton, overpriced relative to the aggregated value of iron ore (when multiplying its price by 1.6) and coking coal (when multiplying its price by 0.8)—which is done to model the cost of these items per ton of pig iron. As indicated in the accompanying graphic, steel scrap appears to be substantially overpriced based on this analysis (which is theoretical). • Steel slab is high priced on the world market relative to the export price of

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hot-rolled band. For example, the price of slab delivered to the Far East may be about $535 per ton, say our contacts, while slab price delivered to the USA may be closer to $555 per ton. Currently, the world export price for hot-rolled band is only about $10$30 per ton above this figure. How do we explain the strong slab price? One reason is that some sellers have held back their oﬀerings. Also, the ArcelorMittal plants in Brazil and Western Mexico are now providing up the three million tons of slab annually to the former yssenKrupp USA facilities in Alabama (now owned by ArcelorMittal and NSSMC). And, it takes at least six months for a new supplier of a specialized slab product to become qualified. • e rebar and wire rod oﬀering prices on the world market by the Chinese steel mills—and, perhaps, in the future by Russia/Ukraine steel mills—are about $485500 per ton, FOB the port of export, which is Volume 7; Issue 3

$50-$70 per ton less than the offering price by steel-scrap-using EAF steelmakers who make these products in Turkey, Japan, South Korea and, to some extent, India. We call this condition “disintermediation steel industry style” because the high-cost providers are being eliminated from the supply chain. is report includes forward-looking statements that are based on current expectations about future events and are subject to uncertainties and factors relating to operations and the business environment, all of which are difficult to predict. Although we believe that the expectations reflected in our forward-looking statements are reasonable, they can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties, including among other things, changes in prices, shifts in demand, variations in supply, movements in international currency, developments in technology, actions by governments and/or other factors. e information contained in this report is based upon or derived from sources that are believed to be reliable; however, no representation is made that such information is accurate or complete in all material respects, and reliance upon such information as the basis for taking any action is neither authorized nor warranted. WSD does not solicit, and avoids receiving, non-public material information from its clients and contacts in the course of its business. e information that we publish in our reports and communicate to our clients is not based on material non-public information. e officers, directors, employees or stockholders of World Steel Dynamics Inc. do not directly or indirectly hold securities of, or that are related to, one or more of the companies that are referred to herein. World Steel Dynamics Inc. may act as a consultant to, and/or sell its subscription services to, one or more of the companies mentioned in this report. Copyright © 2014 by World Steel Dynamics Inc. all rights reserved

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WSDStrategicInsights

Interview

Barriers tosuccess

SteelOrbis Brescia speaks with Michele Amenduni, Chairman of Tecnotubi Spa, Zinchitalia Spa, and Amenduni Steel Tubes Group, about factors that are impacting the Italian steel industry.

ichele Amenduni founded Zinchitalia in June 2000. In January 2001 the company started operating with a small dip galvanizing plant in Monsano, in the province of Ancona. e company has since evolved from simple dip galvanizing activity for third parties to the selling of pipes and then galvanizing activity of the same products. In 2007, Amenduni acquired Tecnotubi situated in Alfianello (Brescia), which is a historical high quality carbon steel pipes producer. After taking over the business of Tubimar Ancora, in 2008 the company moved Zinchitalia to Brescia to the same site of Tecnotubi. e two companies are perfectly integrated: one of them produces, while the other deals with galvanizing activity. To the galvanizing activity, Zinchitalia added the varnishing activity with two plants: a water plant and a plant that applies a coat of epoxy powder. ere is also a plant for the production of pre-insulated pipes. ese companies were joined by Antares Steel Tubes, another company Amenduni founded that sells seamless pipes. Finally, the company has a stake in Ferrotubi & Derivati of Carugate (Milan), a company that commercializes steel tubes and related accessories. e group has a total turnover of 100 million Euros, employing approximately 170 people. What is the core business of Gruppo Amenduni Tubi Acciaio and what are its major markets? MA: e company’s core business is the production of carbon tubes from 0.5 to 8 inches. Such products are of all types, from raw products, to the painted and galvanized products. Our target market is Europe. In particular, the division is 65 percent for foreign market, 35 percent for Italy.

How do you evaluate the operating and financial results achieved by the company in 2013? MA: e results achieved in 2013 are great for all companies of the group—not in absolute terms of course, but taking into account the overall situation of the industry in which we operate and the fact that in these times of crisis all our competitors see a decrease in their results.

Did you make any investments in recent years (in Italy and abroad)? MA: Yes, we did, and our investments were mainly in the Italian territory. For instance we made investments in thermal treatment plants in our factories. Concerning the future, I can only say that we are considering the possibility of some acquisitions that

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could be announced in a relatively short time.

Unfortunately in Italy there is not a legal way to evict crooks and to keep out criminals.

Michele Amenduni

What impact did the crisis have on your business and your strategies? Does this situation apply to all products or only some of them? MA: In our activity, the current crisis forces us to make triple eﬀorts to get the same results we achieved before. Everything has become much more diﬃcult, especially in the aspect of payments and hence of financial guarantees, which are often only partial. e situation concerns our industry in general, which means all products, not only some of them.

The markets uncertainty has forced more and more last minute decisions without the possibility of programming. Did this actually influence the purchasing activities for many buyers? MA: Surely this uncertainty has led all of us Volume 7; Issue 3

to work with much less programming. In Italy we have always worked with little programming compared to other countries, but this phenomenon has accentuated further. is situation hasn’t helped Italian producers at all, because the Italian market is very depressed. Beside the problem of insolvency, there are problems ranging from politics to judicial system and banks. What I always say is that unfortunately in Italy there is not a legal way to evict crooks and to keep out criminals. Which are the main obstacles that prevent a market recovery? What can help to strengthen positions of European welded pipe producers? MA: At this time the biggest obstacles to recovery in the market are, beside the situation regarding Italy in general, the high cost of energy, pollution, employees and the invasion of foreign producers, especially the Turkish. Turkish producers, working without rules, make a hard competition in Europe, being in a position of advantage. Being able to operate on their own currency, which in recent times has been subject to devaluations, they are able to prove they don’t go below cost, therefore we cannot hit them with dumping measures. As for me, I think it’s not

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Still speaking of pipes, are there trade barriers or unfair practices by third countries against European producers? MA: I would not talk of unfair practices. ey do what they can. is happens because we allow foreign producers to come to Europe and oﬀer the price they want. We should defend ourselves. Everybody comes to Europe, while the United States impose duties from day to day as soon as they notice

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the possibility of damages to their local businesses . I think we should make sure that foreign manufacturers play by our own rules. For example, they cannot play without paying a euro of the pollution costs we bear.

The biggest obstacles to recovery in the market are… the high cost of energy, pollution, employees and the invasion of foreign producers, especially the Turkish.

Michele Amenduni

What do you think are the main problems that is facing the European steel industry ? MA: As I already mentioned, the high costs of energy—the greater part of which are excise duties—and the personnel costs, the greater part of which are social charges. It is clear that we cannot cope with foreign competition. Of course we also produce more tons than the market demands. However, it is useless talking about overcapacity, since no

Volume 7; Issue 3

one is willing to reduce its capacity, unless a company goes into crisis or shuts down. As usual we Italians make great statements, but then we think that the sacrifice should be done by the others. Since in Italy we will never agree on capacity reduction, we should aim to lowering costs. At a European level, we can only impose appropriate duties in such a way as to reduce at least the foreign invasions.

What do you think of European Union policies on climate, energy and the environment? MA: I think that some measures are right, some are wrong; the problem is that they must be observed by all market participants. If certain standards are met by one subject only, this subject pays higher costs than all others and then is compelled to go out of market. To conclude, I think that in any market, if you work with some passion and professionalism, you can get results, certainly thanks to some luck as well. At this time it is clear that the priority is defending ourselves, because unfortunately we are not SO \ helped by our country’s system.

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Interview

Indians or the Chinese producers who are so dangerous, but Turkish producers—they represent a bigger danger because they are much closer to us. From China or India European operators are forced to buy large quantities, while the number of traders who have access to the needed funds is limited. is doesn’t apply in the case of Turkish material. Large Turkish producers—such as Borusan Mannesmann—don’t pose a big threat, but small Turkish producers do. As far as I’m concerned, a duty should be imposed to them, in order to compel them to bear the same costs we have. In the current situation, European producers can only explore new niches, because otherwise they cannot cope with the foreign invasion.

Bull&Gloom

Mr. Gloom: Are you still there, Mr. Bull? Have you moved to a deserted island yet? When we last spoke you were acknowledging things aren’t so rosy. Well, things have only gotten worse. “Home sales plunge most in three years,” and drop eight months in a row, according to the latest headlines. China has had another high yield bond default and they are unwinding all those commodity financing deals that propped up so many markets. Europe’s banks are dead men walking. Oh, and recall last year when I pointed out that this kind of stuﬀ leads to war? You scoﬀed. But last time I looked, as of this writing, Russia has moved into Crimea, and is poised on the border of Ukraine with 50,000 troops looking for more vacation spots to settle. China is railing on the instability that the US and its Asian allies is causing in the Pacific. Never mind that both countries instigated everything with false pretenses, which bodes ill for any settlement anytime soon. ey are also joining up for the first time in memory for a natural gas deal. Imagine these two as allies. e only good news is that they don’t really trust each other. But we are in pre-production of “Munich 2014” starring David Cameron as Neville Chamberlain; with Angela Merkel co-starring as Neville Chamberlain. Also starring Barack Obama as the dashing…Neville Chamberlain. is may be good news for us, but our kids are going to hate this movie if it comes out. What does this have to do with steel? Well, first, we know what war does for steel and the economy. Second, after their drop of 40-60 percent at the start of the year, it has only gotten worse for the shipping indexes, with two weeks of straight losses. at means steel, raw materials and other things aren’t shipping. e fall in the coal and iron ore markets don’t explain it all, but those two do help us understand the steel market in the world. Mr. Bull: We haven’t spoken in a while and it shows. You are sitting in your cocoon all by yourself with your conspiracy theories and your ancient economic principles devoid of my moderating influence which instills some

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Stars&Stripes forever

sort of reality into you. You want good news? Here it is: it is just you talking. e rest of the world goes on while you are dressing current day statesmen in Neville Chamberlain’s clothes. If there is any economic fallout from the crisis in the Ukraine, it is far too early to talk about one. Potential reciprocating sanctions could indeed be a problem for the world economy but it clearly has not happened yet and it is very unlikely to happen because the stakes are just too high. You are taking normal issues of supply and demand (in this case the ocean freight market) and

Mr. Bull: Steel is shipping and the adjustment in the freight indexes could very well swing the other way soon jump to astonishing conclusions. What do you mean by “steel, raw materials and other things” are not shipping? Look at the import numbers. e US imported 3.2 million metric tons of steel in March; 900,000 mt more than in the same month last year. Line pipes are slightly ahead of last year and OCTG slightly behind. Steel is shipping and the adjustment in the freight indexes could very well swing the other way soon. at is how it works in a normal market economy. For now, the biggest threat to the US economy is, once again, the resurgent case of protectionism. We know all about that in the steel industry. Only you can point to the lower numbers in home sales when three quarters of the country was covered under snow and ice during the period you are looking at. Really, is this your best shot? en please read on when it comes to construction permits for residential housing which this past March were 11.2 percent ahead of last year. I know it does not fit into your closed mind, but things are not looking too bad even though normal economic hiccups are always present. Perhaps I should buy you a TV. Mr. Gloom: Oh Magoo, you’ve done it again. Volume 7; Issue 3

Myopic is the word of the day; for you and your view of the world. First, economic principles don’t change. inking that they do is the problem in a nutshell (see previous discussion on China). Second, you are looking only at the US. Why do you think the steel is coming here? Because it no longer is getting used elsewhere. In addition, have you checked inventory and US capacity utilization? at is where the impact of imported steel is showing up. And, now that you mention it, that protectionism is indeed coming again in more antidumping, right or wrong. ird, yes housing is way down (certain sun belt and tax-friendly states excepted) and the snow has been long gone (by the way: “three quarters of the country?” It was only a small portion that got big news. But that is the myopia I am speaking about. As well as the unwarranted extrapolation). ose applications to build are only in those friendly states. Look at the issue nationwide and the story is much diﬀerent. Fourth, those millions of foreclosed homes on bank books are still there. Haven’t you seen the bank stress tests also here in the US and Europe? ey keep lowering the bar for them to pass. ose foreclosed homes in the US are still weighing them down. Europe? Well, do I really need to lay that out again? In addition, the structural unemployment numbers haven’t changed (US, 16-20 percent; Europe, much higher; China, it’s coming). In short, for steel you are looking only at the US (which is about to get the antidumping; this may have happened by time of publication) and for housing you are looking only a portion of the US. e only bright side is some raw materials are up because of commodity financing schemes in China and elsewhere; and because money is looking for someplace to ride out the coming storm, and get a return. Even that can change literally in a heartbeat. To paraphrase a TV commercial now popular in the States: “stay liquid my friend.” Mr. Bull: Your myopia is my reality; but let’s not dwell on it. Yes, I have indeed checked the capacity rating as published by the Fed-

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Mr. Gloom: My friend, 58 months of growth from the bottom of 2009 is not recovery; it is life support, or in other words, Quantitative Easing. Why do you think that they can’t take that away? And did you note the headlines in mid-April that the USG is NOT tapering as they said that they are/would? Why is that, pray tell? And yes indeed there is inflation in the US. We had this conversation already. Remember the packages getting smaller for increased cost? at is inflation. Remember the M1 and M2 growth? Don’t you recall that in 2012 they changed the way the CPI is calculated in order to reduce government directed COLAs? Further, each

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quarter they take out the component of the CPI that shows the big numbers. If they calculated the CPI the same way today that they did 10 years ago, it would be over 10 percent. But my overall point, recall the end of our conversation last year, is that the world economy is very sick; not dead yet like 2009 but very sick. And the governments are doing the same thing in response to the problems that they did in the 1930s and we will get the same result they got in 1938. e doom I preach is not here yet, granted. But it is coming again because no government will do what is right as they all want to stay in power. ey are taxing more and giving more away and kick the can down the road, and liquidity issues will be where it begins.

Mr. Bull: Man, you are one amazing and amusing dude. So you are getting fewer M&M’s in your package and that represents raging inflation? Is that your best shot? Of course you cannot acknowledge that we are growing and that the quantitative easing program is an essential part of it. Let me get back to the housing sales that came in so very low. Yes, the numbers are bad and I won’t mention the bad weather again; but do look at the details. ere are fewer buyers who buy on cash basis, fewer investor type of purchases and an increased amount of first time buyers who have qualified and are receiving mortgages. Sales of distressed properties are dwindling because the number of foreclosed houses is dwindling. e number of mortgages with negative equity has dropped to 19.4 percent from 31.4 percent in 2012. Average home prices have not quite recovered the 35 percent drop from the peak period; but they are going up steadily and are on their way to full recovery. is is good news. America is about to overcome the great housing debacle of 2008/2009! You want more details how the US has aptly handled the debt crisis? Of course not, but I am giving them to you anyway. is year the budget deficit will drop to 2.8 percent of GDP and next year it will be 2.6 percent. With an economic expansion to reach close to 3 percent next year, the US will outgrow its debts. is fiscal squeeze was accomplished without throwing the economy into dramatic recesVolume 7; Issue 3

sion as we have seen it in so many European countries. A study by the International Monetary Fund has established that the manufacturing sector of the US has recovered very quickly as well. Machinery, computers and electronics are leading this particular charge. America’s global share of manufacturing has leveled oﬀ at 20 percent. e other behemoth here is China at exactly the same number. So there are two manufacturing giants slugging it out and, right now, China is not necessarily winning the battle any longer. e shale gas and oil revolution will be another factor for America’s resurgence. So, while you continue to be mired in your misery I will hoist the banner of victory over the global economic downturn—a banner full of stars and stripes.

Mr. Gloom: Now that the latest housing numbers are out, the worst in 14 years, we can now put THAT debate to rest; though to be fair, they only came out after your last post. In addition, mortgage loans are the worst since the start of this thing. Revealing in that number though is that most of the fall is due to the drop in refinancing existing mortgages. at is both good and bad. e refinancing helps free up money for the homeowner, but the heavy weight to refinancing means that there aren’t new homes being bought with all the accompanying surrounding sales (appliances, renovations, fees, etc.), when things were supposedly good. Meanwhile, the sabers are getting louder as are China’s problems. But, as stated below, the free world’s leader is actually showing backbone. Obama has sent help to Eastern Europe, and been to Korea and Japan. We can only pray that this is not only politics in an election year. But you know what? Even if that is the only reason; I’ll take it. e world needs a strong US whether they like it or not (they don’t. ey hate it—it forces a look in the mirror). But like Clinton going into the Baltics, the US has to stand. I recall the President of Kosovo when the war was going on there; “e Americans must come. Europe will talk about it until we are all dead.” ere is nothing new under the sun. For now, my friend, I bid you adieu. We will continue next time and next issue. I can only wonder what things will be like then. SO \

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Bull&Gloom

eral Reserve. Overall, capacity is at 78 percent, the steel industry hovers around 76 percent and the two uber-achievers, coal and paper, are in excess of 80 percent of capacity. Not the most impressive numbers; but far from being in a crisis mode. Let’s face it: the US economy is growing and recovering from its 2007/2009 recession. e recovery, however, is very sluggish and by your old economic principles we should be a lot farther ahead than we are now. Still, get it into your pre-conceived mind: we have had 58 months of economic growth and the “dreaded” Federal Reserve expects the growth to continue until 2016. It is also entirely consistent with your old economic principles that the recovery from a financial crisis just takes so much longer. Speaking of which: economic principles do change. According to your vaunted principles, we should have had raging inflation by now because of the ongoing loose monetary policy of the Fed. I know you are disappointed, but inflation has not eaten up this country just yet. Quite the contrary is the case. ere are some telltale signs that we are closer to a deflation. And why, you ask, am I concentrating on the US? Because given the size of the economy and the per capita spending power, it is the most important economy for the global wellbeing. e BRIC countries don’t have the spending power yet and Europe is stuck in its own little crisis for now. at is why the US is the most important market place in the world and before I forget, let me tell you that your much-advertised banking crisis is far from not happening either.

Q Standing their ground

Q&A with Piotr Galitzine Chairman

TMK IPSCO

Piotr Galitzine, Chairman of TMK IPSCO, speaks with SteelOrbis San Diego about concerns facing the US pipe market, in particular the many facets of the import threat.

Are there any particular regions in the US where this long-term activity is most prevalent? PG: If you draw lines from the current shale plays to the current refineries, you get a good idea where the long term activity is most likely. You would draw a line from the Bakken to the Texas/Louisiana refineries. For Marcellus, the line would go to the newly-licensed Gulf Coast liquefaction plants.

Much of the optimism in the US domestic OCTG and line pipe markets is discussed in the long-term—projects that are expected to emerge between two and five years out. Is there anything you see in terms of the short term that could have a more immediate effect on market demand? PG: It is true that the optimism in the line pipe market is in the long term. at is because the planning and permitting—intrastate, interstate and even internationally—can take up to five years. For OCTG, the horizon is much shorter. In the last six years, the apparent demand— local production plus import minus export —has gone from five million tons to seven million tons. is has not been accompanied by the anticipated price increase because of unfair imports that are improbably priced,

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Does your company have specific plans to grab a greater market share of this existing short-term demand? PG: We have increased our domestic market share significantly over the past two years. But as the market doesn’t support profitable manufacture of the more basic welded pipe providers due to the unfair imports, we are increasing our focus on high performance seamless OCTG and premium connections where there is little South Korean import and reasonable profit levels.

Many of the US’ underground gas and water lines are decades old and need to be replaced, but local and state government officials seem to be dragging their heels on those projects. Do you see that changing, and if so, what do you think will be the catalyst in getting things off the ground? PG: is country operates more than 600,000 miles of oil and gas pipeline networks, and 55 percent of the pipe is more than 50 years old. Understandably, nobody Volume 7; Issue 3

wants to start the necessary investments any earlier than they have to, so regulators are taking an increasingly proactive role. e Pipeline and Hazardous Materials Safety Administration (PHMSA) has increased their inspection staﬀ by 50 percent over the past two years. eir initial focus will be on gas pipelines. First, they will no longer allow cast iron pipe. Second, they will require pressure testing on all lines. is will require changes in some lines to allow isolation and pigging (a pig is a device that is put into the pipeline to clean and access the condition of a pipeline from the inside—terminals are required to get the pig into and out

We are increasing our focus on high performance seamless OCTG and premium connections where there is little South Korean import.

Piotr Galitzine

of the pipeline, and shut-oﬀs to isolate the section being pigged. In some case there may be valves or other devices that obstruct the pig, which have to be replaced. All of this requires time, permitting and money). Lines that can’t be measured will be de-rated. is means that operators will have strong incentives to address this issue. It will translate into a lot of new line pipe over time.

A lot of people were surprised when the preliminary dumping determinations were announced in the OCTG trade case. Korea had long maintained their margins would be low, but few, if anyone, saw them coming in at 0 percent. How do you see this impacting the domestic market in the immediate future? PG: e trade case involves Korea and eight other countries, but Korea is the major concern. Korea shipped almost 900,000 tons into the US in 2012, a million tons in 2013. Korean pipe imports for the month of December 2013 were double those of December 2012. is impossibly low-priced pipe is creating havoc in the market, particularly in the welded segment, which accounts for the vast majority of product coming from the

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Interview

but the demand is there.

Interview

countries named in the trade suit. ere have been many cases where a zero determination at the preliminary stage has been followed by a significant tariﬀ at the final decision. For example, five years ago the Chinese producer Tianjin Pipe Corporation (TPCO) received a 0 percent preliminary determination and 99 percent at the final. is is because the International Trade Commission (ITC) looks primarily at data from foreign producers at the preliminary stage, then includes data from the domestic suppliers in their final determination. We are looking forward to the final determination because, as you know, we have had to cut back on overtime and shift workers at several of our facilities from welded pipe production to other, more profitable work.

What is the “more profitable work”? Are there any segments of the pipe market that are not as affected by imports in which your company might increase involvement? PG: Because there is presently less seamless pipe coming from the nine countries, the market for seamless, as well as for premium connections, currently sustains profitable manufacture by domestic suppliers.

It would seem that the bulk of the offshore producers named in the case will be able to continue shipping OCTG to the US in a business-as-usual fashion, and forecasts show an upward of 3 million tons of US domestic capacity will be coming online in the next several years. Do you think the US market is entering an era in which supply will soon far outpace demand? PG: More than half the new capacity—two million tons—is for seamless pipe. Most of the Korean imports are welded pipe. e new seamless plants will target the burgeoning shale market, especially in 5.5 and 4.5 inch sizes. We think that, over time, the cheaper imports will be pushed aside, because seamless is the norm in horizontal wells. We do have customers using premium grade welded horizontally, but it is not yet a broad trend. TMK IPSCO recently reduced production hours at several facilities due to the effect of import competition. Do you see this as 22

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a temporary situation? If so, what changes in the market would have to happen to restore production to previous levels? PG: We think any determination above zero will help the domestic industry. We are currently squeezed between the cost of hot rolled coil—set by the steel companies—and the prices of lower grade, welded pipe, in effect set by the importers. Relief from the unfair trade will encourage additional production and employment. In the meantime, we are not just sitting on our hands. We are doing our best to take costs out of production.

Relief from the unfair trade will encourage additional production and employment.

Piotr Galitzine

Does your company use primarily US domestic HRC for pipe production, or any portion of import HRC? Has your company considered investing vertically to either partner up will a flats producer or acquire one outright for your supplies? PG: All the HRC we presently use is domestic. We have focused on increasing our heattreatment and our threading capacity over the past several years.

Last year, the Obama administration approved a $10 billion natural gas export facility in Texas, although that project is not expected to begin exporting for three more years. Another facility in Louisiana is expected to start exports in 2015. How do you see this impacting the domestic pipe and tube markets? PG: At this moment, the US has 36 LNG export facilities planned and awaiting licensing. Licensing is pretty automatic for free-trade countries, but only five facilities have licenses to export to other countries. is is important because broader licensing gives the shippers flexibility to change destinations at the last minute, based on changing global prices. e five facilities represent about eight billion cubic feet per day. Licensing of an additional capacity of seven-eight billion cubic feet per day (BCFD) appears likely. at Volume 7; Issue 3

would represent about 15-20 percent of today’s production. National Energy Research Associates (NERA) estimates a plateau of 8-10 BCFD in exports. is would create a $10-$12 billion export business without significant increases of domestic prices. NERA concluded that exports by 2020 would impact the Consumer Price Index by about 0.1 percent. It is important to note that these LNG plants will not be a primary driver of line pipe demand because most of the plants will be on the Gulf, (with the exception of one or two on the West coast and one on the East coast) meaning existing pipelines may need some modification. Where we see additional pipeline construction is from the Marcellus region to the Gulf for gas, and from the Bakken to the mid-continent and down to the Gulf as well.

The US House of Representatives is currently considering a bill that would require the Department of Energy to approve pending applications for 20 natural gas export facilities. If this is approved, how soon will it be before US pipe producers see an impact? PG: Some legislators have been urging additional gas export in support of Ukraine, and to give Europe an alternative to Russian gas, but as the facilities take four to six years to build at a cost of cost $4-$10 billion, so this would not be a short-term solution.

About a year ago, TMK IPSCO opened a new threading facility in Canada in order to “expand oil and gas field services business in Canada.” What progress has been made on this front in the last year? Does the company have plans to expand further in Canada? PG: Our new Edmonton facility has been enthusiastically received by our Canadian customers. Now we can thread not only our existing family of premium connections, but eventually some connections that we are developing specifically for SAGD use. Canada now represents about 10 percent of our SO \ North American business. Full interview available at SteelOrbis.com

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NewsFocus

Spieslikeus

US accuses China of spying on US Steel and other firms

n late April, the United States officially charged members of the Chinese military with hacking US Steel, Westinghouse Electric, the United Steelworkers Union, Alcoa and Allegheny Technologies Inc. and SolarWorld in an effort to steal trade secrets. Massive amounts of information were downloaded, according to news reports, and concerns about the theft of intellectual property were more than speculation. One charge in particular invovled one of the accused sending an email posing as US SteelCEO John Surma; upon opening the email, the users computer was infected with spyware that gathered information from US Steel’s network. In a prepared statement, US Attorney General Eric Holder said a federal grand jury in Pittsburgh found that five Chinese military officers conspired together, and with others, to hack into the computers of organizations in Western Pennsylvania and elsewhere in the United States. ose charged include Sun Kailang, Wen Xinuy, Gu Chunhui, Huang Zhenyu and Wang Dong. e suit alleges that the named defendants, all of whom have ties to China’s People’s Liberation Army, used computer systems to gain unlawful and unauthorized access to information. Holder said the action represents the first ever charges against known state actors for infiltrating US commercial targets by cyber means. “e range of trade secrets and other sensitive business information stolen in this case is significant and demands and aggressive response,” he said, noting the indictment alleges the named PLA officers maintained unauthorized access to victim computers to steal information from those entities that would be useful to their competitors in China, including state-owned enterprises. In some cases, they stole trade secrets that would have been particularly beneficial to Chinese companies at the time they were stolen; in others, they stole sensitive, internal

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communications that would provide a competitor, or adversary in litigation, with insight into the strategy and vulnerabilities of the American entity. In sum, the alleged hacking appears to have been conducted for no reason other than to advantage state-owned companies and other interests in China, at the expense

of businesses here in the United States. Holder said this is a tactic that the US government categorically denounces. “As President Obama has said on numerous occasions, we do not collect intelligence to provide a competitive advantage to US companies, or US commercial sectors,” he said. “Our economic security and our ability to compete fairly in the global marketplace are directly linked to our national security.” Since the time the US was founded, the success of American companies has been the result of hard work and fair play by our citizens, and Holder feels this is how it ought to be throughout the globe. “Success in the international marketplace should be based solely on a company’s ability to innovate and compete, not on a sponsor government’s ability to spy and steal business secrets,” he said. “When a foreign nation uses military or intelligence resources and tools against an American executive or corporation to obtain trade secrets or sensitive business Volume 7; Issue 3

information for the benefit of its state-owned companies, we must say, ‘enough is enough’”. e Attorney General’s Oﬃcer has underscored the Obama Administration will not tolerate actions by any nation that seeks to illegally sabotage American companies and undermine the integrity of fair competition in the operation of the free market. “is case should serve as a wake-up call to the seriousness of the ongoing cyberthreat. ese criminal charges represent a groundbreaking step forward in addressing that threat,” Holder said. “e indictment makes clear that state actors who engage in economic espionage, even over the Internet from faraway oﬃces in Shanghai, will be exposed for their criminal conduct and sought for apprehension and prosecution in an American court of law.” Although USW has not issued a formal statement, they have gone on the record to say they find the situation to be quite troubling. e other hacking victims have said that cyber safety is a top priority and they’ll continue to work to make sure their systems are protected. Members of the Chinese government, however, are calling shenanigans, and have said they find the entire matter to be “absurd”. “is US move, which is based on deliberately fabricated facts, grossly violates the basic norms governing international relations and jeopardizes China-US cooperation and mutual trust,” said China’s Foreign Ministry Spokesperson Qin Gang in a prepared statement. “China is steadfast in upholding cyber security,” he said. “e Chinese government, the Chinese military and their relevant personnel have never engaged or participated in cyber theft of trade secrets. e US accusation against Chinese personnel is purely ungrounded with ulterior motives.” Gang feels that China is the true victim of severe cyber theft, wiretapping and surveillance activities.

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erning international relations,” he said. “Large amounts of publicly disclosed information show that relevant US institutions have been conducting cyber intrusion, wiretapping and surveillance activities against Chinese government departments, institutions, companies, universities and individu-

als.” Gang said China is once again urging the US to make provide a clear explanation of what it has done and immediately stop such kind of activities. “China will react further to the US ‘indictment’ as the situation evolves,” he said.

in the buying seat: US Steel and Brazilianbased Companhia Siderurgica Nacional SA (CSN), and many believed combined sale price for both facilities would topple the $1.5 billion mark. But less than one week later after media reports of the sale first surfaced, the company announced it would extend its deadline for bids. e top finalists would be announced by the end of May, they said, and the winner would emerge by mid-summer. e new rumor, at that point, was that Japanese steelmaker JFE Steel Corporation had shown interest in tossing its hat into the ring, but told representatives from Severstal they needed more time to put some numbers together. At that point, neither US Steel, JFE nor CSN were talking to anyone. Each of the would-be buyers were keeping their lips tight and weren’t too keen on making comments to the media. is meant that movers and shakers in the US flats market were wideopen to speculation as to how the deal would pan out—and whether the mills would be sold as a package deal, or if Severstal would split them up to maximize profits. e leading belief was that US Steel and JFE could team up to take over the Dearborn, Michigan facility. US Steel already has connections for iron ore shipments on the Great Lakes, and the partnership could bode well for JFE’s interests in the automotive sector. at could open up some doors for, potentially, Nucor (or CSN) to sweep in and take over the Columbus, Mississippi mill. Hypothetically speaking, it makes sense that the sale could go any number of ways. Although some thought Severstal would try to force the sale as a package deal, others felt it would be hard to sell mini-mill operations

to traditional blast furnace operators, and vice versa. “I don’t think whoever buys one mill will want the other,” said one SteelOrbis source, furthering a JFE-US Steel joint venture would fit much better for Dearborn while a mini mill operator would be far more interested in gaining interest of the Columbus facility. But the biggest wild card, at this point, is if that does in fact happen, how would the US flats market fare should an international mill gain control of the Mississippi mill? “e market would be much better served if a US domestic mill buys Columbus,” said a Texas-based source. “Let’s use yssenKrupp for example. ey always pulled the market down, and if CSN comes in, they may start pricing cheaper that what US mills are trying to hit for now. is could turn out to be one big disaster for domestic producers.” On the flip side of that coin, he said, a domestic buyer would likely show more restraint, which could bode better for other US flats producers. At this point, it’s all rumor and speculation, and the steel industry as a whole is still waiting to see how the proverbial dust settles. OAO Severstal is also not saying much, except that they are “considering a range of strategic options in relation to Severstal North America. [e company confirms] that no decision has yet been taken as to which, if any, such option might be pursued.” e company’s CEO, Alexey Mordashov has also said that selling the mills is merely one option, and that they are also considering another course of action, which involves keeping the mills and working to expand market share. SO \

Anotheronebites the dust?

n early May, rumors started to swirl that Severstal NA was putting its North American operations up for sale. is included two key facilities: Severstal Dearborn, an integrated mill which underwent a $740 million modernization program in 2011. ose upgrades included a new, five-stand, six-high, 72" tandem cold mill linked to a pickle line and a new, exposed hot-dipped galvanizing line which targeted critically exposed applications for automotive customers and other original equipment manufacturers. A company spokesperson said the facility is capable of producing 3.6 million net tons of hot rolled, 2.1 million net tons of cold rolled, and 1.1 million net tons of galvanized and galvannealed sheet each year. e other mill in question, Severstal Columbus, was constructed in 2007 at a cost of $980 million, Many have considered that facility as being the vanguard of the ‘”minimill” movement, since it featured the newest and most advanced electric arc furnace facility in the world at the time of its construction. e Columbus mill’s annual capacity is 3.4 million net tons of hot rolled steel, 1.5 million net tons of cold rolled steel and 1.1 million net tons of galvanized and galvannealed sheet. Some believed the Russian producer was considering the sale because they wanted to pull back and not have investments everywhere, and focus more on their home market, instead. Others said they heard rumors that once the US mills sold, Severstal planned on investing in a new mill in India. Neither of these rumors have been confirmed or denied. Two front runners were speculated to be

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Volume 7; Issue 3

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NewsFocus

“e US government and relevant US institutions have long been involved in largescale and organized cyber theft as well as wiretapping and surveillance activities against foreign political leaders, companies and individuals, which constitute a violation of international laws and basic norms gov-

AcerosNoticias

Fareastconcerns

SteelOrbis Americas’ Mexican correspondent explores how increased steel imports from China are affecting the Latin American steel industry.

hile the Chinese iron and steel industry “has entered a figurative winter,” according to Yang Siming, president and CEO of Nanjing Iron and Steel Group, the steel industry in Latin America has hit roadblocks of its own by increasing indirect steel imports from the far east. Eﬀorts to combat pollution in China have led to the closure of some of the world’s largest steel manufacturers, where production reached a record 779 million tons in 2013. Nevertheless, major Chinese steel producer Baosteel reportedly predicted that the total production of crude steel in China will rise by 3.8 percent in 2014 to 809 million tons. e Asian giant is also facing a credit squeeze that has resulted in a cost increase of 22 percent for steel producers in the first quarter compared to last year, according to the China Steel Association. But the Latin America region, which has long aspired to be fully industrialized, resents the explosive growth of the Chinese economy. According to the recent study by the Latin American Steel Association (Alacero), “Indirect steel trade in Latin America is a political uncertainty, leading to repeated economic crises, the lack of eﬀective trade integration agreements, and social conflicts that do not allow for the emergence a solid production structure that is able to face global competition.” However, the association added, some countries in the region such as Mexico, Brazil and Argentina have developed relatively large industrial parks, highlighting the automotive sector as the main manufacturing activity in the region and increasing the demand for steel, particularly flat products. In general, Latin America is a net importer of goods and indirect steel trade has grown over time, increasing purchasing power, which can be approximated by the GDP. ere are intra- and extra-regional trade

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relations that are key to understanding how manufacturing activity in Latin America works and identifying strategic weaknesses, such as the absence of an industry or the displacement of the other regional partner from overseas, as could be the case in China. Imports from this country do not follow changes in regional demand, according to the study, but are the result of unfair trade practices also displace other regional and world trading partners. In this sense, Alacero’s 2011 study on the “Development of Metalworking Value Chain”, which mentioned steel trade flows between China and Latin America and how the growing deficit was unidirectional indicates that this trend has grown steadily during this decade.

Volume 7; Issue 3

Latin America has been a net importer of manufactured goods with high steel content in the last 10 years, marked by a severe impairment in the trade deficit from 2004 on. Between 2000 and 2010 imports were multiplied by 2.3 while exports were slightly less dynamic, with a multiplier of 1.9. During the global crisis of 2009, both imports and exports experienced a drop of 22 percent and 24 percent respectively. In 2010 trade values ranged over those of 2008, setting a maximum of US$160.7 million in the case of exports and amounting to US$231.9 million for imports. With this, the trade deficit of 2010 reached the highest China has a strong presence in Latin America, and not just with imports.

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due to the recovery in the production of metal products and some growth in the automotive sector and construction. us, in 2013 the apparent consumption of steel managed to not grow versus 2012 and showed diﬀerent results by country: Brazil expanded 4.8 percent and Argentina by 2.8 percent; Mexico closed the year by decreasing consumption by 8 percent; Chile and Venezuela saw declines of 11.9 percent and 5.3 percent, respectively; Colombia consumption grew only 1.1 percent; and Peru grew 7 percent. However, Latin American expectations for the current year are encouraging, with growth of 4.5 percent for the overall region, with continual expansion of 3.1 percent in 2015. One issue that occupies the industry and its value chain is the marked growth in Latin America as a destination for exports of steel and steel-containing products from China, many of them in unfair trading conditions, a concern that has been extended to Turkey. Latin America accounts for just under 5 percent of global consumption of flat rolled steel (almost 67 million tons per year). However, in 2013 it accounted for 9 percent of total exports from Turkey and 10 percent from China. Alacero has been monitoring trade between Latin America and China regarding raw materials and indirect steel trade for several years, and recently started looking into trade with Turkey. e association’s report shows that in 2013, Turkey exported 1.26 million tons of steel to the region, concentrated in long products for construction, comprising 20 percent of imports of all long products to the region. e case of China is much more serious. In the last six years, between 2008 and 2013, Chinese exports of galvanized products grew only 5.2 percent, from 51.4 million tons to 54.1 million. However, in the same period, Chinese exports of these products to Latin America more than doubled in volume: increasing from 2.6 million tons in 2008 to 5.7 million tons in 2013. Alacero’s board reinforced the need to continue monitoring antidumping safeguards in the region, and to work with its partners with information on the actions taken by each country. e association aims Volume 7; Issue 3

to be a communicating vessel between similar associations, as the call for strengthening the governments in the region to address unfair trade. Martin Berardi, President of Alacero, was clear about the role of the association: “Alacero must further deepen its eﬀorts to inform the public of the damage that the arrival of products at subsidized and unfair conditions—especially from China—brings to Latin America in terms of jobs, tax revenue decline, disincentive to investment and SO \ long-term economic sustainability.”

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level of the decade, with a value of $US71.19 million. Indirect steel imports in Latin America showed a slight trend toward greater diversification. e automotive sector accounted for 39 percent of the flow in 2000 and 35 percent in 2010. e other sectors saw their weight slightly decrease or stay level over the decade, with the exception of the mechanical machinery sector, which rose from 21 percent of imports in 2000 to 26 percent in 2010. e automotive sector is still one of the most signficant to the steel industry in Latin America, followed by mechanical machinery and metal products, with 26 percent and 30 percent, respectively, in 2010.ese two sectors are related to two of the most important economic activities in the region: agriculture and mining. In the first decade of this century, steel imports in the automotive sector increased by 1.6 percent, from 4.1 million tons in 2000 to 6.5 million tons in 2010. “After a downturn in 2002 as a result of the crisis that hit the region, there was a sharp increase in imports of cars, hand-inhand with the economic boom Latin America experienced until 2008,” said the analysis. While volumes fell sharply in 2009, with a contraction of 32 percent comparable to earlier levels, imports in 2010 and slightly exceeded the pre-crisis volumes. In total, vehicle imports grew at an average of 7 percent annually between 2000 and 2010, slightly lower than the increase in exports, which had an annual increase average of 8 percent. e scenarios for the next two years diﬀer from country to country. In some areas, they will be less favorable and marked by inflation and stagflation, falling prices of commodities, fiscal restraint and contraction of private investment. In other countries, the outlook is more encouraging for infrastructure investment and the recovery of steel consuming markets. In line with the GDP and industry, the major steel consuming sectors showed moderate expansion in 2013. Construction (47 percent of steel consumption in the region) grew only 1.4 percent. e automotive sector expanded 7.1 percent. Meanwhile, the metal products sector fell 1.8 percent in 2013. In 2014 and 2015, these scenarios will improve

Silk that’s stronger than steel? What sorcery is this? A synthetic spider silk that is said to be five times stronger than steel is about to hit the market. Some feel the material could be used in any number of applications, spanning from computer electronics to bulletproof vests.

Science enthusiasts have always been interested in the strength properties of silk, but they’ve had a heck of a time finding ways to incorporate it into big-industry for two big reasons. One, farming spiders is about as easy as herding kittens. Two, they have a tendency to eat each other. is, they said, is why they’ve developed a way to fabricate synthetic spider silk. e technology can be used countless ways including but not limited to artificial tendons (the human body doesn’t reject spider silk), reconnecting severed nerves, suture thread, cosmetics, and even a replacement for steel in certain industrial applications. But don’t start counting your spider-silkbridge-construction chickens before they hatch—widespread application is still several years away.

Got wood? e New Zealand Labor Union has said they’re all about the wood these days, and feel contractors should get behind them. e obvious flaw in that plan, even for those who don’t have an architectural background, relates to structural integrity. Labor wants wood to be considered as the primary framing material for all construction projects, even buildings that are many stories high.

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is has left those within the New Zealand steel industry standing around scratching their heads. Not only is considering wood for all projects outlandishly ineﬃcient, taking time to review all the additional proposals is going to slow things way down, according to news reports. e steel industry has also pointed out they’ve invested significant amounts of cash in developing seismic-resisting steel framing systems, which means steel-based buildings are far better equipped to handle an earthquake than a lumber-constructed counterpart.

What’s in your wallet? In this day and age, credit card companies will do just about anything to attract the attention of well-qualified clients. Some have resorted to gimmicky commercials while other have started to oﬀer bigger and better rewards on cashback and airline miles programs. Others, though, are upping the ante by oﬀering select clients palladium, titanium and stainless steel card options. If you think the concept of metal credit cards will never catch on, you’re wrong. In 2005, there were maybe 15,000 of these in circulation, according to an industry spokesperson, but today, there are about 10 million that are being used all throughout the globe. e credit card companies feel the cardsof-steel are a status symbol-, something that’s desired by many but only granted to a select few. If you’re itching to get your hands on one, though, be prepared to shell out some serious dough. e American Express Centurion

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card comes with a $7,500 initiation fee along with annual fees of $2,500. e J.P. Morgan Chase version has less expensive versions, starting with the Sapphire Preferred card ($149 annual fee) and the Palladium Card ($595 annual fee). And of course, there’s always the Barclay’s steel Visa Black credit card, which comes with its own $495 annual fee.

Beauty is in the eye of the beholder When artist Jeﬀrey Funk first saw a section of an abandoned steel bridge that was resting on the bank of the Flathead River in Kalispell, Montana, he fell in love. Many would consider this type of environmental litter to be an eyesore. But to Funk, it was an artistic opportunity. He’s not the original owner of the bridge, he said, although the man who initially bought it did not charge him for the acquisition. e original owner had but one request: he asked Funk to forge him his very own piece of art. e artist said he has plans in the works to cut the bridge into about 80 diﬀerent pieces, which will be used in any number of ways. He’s just happy to have all this steel to work with, he said, because he knows the previous owner could have had the structure chopped up and sold for scrap. Funk said this isn’t the first time he’s worked with old bridge parts. In the late 1990s he helped dismantle the Kearney Rapids Bridge and used those pieces for different projects.

He likes big bells and he cannot lie Police in Nova Scotia say they’ve captured a 46-year old man who they believe is the prime suspect in a recent church bell heist. In addition to the man having secured himself a one-way flight to someplace uncomfortably warm, he’s also facing a slew of charges including breaking and entering, possession of stolen property and traﬃcking stolen property. Church oﬃcials believe the thieves broke into their years-vacant facility through a broken stained glass window. ey were con-

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vinced that more than one person was involved in the crime, especially because the bells weigh several hundred pounds each. Four bells were stolen in all, they said, and although law enforcement oﬃcials say they’ve recovered some of their parts, many of the parts are still missing. Police say they caught the thieves’ trail after one of the suspects allegedly tried to sell the bells to a local scrap dealer. e scrap yard figured something fishy was up from the get-go, and proceeded to contact the authorities. Two other men have since been arrested and have charged with the same crimes.

Safety first Cal-OSHA announced in May that they have fined San Diego-based Gerdau Reinforcing Steel West nearly $37,000 for safety violations that ultimately led to the death of a worker who was helping build the San Francisco 49ers stadium last fall. e company’s subcontract worker was crushed by steel, they said, and had the proper safety protocols been in place, Edward Lake may have been out of harm’s way when a load of rebar slid oﬀ the back of a flatbed truck. Gerdau was fined for what have been described as two serious violations and one general one: failing to advise drivers to stay away from the truck bed during loading and unloading; failing to secure rebar against dangerous displacement during unloading and for failing to have set policies regarding how to safely unload rebar. Cal-OSHA points out that Lake was the

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Pumping iron Researchers from US and Chinese universities have discovered a technique they say can make steel even stronger than its current strongest form. If this is in fact the case, this could allow steelmakers to produce items that are better able to perform in all types of structural applications. e technique, according to researchers, provides the added strength without impacting ductility. Items that have lacking ductility have a tendency to shatter under pressure, which would cause obvious problems from a structural integrity standpoint. Sure, steel is already good, they said, but that’s not to say there aren’t ways to make it harder and last longer. e researchers said their technique’s best applications relate to steel that’s forged in a cylindrical fashion, such as drive shafts and axles in cars. e new-and-improved steel could be a good option for high-speed rail trains and other similar types of devices. Drinking and steel don’t mix After swallowing a steel fork as part of a booze-fueled bet with a friend, Radu Calincescu, 25, soon found himself en-route to the closest emergency room; doctors said he came in complaining about stomach pain and has having diﬃculty swallowing. What he neglected to mention, however, was that he had silverware in his tummy, and doctors didn’t realize this was the cause of the man’s problems until after they took an X-ray. Calincescu had been drinking with a friend earlier that day, they said, and somehow he convinced himself that he could swallow the fork without getting hurt. e friend essentially dared him to put his money where his Volume 7; Issue 3

mouth was, and the rest, they say, is history. Calincescu was discharged several hours later and told to “wait and see” if the utensil would pass through his body without medical intervention.

Missouri neighbors of SunCoke plant complain of foul odor Residents of Granite City, Missouri reported in May a foul odor coming from the nearby SunCoke Energy facility, which is relatively new to the area. Although SunCoke did not respond to media requests for comment, the company paid nearly $2 million in fines with the EPA in 2013 for environmental violations in Granite City. A spokesperson for the Illinois EPA told one local media outlet that they do have air monitors in the area but nothing unusual has been detected. In comments for the news story, one resident said: “e odor is from the new coke ovens. What they are supposed to do is quench the used coke with water. But a lot of times they don’t and when they open the doors of the quencher the smoke and gas buildup comes billowing out.”

New steel memorial opens to honor LAPD officers e Los Angeles Police Department unveiled in March a new “end of watch” memorial to honor oﬃcers killed in the line of duty. e 58-foot-long steel and acrylic crystal wall is backlit with bright blue lights and sits on 36 super-duty casters. e wall is designed to travel the state and country, with planned stops at the State Capitol, Los Angeles City Hall, LAX, and local schools and college campuses. e wall was built by Commemorative Badge Co. in Gardena and designed by local artist Timothy Lampros. It weighs 15,000 pounds, stands 9 feet tall, and took 70 people more than six months to build. Over 1,000 feet of steel was used, and 4,000 nuts and bolts hold it all together. To honor the dead individually, the wall has 204 backlit acrylic crystal nameplates that are each etched with the name, rank and date of death, or “endof-watch,” of a LAPD oﬃcer who died in the line of duty. SO \

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second construction worker to die at the worksite in less than four months. A California-based elevator company has also been fined $54,000 for three serious safety violations. e elevator company is appealing their fine.

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t’s still shaky out there. e news from the three big pillars supporting the global economy is not very good—then again, it’s not very bad either. e once threatening gloom has been averted but the growth rate leaves a lot to be desired so far this year. e US has had a “growth deficit” ever since the recovery started and, at this point, cannot blame it anymore on the very bad and long winter this year. e economy seemed to be strong enough for the Federal Reserve to gradually withdraw its bond purchasing program. After the disappointing growth figure for Q1 the pace of the taper was slowed down a bit. China’s growth in Q1 slipped to its lowest level in 18 months; but the encouraging news was that many experts had expected an even worse drop. Consumer spending and industrial output remain relatively strong giving hope that China can avoid a still threatening “hard landing” which would represent a growth rate of five percent or less. e Eurozone saw some of its troubled members returning successfully to the bond market. ere was, however, muted joy about this as deflationary fears seem to have taken hold in some Eurozone countries. e European Central Bank felt obliged to openly hint that it would consider a form of quantitative easing to jumpstart economic growth and to deflate the grossly overvalued Euro. Americas: e US economy practically came to a stall in Q1, with the advance estimate shows a negligible growth of 0.1 percent over Q4 of last year. Latest reports on the unemployment front were decidedly mixed in their outlook as well. Yes, the private sector added 288,000 jobs in April, the highest monthly rate of this recovery. Unemployment even dropped to 6.3 percent but only because so many Americans have simply given up and dropped out of the labor pool. e labor force participation fell to 62.8 percent in April to match a 35year low. e rate for the 25 to 29 year olds fell to a record low of 79.8 percent with 4,280,000 young Americans in that age group not working. e ongoing recovery is one of the weakest one in memory, certainly since 1960. e GDP high points in this recovery were +2.5 percent in 2010 and +2.8 percent in 2012. In 2011 and 2013 growth fell below 2 percent. According to numbers published by Congress’s Joint Economic Committee the average growth rate of the 19 quarters in this recovery has been 2.2 percent with a total economic growth of 11.1 percent. e average quarterly growth rate for all post 1960 recoveries is 4.1 percent with a total growth of 21.1 percent. e “Reagan Recovery” 1983-1988 saw an average of 4.9 percent quarterly growth and a total increase of 25.6 percent. Enough said. e Brazilian economy is struggling to recover from its recent downturn. Various forecasts of GDP growth fluctuate between 1.6

and 2.8 percent with an accelerating growth in 2015. As the World Cup gets under way in the country, the costs for staging this event come under more scrutiny. Sure, the economy was in a lot better shape when Brazil took on this project. Still, the estimated $13.5 billion it costs represent a big chunk of money and questions are being asked if it will be all worth it. Social tensions in Brazil are rife and will likely come to the forefront again. Another country beset with social tension is oil rich Venezuela. e economy is in shambles even if the government recently reported that 2013 saw an increase in the GDP of 1.3 percent. at the number managed to be a positive one had a lot to do with the sharp downturn of imports. Unwieldy foreign exchange controls and downright lack of foreign exchange lead to an almost ten percent fall of imports which, in turn, lead to massive shortages of foods and consumer goods. Deadly demonstrations in Caracas were only a logical consequence of the economic mismanagement. At last count, the oﬃcial inflation number is still around sixty percent. Steel Production North America YTD March 2014 (‘000 mt): 29,919 (+0.8%) Steel Production South America YTD March 2014 (‘000 mt): 10,918 (-0.4%)

GDP – latest quarter Consumer Prices latest compared to previous one and forecast and forecast 2014 2014

Industrial Production year-on-year

Steel Production YTD March 2014 in 000 mt and compared to 2013

United States

+0.1% Q1/+2.6%

+1.5% Mar/+1.7%

+3.8% Mar

21,535 (+0.1%)

Canada

+2.9% Q4/+2.3%

+1.5% Mar/+1.5%

+3.6% Feb

3,050 (-6.9%)

Mexico

+0.7% Q4/+3.0%

+3.8% Mar/+4.5%

+0.7% Feb

5,008 (+9.6%)

Brazil

+2.8% Q4/+1.8%

+6.2% Mar/+6.2%

-1.0% Mar

8,237 (+0.4%)

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e Deus ex machina of years past, devaluation of the currency, is not an option as long as they stay in the Eurozone. Elsewhere in Europe, e United Kingdom grew an impressive 2.7 percent in Q1 and an even faster pace is expected when the full impact of the quantitative easing will kick in. e two countries at the heart of Europe’s biggest political crisis, Russia and Ukraine, are also struggling on the economic front. Ukraine needs money and energy fast. Russia could potentially be exposed to harsh economic sanctions by the US or even the European Union. e timing could be calamitous since the GDP in Russia already shrank by 0.5 percent in Q1. Even the Russian government expects no more than 0.5 to 1.1 percent of growth for the year. Steel Production YTD March 2014 in 000mt and compared to last year: European Union (EU 28): 43,831 +6.7%) Other Europe: 9,017 (+2.3%) CIS Countries (6): 26,315 (-2.8%)

GDP-latest quarter compared to previous one and forecast 2014

Consumer Prices latest and forecast 2014

Industrial Production year-on-year

Steel Production YTD March2014 in 000 mt and compared to 2013

Germany

+1.5% Q4/+1.8%

+1.3% Apr/+1.3%

+3.0% Mar

11,283 (+4.3%)

France

+1.2% Q4/+0.9%

+0.6% Mar/+1.0%

-0.8% Mar

4,094 (+2.9%)

Italy

+0.3% Q4/+0.5%

+0.6% Apr/+0.7%

+0.4% Feb

6,632 (+9.4%)

Britain

+3.2% Q1/+2.9%

+1.6% Mar/+1.8%

+2.7% Feb

3,230 (+19.2%)

Spain

+1.6% Q1/+0.9%

-0.1% Mar/+0.3%

+3.2% Mar

3,561 (+8.3%)

Russia

+2.0% Q4*/+0.5%

+7.3% Apr/+6.0%

+1.3% Mar

17,194 (+0.4%)

Turkey

+4.4% Q4*/+2.2%

+9.4% Apr/+8.9%

+4.9% Apr

8,434 (-0.5%) *Y.O.Y.

Asia: China continues to dominate the economic news. At first glance, it is not the best of news but, similar to the US, it is not all bad either. ere seems to be a growing sense of reality and that economic growth of 7 or even 6 percent is the “new normal”. Premier Li pronounced that a yearly growth rate of 7.2 percent is needed to maintain a satisfactory employment level. e Q1 growth rate of 7.4 percent is a bit below earlier expectations and so is the industrial production rate of 8.8 percent in March. Still it is not as bad as some had expected and there are silver linings as well. Fixed asset investment—machinery, land and buildings—edged up 17.6 percent in Q1 just slightly below the 17.9 percent that was achieved in the January/February period. Retail sales were up 12.2 percent y-o-y in March which represents a modest increase from the Jan/Feb period of 11.8 percent. e manufacturing PMI of the China Federation of Logistics and Purchasing (CFLP)ticked up to 50.4 in April slightly

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up from 50.3 in March. e competing Hongkong and Shanghai Banking Corporation (HSBC) PMI, more focused on smaller businesses, came in at 48.3 in April still indicating a contraction. Two other areas of huge concerns remain. First there are the mounting debts of local governments and of state owned companies in the steel—and resource sectors. ere were some defaults this year on trust loans and corporate bonds. en there is the much talked about real estate bubble that may have started to burst. A huge oversupply of housing combined with a shortage readily available credit is producing a downturn that could cause China’s GDP to slip to 6 percent or even less this year. e housing problem is bound to get worse because the central government is determined to cool down the out-of-control credit market. At the same time, a series of “mini stimulus measures” mostly for infrastructure projects were introduced. eir healing eﬀects would come none too soon.

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Europe: On the surface the Eurozone saw some good news in mid-spring. Greece finally returned to the bond market and achieved a yield of just under 5 percent for its heavily oversubscribed issue of five-year bonds. Other crisis countries such as Portugal raised more money for a 2.6 percent yield on its five-year bonds, but it was still a momentous event for Greece to have a successful bond issue at all. e prospects are still daunting, given an expected growth rate of 0.6 percent for this year and the real threat of deflation. Prices were falling by 1.0 percent in the past year. Total public debt still stands at 175 percent of GDP. e European Central Bank (ECB) has to defend itself against charges of not reaching its inflation target of 2.0 percent, while inflation during the spring hovered between 0.5 and 0.7 percent in the Eurozone. is is simply not enough to ward oﬀ the rising and real specter of deflation. Inflation is so low, the nominal GDP in Spain and Italy are shrinking which, in turn, plays havoc with the debt to GDP ratio. Both countries need a minimum of 2 percent inflation for years to come if they want to attain the critical economic growth needed to combat the high unemployment rates.

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Meanwhile, South Korea is turning in a stellar economic performance this year. Exports are flourishing and the trade surplus in April

was $4.46 billion up from $4.17 billion the month before. Cars, mobile phones and memory chips are leading the export boom.

ASIA SNAPSHOT

GDP – latest quarter compared to previous one and forecast 2014

Consumer Prices latest and 2012 number

Industrial Production latest twelve months

Steel Production YTD March 2014 in 000 mt and compared to 2013

China

+5.7% Q3/+7.4%

+2.4% Mar/+2.8%

+8.8% Mar

202,700 (+2.4%)

Japan

+0.7% Q4/+1.2%

+1.6% Mar/+2.6%

+7.0% Mar

27,575 (+3.5%)

South Korea

+3.8% Q1/+3.3%

+1.5% Apr/+1.6%

+2.7% Mar

17,448 (+5.2%)

Taiwan

+1.1% Q1/+3.2%

+1.6% Apr/+1.1%

+3.1% Mar

5,509 (+2.3%)

Malaysia

+5.1% Q4*/+5.1%

+3.5% Mar/+3.2%

+6.8% Feb

India

+3.2% Q4/+6.0%

+8.3% Mar/+8.8%

-1.9% Jan

20,752 (+1.6%)

Australia

+3.2% Q4/+2.7%

+2.9% Q1/+2.8%

+2.8% Q4

1,156 (-2.6%)

Africa / Middle East: Iraq has had a horrifying recent past in political and economic terms, but finally the economic outlook seems to be a lot brighter than only last year. In fact, it could well be that Iraq will be the fastest growing economy in the Middle East this year. e International Monetary Fund projects a growth rate of 6 percent this year. Other analyses, such as one by Emirates NBD bank, put the growth over 8 percent. Oil production has reached 3.2 million barrels per day

*Y.O.Y.

(mbpd) and exports of crude oil have gone up to 2.6 mbpd, bringing in sorely-needed revenues. Because of lower-than-expected oil production last year, Iraq is saddled with a budget deficit of over 6 percent of GDP. e IMF Development Fund for Iraq shrank from $18.0 billion to $6.5 billion in the course of last year. Badly needed spending earmarked for security, social assistance, pensions and aid to the provinces will have to be curtailed—oil boom or not.

GDP-latest quarter compared to previous one and forecast 2014

Industrial Production

Unemployment

South Africa

+3.8% Q4/+2.5%

+1.6% Feb

25.2% Q1

Saudi Arabia

+3.8% (2013)/+4.0%

5.6% (2013)

Egypt

+1.4% Q4*/+2.0%

-8.2% Feb

13.4% Q4

Israel

+3.2% Q4/+3.4%

+2.6% Feb

5.8% Mar

SpecialFocus: Texas America’s history has been a relentless push to the West. California and Texas, the two largest states of the 48 contiguous states, are the anchors of the West and have been in competition with each other for years. California is the more populous and glamorous state and for many decades had a special dynamic that propelled its economy all the way to be the 10th largest in the world as of last year. e heady days are gone and after years of Californian profligacy Texas has emerged as the faster growing and more resilient state. Texas can promise plentiful employment, low cost of living, low taxes and light regulations. Consequently, many businesses transfer

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to the Lone Star State. Unlike most other states, Texas’s economy contracted by just 0.9 percent in 2009 and promptly expanded 4.1 percent in 2010. From 2010 to 2012 only North Dakota grew faster than Texas. Both of these states are the main beneficiaries of the current oil and gas boom brought on by hydraulic fracking. ere is a steady stream of international companies announcing plant openings in Texas. A number of pipe mills, including Argentina based Tenaris and Borusan from Turkey are in various stages of setting up production facilities in the state. A Chinese seamless pipe mill will open in Corpus Christi as early as next year.

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So all is well and Texas is riding into a golden sunset? Not quite, since there are also some drawbacks to the steady growth and some darker sides to the Texas quality of life. Investments in roads and water resources are inadequate. Highways and freeways in Texas are clogged especially in Houston, Dallas and Austin. In their frustration, some companies have openly called time wasted in traﬃc a hidden tax. Groundwater levels are getting very low. San Antonio, the nation’s seventh largest city, draws most of its water from an underground aquifer that began the year at its lowest level since 1950. e state runs a budget surplus but the six biggest cities in Texas had a combined debt burden of $39 billion in 2012. According to the National Education Association the per student expenditure of Texas ranks 49th out of 51 jurisdictions (the District of Colombia included). Texas has the highest percentage of people without health insurance in the US. Houston ranks as one of the most polluted urban areas in the nation; but California still dominates that particular field. e vast majority of the top ten most polluted American cities come from there. Some of these problems can be considered growing pains and other issues are systemic shortfalls. As it pursues its relentless path of growth, Texas will have all opportunities to improve the overall wellbeing of all residents.

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e latest “coup” came in late April when the Texas Enterprise Fund, spearheaded by Governor Rick Perry, convinced Toyota USA to consolidate several business units now located in California and Kentucky at its new, yet to be built headquarters in Plano, Texas, a suburb of Dallas. e move became irresistible when Texas oﬀered Toyota a $40 million incentive to move. California will lose 3,000 jobs and Kentucky will lose about a thousand. is $10,000-a-job bonus was the largest one to date. Last year, Texas spent $6,800 for each of the 1,700 jobs Chevron transferred to Houston and $5,800 for each of the 3,600 jobs Apple Inc. shifted to Austin. e population of Texas has grown to 26 million (still far behind California) and is expected to reach 40 million by 2050. Five of the 10 American cities with the largest population growth in the 12 months ending July 1, 2012 are in Texas. Governor Perry does not get tired pointing to the “Texas Miracle” which operates under the motto “Lower taxes and lighter regulations are eﬀective job creators”. Texans paid 7.5% of their income in state and local taxes in 2011. e state tax burden in California (has state income tax) and Florida (similar to Texas it has no state income tax) was 11.4 percent and 9.2 percent respectively.

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NAFTAat20

One of America’s best ideas…or worst?

wenty years ago, opinions abounded on whether the newly-implemented North American Free Trade Agreement would be a boon to the US economy just as globalization was taking shape as the dominating trend of the future. On one end of the spectrum, business advocates predicted the country would bleed jobs, while on the other end, economists expected a substantial increase in the demand for domestic products. In between, many were simply wary of the potential for unintended consequences while still hopeful that the overall result would be positive. Now with two decades under the agreement’s belt, there’s no longer much need for speculation—the data speak for themselves.

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The road to ratification Diplomatic negotiations for a potential continent-spanning free trade agreement started in 1986, hitting roadblocks in the ensuing years, mostly on the Canadian side. More Canadians voted for the two dominating anti-free trade liberal-leaning political parties in the 1988 national election, but the split in votes allowed the pro-free trade Progressive Conservatives to win a majority in parliament, which later passed the inprogress NAFTA bill. In late 1992, US President George H. W. Bush, Canadian Prime Minister Brian Mulroney and Mexican President Carlos Salinas signed the NAFTA agreement, although the move was more of a ceremonial gesture than anything—the agreement need to be authorized by each nation’s legislative branch. Additional provisions were added once the Canadian Liberal Party Prime Minister Jean Chrétien was elected in 1993. By then, Bill Clinton had been elected US president and before sending the bill to the Senate, he added two agreements of his own: the North American Agreement on Labor Cooperation (NAALC) and the North American Agreement on Environmental Cooperation (NAAEC), to protect workers and the environment and ensure that all NAFTA partners adhered to the US’ environmental practices and regulations. e US House of Representatives approved the bill in November 1993, and it was soon after passed in the Senate by a wide margin. Clinton signed the bill into law a month later, and it went into effect on January 1, 1994. As the goal of the agreement was to eliminate trading and investment barriers between the three countries, tariffs on more than one-half of Mexico’s exports to the US and more than one-third of US exports to Mexico were instantly eliminated on the day NAFTA went into effect; the remainder of all US-Mexico tariffs were set to revoke within 10 years of implementation, aside from agricultural exports to Mexico, which would be phased out within 15 years. Instant effects of the agreement didn’t apply to Canada, as most trade between Canada and the US was already duty-free. One essential component of the agreement was the estab-

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lishment of the CANAMEX Corridor, which would facilitate road transportation between Canada and Mexico, with proposed use for rail, pipeline, and telecommunications infrastructure.

A promise of hope During the 1992 election season, Clinton campaigned on the promise of NAFTA being a wealth-generator for all three countries, as three economies working together would be better than three competitors working for themselves. Although many of the benefits of NAFTA did not become apparent until Clinton left oﬃce almost a decade later, it would appear, based on certain data, that his promise was fulfilled. According to the US Census Bureau, US trade of goods and services with Mexico and Canada jumped from $337 billion in 1993 to $1.2 trillion by 2011. Also by that time, Canada became the leading market for US exports, closely followed by Mexico; together, the two nations account for a third of all US exports. Agricultural exports from the US to Mexico tripled, and aside from those goods and others, such as steel and steel-related products, US exports of services benefited the most substantially, growing from $27 billion in 1993 to $82 billion in 2011, with a trade surplus in that category of $30 billion. In addition to tradable goods and services, investments between countries saw steady increases as well. US investment in its NAFTA partners totaled $327.5 billion in 2009, up 8.8 percent from the previous year. Canada and Mexico’s investment in the US, meanwhile, reached $237.2 billion in 2009,

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up 16.5 percent from the 2008. e US Census Bureau claims that by 2011, Canada and Mexico purchased $428 billion of US manufactured goods. Additionally, NAFTA has integrated manufacturing between the three countries such that the production of cars and electronics, for example, involves parts made in one country and assembled in the other. is connection has inspired businesses to become more efficient, particularly in Mexico, which has in turn added significant wealth to the country as it has affected trade with other countries as well. Mexico’s added wealth has also had the positive side effect of a more stable democracy, brought about by the country’s surging middle class. Most of Mexico’s manufacturing boost has been attributed to maquiladoras—factories that produce exportable goods from imported raw materials. According to government data, average income levels at these factories have increased by 15.5 percent since 1994, allowing for growth in non-border cities. Automotive production—including the manufacturing of auto parts—has also soared in Mexico, especially within the last few years (cars accounted for a quarter of Mexico’s total exports in 2012). Canada’s overall economic benefit has not been as pronounced as Mexico’s, but certain sectors have seen a firm rise in prosperity. For example, manufacturing employment in Canada stayed mostly steady since NAFTA’s implementation, while agricultural trade increased to exports of $381.3 billion and imports of $245.1 billion—resulting in a healthy trade surplus. One of the main criticisms of NAFTA

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A case for disappointment Despite the overall increase in trade between the US, Canada and Mexico since 1994, critics have long pointed out the numerous disappointments, setbacks, and un-

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tation was the Buy American Provision of the American Recovery and Reinvestment Act of 2009, as it appeared to supersede some of the NAFTA legislation. e provision read: “None of the funds appropriated or otherwise made available by the [ARRA] may be used for a project for the construction, alteration, maintenance, or repair of a public building or public work unless all of the iron, steel and manufactured goods used in the project are produced in the United States.” e Canadian government tried to ensure that NAFTA steel is acceptable under the ARRA, and in late 2013, many Canadians, such as the Canadian Manufacturers and Exporters trade organization, supported by Canadian steel producers, argued that their country should enact similar legislation. While public opinion is not typically a major influencing factor in legislation, the Public Citizen’s Global Trade Watch claimed that US public opinion regarding NAFTA is indicative of the agreement’s failures: a 1993 poll found a narrow divide in opinion, and nearly 20 years later, a poll found that 53 percent of Americans should “do whatever is necessary” to “renegotiate or disband” NAFTA. Only 15 percent of the respondents said the US should continue to be a part of the agreement. According to the study, the opposition “cut across party lines, class divisions and education levels.”

Impact on future trade agreements In February 2014, US President Barack Obama vowed to press ahead with stalled efforts to expand trade agreements for the Americas into Asia after a day of talks with the leaders of Mexico and Canada. Obama stressed that the NAFTA partners must maintain their “competitive advantage” on trade, and expanding into the Asia-Pacific region is one of the best ways to achieve that goal. Obama acknowledged opposition— even within his own party—to the proposed Trans-Pacific Partnership. “We’ll get this passed if it’s a good agreement,” Obama said in a news conference after the North America Leaders’ Summit—nicknamed the “ree Amigos” meeting. Although the leaders did not disagree with trade experts who say an upgrade to NAFTA is due to take current globalization

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before it was approved by Congress was that it would drain the US of jobs, particularly in the manufacturing sector where labor costs varied greatly from nation to nation. Ross Perot, a 1992 presidential candidate, was vocal about his opposition to the agreement, famously saying the US would hear a “sucking sound” as factories and jobs were taken away. However, a study by the US Chamber of Commerce shows that trade with Canada and Mexico is responsible for almost 14 million jobs in the US—and almost a third of those are tied to the increase in trade since NAFTA took eﬀect. e US manufacturing sector, meanwhile, added over 800,000 jobs as soon as 1998. at is not to say that millions of manufacturing jobs weren’t lost in the decades since NAFTA took eﬀect—they were, but not necessarily to Mexico or Canada. e inclusion of China into the world market early in the 21st century virtually guaranteed their near-lowest labor costs would lure US-based businesses abroad by the boatloads, which makes those millions of lost jobs inevitable, not attributable to NAFTA. Without NAFTA, outsourcing in the new age of globalization would have been much more devastating to the US economy, lending legitimacy to Clinton’s promise when he signed the bill: “NAFTA means jobs. American jobs, and good-paying American jobs. If I didn’t believe that, I wouldn’t support this agreement.”

intended consequences that resulted from NAFTA’s implementation. Some criticisms stem from simply looking at the given data in another way. For instance, NAFTA critics concede that exports of US services are running a surplus, but the goods trade deficit was almost $100 billion two decades after the agreement’s signing. Other criticisms are based on data that directly contradicts the data of another organization, particularly if the two sources represent different motivations. e union-supported Economic Policy Institute, as an example, has stated that almost 700,000 manufacturing jobs were siphoned off to Mexico by 2011—with no mention of the 800,000 US jobs created according to the business-friendly Chamber of Commerce. As for unintended consequences, the emergence of China, India, and other Asian nations as major players in the global manufacturing sector has put incredible competitive pressure on Mexico, and with it, depressed wage gains on the Mexican side that inevitably spur more illegal immigration to the US. In a recent study commemorating the 20-year anniversary of NAFTA, the Public Citizen’s Global Trade Watch added that “a minimum wage earner in Mexico today can buy 38 percent fewer consumer goods than on the day that NAFTA took effect,” because the cost of basic consumer goods has increased by seven times compared to the pre-NAFTA level—meanwhile, the minimum wage stands at only four times the preNAFTA level. Another hiccup in NAFTA’s implemen-

CoverStory factors into account, they would rather develop new trade agreements. Mexican President Enrique Peña Nieto heralded the “innovative spirit” of NAFTA and argued that new, expanded agreements such as the Trans-Pacific Partnership “are

bound to go beyond and enhance all together the progress that each one of our countries has made.”

Connection, not perfection Despite the many criticisms levied against

Mexican rebar mills: What about NAFTA? Despite the solidarity among nations inspired by the fulfillment of many of NAFTA’s promises (and understanding when faced with its shortcomings), antidumping and countervailing duties are still an option for countries with trade grievances against each other. is year, one of the most talked-about trade cases in the US steel industry is the AD/CVD case against Turkish and Mexican rebar. Charges of unfairly low prices and unreasonably large volumes were given preliminary approval by the US Department of Commerce (DOC) in April, with a final ruling expected this summer. Turkish rebar producers got a slap on the wrist—just under 3 percent margins—whereas the duties calculated for Mexican producers ranged from 10.66-66.70 percent. Even before the ruling in late April, Mexican steel producers implored the DOC to investigate alternative solutions to steel trade cases, in NAFTA’s spirit of cooperation. One proposed solution was to implement suspension agreements, such as those the US has with Korea and Russia. Juan Antonio Reboulen, director of communication for the Mexican National Chamber of the Iron and Steel Industry (CANACERO) told Mexican news outlets in early April: “ere are ways to agree that don’t lead to disputes that last

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NAFTA, the agreement has, at its core, strengthened the bonds between the three partner countries, aligning their complementary interests and shared geopolitical future. Unlike other partnerships that nearly crumbled in the aftermath of the global economic crisis a few years ago—such as the European Union—the US, Canada and Mexico came out the other side with stability intact along with dynamic future prospects. Even the loss of jobs to Mexico—one of NAFTA opponents’ chief complaints—is not a total loss, considering that many economists believe it is better that the jobs are in Mexico rather than China, as Mexico in return buys more of the US’ services and goods. In total, it might be too soon to assess the full impact of NAFTA. More trade agreements will take eﬀect and change the landscape of the partnering nations, and the original agreement’s impact will likely have significant influence on how those agreements take shape. For good or ill, NAFTA’s direct eﬀects changed the lives of 450 million Americans, Mexicans and Canadians—perhaps by year 50 the full scope of its benefits will be felt, outweighing the complaints for good. SO \

12 to 18 months.” After the DOC ruling, CANACERO refuted that Mexico was injuring the US rebar market, using NAFTA as its primary defense. Salvador Quesada, general manager of CANACERO argued in a message to media that since all steel trade with the US is part of NAFTA and total imports from Mexico represent only 4 percent of that domestic market, the injury argument is invalid. “Mexico has a 2-million-ton trade deficit of rebar with the US, amounting to about US$3 billion,” Quesada said. “is reality will surely be considered by the USITC for its final resolution, which will hopefully eliminate these preliminary assessments.” Meanwhile, Raul Gutierrez, co-CEO of DeAcero, went for a more direct approach, writing an editorial in a newspaper in the heart of the rebar import market. e letter, appearing in the Houston Chronicle and slamming the case against his company while urging the US to allow for more diplomatic solutions to trade cases with its NAFTA partners, read as follows: Earlier this year, the leaders of the United States, Mexico and Canada met to mark the 20th anniversary of the North American Free Trade Agreement and to reaﬃrm the importance of NAFTA in building prosperity in the three nations. Unfortunately, the

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Among other steel products, we make rebar, a key ingredient in construction. Some 89 percent of the rebar used in the US is manufactured in the US; imports from Mexico constitute just 4 percent. Counting all steel products, trade statistics show that the US in 2013 ran a surplus with Mexico of about 1 million tons. Another way of saying this is that Mexicans bought $2.7 billion more US-produced steel than Americans bought Mexican-produced steel. You would think, then, that US steel producers would be pretty happy. ey’ve got a big surplus, and they control about ninetenths of the rebar market. Instead, they have filed a complaint with the US International Trade Commission claiming that we are “dumping”—or selling steel at too low a price in the United States. Forget for a second the weirdness of a complaint that something is being sold too cheaply to America’s homebuilders and commercial real estate developers. (Wouldn’t lower prices for ma-

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terials mean that more Americans can afford new homes and thus more homes would get built and more construction workers employed?) Forget also that the claim itself does not come close to meeting the standards for an anti-dumping case. What is truly outrageous is the way the dumping claim violates the spirit of US-Mexican cooperation at the heart of our bipartisan free trade agreement, which was conceived in a Republican administration and enacted in a Democratic one. My company will have to spend thousands, and probably millions, of dollars to defend itself against this specious action. In the end, many Mexicans may lose their jobs—all because some companies want more than the 89 percent market share they already have. Perhaps these US companies should not be blamed. For them, it is only business. But for America’s policy makers—and America’s citizens as a whole—the relationship with Mexico, which has national security, cultural and even moral implications, should be much more. at is why I was particularly dismayed by a letter that was sent recently to US Commerce Secretary Penny Pritzker by 31 US senators, including many who have been strong proponents of free trade, such as Republican Sens. John Cornyn of Texas and Dan Coats of Indiana, home of Purdue University, where my five brothers and I got our degrees. And I frankly could not believe my eyes when I saw Sen. Rob Portman, R-Ohio, a former US trade representative and free-market advocate, among the signers. e letter backed the US companies, stating, “It is essential that we do everything that we can to prevent unfairly traded imports from negatively impacting good-paying American jobs, especially in these challenging times.” e claim of unfairness is not only flat wrong; it is extremely short-sighted. Steel represents 40 percent of the dumping cases before the International Trade Commission. at is, as a US Commerce Department official said last week, “too many cases.” Certainly, there will be disagreements, but the way to resolve them is not through the nuclear bomb of dumping actions but rather through negotiations between friends and partners. And steel is not alone. In late March, US sugar companies filed a petition asking for duties on Mexican sugar because they are allegedly selling their product at too low a price. No wonder, the Financial Times said the other day that the US actions “have led to a flare-up in trade tensions between the North American neighbors.” ere is a simple way to douse the flames. Let’s sit down and settle our differences. Let’s talk first and litigate only in extreme cases. e Mexican rebar industry is willing to find common ground with US producers and the US government. is approach—which would result in what is called a “suspension agreement,” or a deal satisfying both sides—is far less destructive to the US-Mexican relationship than dumping actions. SO \

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promise of NAFTA is not being fulfilled. Far from it. Rather than celebrating and encouraging the free flow of commerce, two of America’s most politically favored sectors—steel and sugar—have decided to file anti-dumping actions against Mexican businesses. e results could be needlessly strained relations between our two countries and harm to both our economies. I know the steel case well because my company is a target. Our firm was started 52 years ago in Monterrey by my father. In the beginning, we had just 10 employees. Now we have 7,200, including about 700 in the United States, where we have factories in Houston and Poplar Bluﬀ, Mo. We’re proud of building a family-owned business in Mexico in the face of global competition, and, on a recent trip to the US, I was surprised and pleased that so many Hispanic-Americans are proud of our accomplishments as well.

SteelScope

Surviving “BuyAmerican” Could the US pipeline boom thrive under imposed standards?

n the last ursday in April, citing thousands of lost jobs due to illegal dumping of foreign steel into US markets, and “continued environmental threats from unsafe pipelines built with foreign steel,” US Representative Rick Nolan (D-Minnesota) announced introduction of e American Pipeline Jobs & Safety Act of 2014 (H.R.4441), which, if passed, would require virtually all energy pipelines built and federally permitted in the United States to use 100 percent American steel. If he gets his way, all steel used in pipeline construction would need to be processed or reprocessed in America. Nolan made the announcement at a press conference surrounded by steelworkers at United Steelworkers District 11 headquarters in Eveleth, Minnesota. “Simply put, this bill requires virtually all new pipeline constructed in America to use materials that are made in America,” Nolan said. “Our national interest requires that American jobs, America’s environment, and the health and safety of American pipeline workers and citizens be protected from the eﬀects of foreign steel illegally dumped into our marketplace to undermine our domestic iron ore and steel industries.” Despite there already being numerous laws requiring the federal government to procure “made in the USA” products for projects using taxpayer funds, he said, they continually allow federally permitted pipelines to be built with imported steel. “America’s steel industry is utilizing only about 75 percent of its production capacity primarily because our manufacturers are being undercut on price,” Nolan said, noting

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that foreign imports of steel pipe more than doubled from 2010 to 2012. “We cannot rebuild America’s economy and infrastructure with foreign steel,” he said. “We must fix this glaring omission in federal law.” If passed, the bill would mark the first time American iron ore and taconite workers and mines would be included in the federal

“Buy American” steel provisions. It would also be the first time private transactions would be subject to American preference laws. Nolan said that since pipeline construction relies on eminent domain, and because the pipelines are constructed beneath US schools, homes and communities, as well as under US farms, rivers, and wetland areas, the public has a right to insist that higher public safety standards be required. e Nolan bill would require the Secretary of Transportation and the Pipeline and Hazardous Materials Safety Administration, better known as the agency responsible for pipeline construction approval, to improve minimum safety standards for steel pipe used in the United States. Volume 7; Issue 3

e new standards, he said, would mandate use of steel produced in US that originates from American-mined iron ore and taconite. However, the use of recycled steel would be permitted. Further, waivers for foreign steel would be permitted only to the extent domestic capacity is not adequate to meet demand in a given year. Nolan said that the federal Pipeline and Hazardous Materials Safety Administration has the regulatory authority to permit pipeline construction, but is severely hampered by inability to inspect foreign steel pipe manufacturing operations, or to independently verify engineering data to assure that all pipe laid within America’s borders is truly safe. e Nolan bill proposes the authorization of up to $10 million annually for the Pipeline and Hazardous Materials Safety Administration to randomly pull and independently test pipeline from stockpiles to be used in the US, rather than be forced to simply accept manufacturers’ safety documentation. In late March, Nolan and other members of the Congressional Steel Caucus said they heard testimony from United Steelworkers Union president Leo Gerard and other Union and industry representatives urging Congress to take action to stop China, India, Russia, and Korea, among others, from illegal dumping. eir arguments in favor for the bill were numerous, and they kicked oﬀ the presentation with data indicating that the US steel industry is the safest, most eﬃcient and environmentally friendly in the world, and its reduced greenhouse gas emissions by 35 percent since 1990. “Foreign steel now accounts for 25 per-

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miles of red tape, but if forging ahead means good-paying jobs for hard working Americans, any politician who is up for election and has pipeline projects in their district may have to work extra hard to push those approvals through. An increase in pipeline projects could also bolster the collection of natural gas, and once the natural gas export market really starts to take off in the US, prices are likely to climb and natural gas exploration efforts would likely increase as well, which means increased rig counts and increased pipe consumption. And then, just when everything settles in, prices will spike because lead times will stretch out as demand starts to outpace production. Prices will go up, once-affordable projects bids will start to be priced out of range, and the once-stable house of cards will start to fall. Granted, these are all hypothetical situations, and at the end of the day, it’s all speculation at best. Sources close to SteelOrbis have confirmed that the bill doesn’t have a single co-sponsor and will likely never leave the committee. “It’s essentially dead on the floor,” said one pipe market source. So rest in peace, American Pipeline Jobs & Safety Act of 2014. We’ll still give you an “A” for effort.

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cent of the entire US market and has more than doubling between 2010 and 2012,” they said. “And the Keystone Pipeline project, which is currently being built with primarily foreign-produced steel piping, has already incurred at least 30 serious spills and accidents.” At current, TransCanada has imported nearly all the steel pipe used for the US. portion of Keystone Phase I from Welspun, a multi-national corporation based in India and Russia-based EVRAZ is scheduled to manufacture about 40 percent of the steel pipeline set for future Keystone construction at its mills located in Canada. USW has also pointed out that substantial amounts of pipeline currently being used in the US are pipes that were originally sourced from Korean or Indian steel but are being reprocessed domestically. Phases I and II of the Keystone Pipeline project, they said, used more than 800,000 tons of Korean-produced steel pipeline. “If this continues, 10 to 12 American

steel pipe mills could be forced to close in the near future, causing a direct job loss of 10,000 and indirect loss of some 50,000 US jobs,” they said. And of course, there’s still the China element. USW said that since the Chinese government annually subsidizes production of more than one billion metric tons of steel, of which 250 million metric tons are in excess, and since much of that subsidized steel is dumped into the US market illegally, it’s not only depressing prices within our domestic market, but throughout the world. Nolan’s bill has been jointly referred to the Transportation and Infrastructure Committee, of which he is a member, and to the Energy and Commerce Committee. Action would likely not come until reauthorization of the Pipeline and Hazardous Materials Safety Administration, which is required to conclude by September 30, 2015. If the bill were to pass, it’s safe to say steel traders would be negatively aﬀected as they stand to lose the most; license data from the US Steel Import Monitoring and Analysis System show that approximately 252,141 mt of oil country goods arrived in the US in April. And that’s not counting the 164,221 mt of line pipe and 84,045 mt of standard pipe the US imported in the same month. Looking closer to home, nearly 50 percent of the nation’s pipelines are more than 50 years old, and many of those lines are fast approaching a need for replacement. Project approval has historically been hindered my

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Strongdemand relentlessobstacles

A roundup of insights from the SteelOrbis 2014 Spring Conference & 70th IREPAS Meeting in Barcelona, Spain, March 30-April 1, with the participation of over 250 executives, including 101 representatives from 47 steel producer companies and 44 representatives from 32 raw material suppliers. Credit restrictions limit pace of steel trade In his welcome address, IREPAS chairman Kim Marti from Spanish steel producer Celsa stated that the long steel industry is still facing the problem of overcapacity, especially in China, though the same issue is now also being observed in Turkey. us, production cuts are still a significant option. Regarding steel trade cases, which are increasingly shaping the flow of steel trade, Marti said the continuation of free trade is unquestionable, though adding that steel producers may need to take measures against unfair trade practices. e Celsa executive stated that credit restrictions are limiting the pace of trade in the steel industry, as the steel business is seen risky by finance providers.

Namik Ekinci: Non-tariff trade barriers undermine steel trade Namık Ekinci, chairman of the Turkish Steel Exporters’ Association, stated that the antidumping duty investigation launched by the US against Turkish rebar imports is not really aimed at winning the case but rather at providing support for US domestic prices. Ekinci said that the hindering of Turkish imports not only aﬀects producers but also the other actors taking part in import operations from ports to logistics companies. Criticizing non-tariﬀ trade barriers, Ekinci said that, in terms of imports coming into a country, it is usual to expect the quality certificate from the importer, but the difficulties, high costs and unreasonable practices involved in obtaining these certificates are undermining free trade.

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Another example of the hampering of free trade, according to Ekinci, is the discussions regarding limiting scrap exports in the EU, while he went on to recall that a similar limitation had previously been implemented in the US, though with the result that scrap prices doubled instead of decreasing as expected.

Global long steel consumption exceeds pre-crisis levels Franc Cardona, the marketing and international aﬀairs director of Spanish steel producer CELSA Group, stated that margins in the long steel product trade are still tight and this necessitates the balancing of supply and demand, as production capacity is growing faster than demand, posing a major challenge for the steel industry. Cardona said that the long-term prospects for long steel are solid, with emerging economies expected to continue to drive Volume 7; Issue 3

long steel demand, as these economies seek to support their urbanization and economic development, while the slower growth of the Chinese economy is perceived as a major risk for the growth of global long steel consumption. Cardona also underlined that global long steel consumption (8.1 percent in 2013) is growing faster than overall global steel consumption (3.1 percent), and that global long steel consumption is already at 143 percent of pre-crisis levels (2007-2008). A cautious recovery in the EU construction sector and strengthening of growth in the US driven by the housing market are positive indicators for long steel consumption, Cardona stated. e continuation of the downward trend in rebar prices with very tight margins is not in line with global demand growth, while the slowdown to just a slight downtrend in steel billet, rebar and wire rod prices in recent months has been caused by a relatively

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CIS billet prices to remain below Turkish billet prices Margarita Zvezda from Russian steel producer Evraz, the chairwoman of the billet suppliers committee, stated that Ukraine and Russia—the largest steel billet suppliers— witnessed stable billet supplies in 2013, with Evraz permanently stopping a plate mill and thus having additional 400,000 mt of steel for exports in the form of square billet, while Ural Steel shutting its open hearth furnace. Zvezda remarked that Turkey is both an exporter and importer of steel billet. However, she said, until last year (2013) Turkey had been a net exporter, though it has become a net importer of steel billet, firstly because Turkish steel billet producers are mainly EAF-based and higher scrap prices harmed these producers’ cost eﬀectiveness, causing them to lose market share in export markets to CIS mills, which are mostly BOF-based and have cheaper iron ore supplies. Secondly, Turkish steel producers have preferred to import cheaper steel billets from

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Scrap suppliers: Strong local demand curbs scrap exports Volume 7; Issue 3

Ioannis Meimaroglu from Helveco Intertrade, chairman of the raw materials suppliers committee, stated that in the first few months of the current year scrap exports from the US and Europe have declined by as much as 30-40 percent year on year, partly due to the harsh winter, but mostly due to the strong demand coming from local US mills. “US suppliers said that, even if scrap prices in the international market reach the level of $400/mt, it will be diﬃcult to compete with the current strength of the domestic market. e same situation has been outlined by European suppliers from Germany, Belgium and Sweden as well.” e substantial decrease in scrap exports from Romania—down to a monthly volume of just 72,000 mt compared to the previously normal monthly volume of 150,000 mt— came as a result of low scrap collection prices. “It seems that scrap availability will continue at Rostov and other Azov Sea ports, especially after the opening of navigation on the rivers (around mid-April), but of course, only if international market prices reach at least the same levels as prices from domestic factories,” Meimaroglu stated. e IREPAS raw materials suppliers committee chairman said that Russian scrap exporters are now facing an important financing problem, as banks are taking serious measures after the events in Crimea and in eastern Ukraine in general. is may lead to new financing conditions for the suppliers and their clients, at least for a period of time until the normalization of the relations between Russia and Ukraine, he remarked. “A new fact, that was underlined by some participants, is that scrap demand has now started to come from countries like Mexico and Egypt, which will further aﬀect the availability of exports from the traditional suppliers,” Meimaroglu said. e chairman of the IREPAS raw material suppliers committee stated that the participants took into consideration the end steel products market, which does not allow steel producers to pay prices higher than a certain level, corresponding to their sales. “A participant said that every time that we achieve scrap supply contracts higher than $400/mt, we are paying back later with con-

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stronger raw material market, he said.

the CIS instead of producing liquid steel to cast steel billets. e IREPAS billet suppliers committee does not foresee any change in this situation in the mid-term, as some CIS billet suppliers are expected to continue sacrificing their margins in order to provide discounts to undercut Turkish steel billet prices. e IREPAS billet suppliers committee chairwoman also evaluated the situation regarding Iran, saying that Iran had been a major player in the Middle Eastern steel billet market until international sanctions were imposed, adding that, if political issues are resolved, it will again become an important steel billet importer. However, she added, this situation is not expected to last long, as Iran is close to becoming self-suﬃcient in terms of steel billet supplies after the commissioning of ongoing steel billet capacity projects. As regards Egypt, Zvezda stated that Egypt has not experienced a genuine recovery in long steel consumption with significant overcapacity being in place, while a big portion of the existing long steel demand is coming from illegal construction sites, a risky situation if the government decides to undertake measures, she said, going on to state that, with the commissioning of the steel billet plant project of Egyptian Steel, the country’s demand for steel billets is foreseen to decline.

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tractual prices down to $330-340/mt. We noticed also that, during the last three years, scrap prices seem to follow similar yearly trends, though price levels have declined each year,” he said.

Traders: Oversupply prevails in steel industry e conference’s traders committee evaluated the market situation stating that the supply-demand imbalance still exists and will continue in the short to medium term, despite quite low capacity utilization levels in Europe, especially in southern Europe. e traders remarked that in China, although some outdated capacities are being closed for environmental purposes, they are being replaced by larger and more advanced mills. Regarding the ongoing antidumping duty cases in the US in relation to Turkish and Mexican rebar, mixed opinions were expressed by traders, with no significant margin anticipated for Turkish rebar suppliers. Traders believe that protectionist practices will continue to be adopted. Traders also looked at the steel market situation in Algeria, where long steel imports are foreseen to decline with the commissioning of new capacities, including the new rebar mill of Turkish steel group Tosyali, which began production June 2013. Lower

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long steel demand in this country will affect Spanish and Italian rebar suppliers negatively, as Algeria is the main export market for southern European long steel mills. Traders also discussed the role of trading companies in a new world where media and information technologies no longer provide any opportunity for traders to act faster than other players in the market. e general opinion is that steel traders are suffering from very slim margins and that they should offer added value in order to survive.

Bhaskar Dutta: Higher steelmaking capacity in MENA reduces import demand Bhaskar Dutta, CEO of the Omani steel and pipe manufacturer Al Jazeera Steel, stated that rebar consumption in the GCC countries is expected to rise to 12 million mt this year, rising from 11.55 million mt in 2013. Among the GCC markets, Saudi Arabia is foreseen to reach seven million mt in terms of rebar demand this year—up from 6.5 million mt, while another major market, the UAE, is expected to increase its rebar consumption to three million mt, as compared to 2.8 million mt last year. However, Dutta said he is expecting rebar sales from Turkey to the GCC to decrease by 500,000 mt this year to one million metric tons, as total rebar production capacity in the

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GCC is anticipated to increase to the level of 18 million mt, up from 16 million mt in 2013. According to the figures presented by Dutta, steelmaking capacity in the Midde East and North Africa (MENA) region via electric arc furnaces is expected to rise by 14.85 million mt in 2013-2014, while total new DRI capacity in the region is anticipated to reach 23.71 million mt in the same period. Among the MENA markets, Iran is the only country where an integrated steelmaking plant is being constructed, with a designed annual capacity of 1.90 million mt. Dutta showed in figures that Turkey has been the leading rebar exporter to the MENA region with annual volumes of 4.6 million mt both in 2012 and 2013, while Ukraine is the main steel billet supplier to the region with 5.5 million mt of billet sales in 2013, rising from 4.5 million mt in 2012. In 2013, Turkey’s steel billet exports to the MENA region declined to 1.1 million mt, down from 2.6 million mt in 2012. Rebar demand not to drop further in Iberian Peninsula In the last session of the conference, Marti said that long steel demand in GCC countries is quite strong as usual, especially in Qatar. Local governments’ infrastructure spending, most importantly on housing, is providing support for higher demand. Stability is foreseen to continue in these countries which have solid budgets. However, he added, some new rebar capacities are coming on stream in the Middle East and some capacity expansions are also being carried out. Marti stated that significant diﬀerences are seen between the north and south of Europe in terms of long steel demand. In Germany, he said, residential construction is supporting long steel demand and in Poland EU funds of €1.6 billion are expected to be spent mostly on infrastructure investments. Long steel demand in Spain and Portugal is not anticipated to decline further after the

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Why freetrade is crucial An exclusive interview with Kim Marti Subirana from Celsa Group, the president of IREPAS at the SteelOrbis Spring 2014 Conference & 70th IREPAS Meeting held on March 30-April 1 in Barcelona. How do you view the demand situation for rebar and wire rod in northern and southern Europe? KM: ere are significant diﬀerences seen between the north and south of Europe in terms of long steel demand. In northern Europe, especially in Germany, demand from residential construction is good and so we expect that demand in northern Europe will increase by two to three percent. Also, Poland is indicating good demand with its infrastructural investments and demand thanks to funds totaling €1.6 billion coming from the EU. So, as regards northern Europe, it can be said that demand is performing well. In the southern part of Europe, we can say that for some regions the situation can be described as optimistic, with long steel demand in Spain and Portugal halting its declining trend. However, the only country in which long steel demand is still experiencing a decrease is Italy and long steel demand in the country may decline by a further 10 percent this year, though some stabilization may finally be seen and there are probably good prospects for growth in 2015. Greece, surprisingly, is foreseen to witness some improvement in long steel demand on the back of certain infrastructure investments.

How do you see the general demand situation in Turkey and GCC countries? KM: ere was a question mark over Turkey until the elections. It seems that after the elections the country will regain stability and that all construction and infrastructure projects will resume and this is good news and so the Turkish domestic market will

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maintain its stability as regards demand. For the GCC, this region seems to be the best place in the world for demand volumes. With all countries in the region assigning a good portion of their budgets for their infrastructure projects and with their populations looking for new cities, new buildings and infrastructure that connects these cities, we think that, with their economic growth, significant rebar consumption is expected in these countries. What do IREPAS participants think about ongoing protective measures? KM: As exporters and global steel market players, we believe that free trade is crucial. Sometimes large tonnage movements or low prices may have devastating eﬀects on local markets and it is true that some governments are attempted to defend their domestic markets. Sometimes it is even understandable that some measures are implemented but as global market players we must say that this approach is not in line with global free trade criteria.

We have observed an increased number of participants at this latest IREPAS event. In your view, what is the reason for such high numbers of participants? KM: ere has been great interest. Also, long steel consumption is expected to improve and there are some topics that needed to be discussed such as antidumping measures, the situation in certain regions due to political developments, etc. IREPAS generates interest with its program and event design. Location is also important with the event held this time in Barcelona, which is such a beautiful city. In the future, we are sure that IREPAS will continue to expand. It is good to come together every six months. Many things happen within this timeframe and it is good to sit down with all our colleagues globally and view the overall picture of the steel market.

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severe contraction in past years, though Italian long steel demand may decrease by a further 10 percent this year, Marti warned. Greece, surprisingly, is foreseen to witness some improvement in long steel demand, with some infrastructure investments. After the municipal elections last Sunday, the Turkish economy is expected to regain stability, the IREPAS chairman said, adding that Turkish rebar producers are not expecting high antidumping margins as a result of the ongoing trade case in the US against Turkish rebar. To conclude, Marti stated that financial restrictions are limiting opportunities for rebar and wire rod producers, while providing some opportunities for traders. SO \

Interview

of the

Survival fittest

SteelOrbis Istanbul discusses how the role of the steel trader is evolving with Dirk Weyrather, managing director for emerging markets at C&F International.

&F International is a fairly new name in the international steel trade business, although it is in fact an old company with quite a long history, most recently as the former Coutinho and Ferrostaal, which was established as a joint venture between Ferrostaal Metals, the steel trading arm of Ferrostaal AG, and Hamburgbased international steel trading company CCC Steel. e longer history of CCC Steel dates back to 1895 and the company emerged as a trading operator active in the worldwide trade of steel and other products. Ferrostaal had been created in the late 1940s. e two companies merged in 2008. Ferrostaal AG, the holding company of Ferrostaal, had decided to sell oﬀ the assets of the steel trading activity called Ferrostaal Metals. So CCC Steel, Ferrostaal Metals and Grupo Villacero from Mexico came together to form Coutinho & Ferrostaal. On January 1, 2008 the company called Coutinho & Ferrostaal started operations and as of late last year changed the company name to C&F International, since two of the shareholders of the company, namely CCC Steel and Ferrostaal Metals, sold their stakes to Grupo Villacero. e new name will better reflect the long-established experience of Coutinho & Ferrostaal, which was already being abbreviated as C&F and the company has also adopted a similar look in brand colors, etc. C&F has separated the world into sectors, such as Europe and the Middle East as one major column of its business, North America as a second column comprising the US and Canada, and also the so-called emerging markets, comprising of Latin America, Africa and Asia.

What are the main challenges in the current steel trading market? DW: e main challenges for steel trading 46

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companies are the very widespread information possibilities that we are seeing in the market. Traders’ knowhow, which is used to be quite essential in the trading business in the past, has now lost its influence because everything has become so visible and every piece of information is quickly spread and widely available, even as compared to a few years ago. And this information structure may now cause overreactions from suppliers or buyers from time to time, thereby making life more diﬃcult for both producers, customers and also for the international trading community in particular. e services that steel trading companies are oﬀering, namely, to provide the right material at the right point in time, and to provide additional services like shipping and financial services, are sometimes disappearing too much into the background. In fact, when the market moves more quickly than usual, with strong price increases for example, a customer may end up in a challenging position, with the supplier failing to keep its previous promises for lower prices and seeking better opportunities elsewhere, and in these moments the exact role of reliable international trading companies can clearly be seen.

For a quite some while now, traders are said to be working with very tight margins. How is your company faring? DW: Tight margins are also the outcome of this information overkill. As soon as a deal has been fixed between a customer and a supplier in a market, information about this deal surfaces so quickly in another market through the media that the deal may not Volume 7; Issue 3

even be true yet. is may attract the wrong people to try to attack the supplier or the customer and to try to get a share in the deal as well. So times are a bit dangerous.

Iron ore and coking coal prices have been much lower since last year as compared to the levels of a few years ago. And further price declines are expected in the years to come with new capacities coming on stream. Do you think lower raw material prices will bring more room for higher margins?

DW: I think it is actually the other way around. I think it will rather put further pressure on margins. is is because we do have an oversupply situation at the moment, whereas two or three years ago in particular we had an acute shortage of iron ore and that imbalance has not yet been fully resolved. We have seen iron ore prices declining to levels of $112-$115/mt CIF China, down from above $140/mt CIF. Before those higher levels, iron ore prices used to hover at levels of about $80-$90/mt a few years further back. With additional iron ore capacities or excavation capacities starting up, certain trading companies have established business units in this field as well. I personally believe that margins will remain under pressure. The steel market has seemed more stable in recent years. What do you think is the reason for this, especially in relation to raw material prices?

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more stability to the raw material side, which may then be reflected in steel prices. Until all this happens, we will see the steel industry remaining very fragmented. As known and discussed already, the iron ore market is basically controlled by three big suppliers. However, new players are also emerging in the market. In particular, India has reappeared in the iron ore market. So we may only hope that there will be a little bit more organization seen in the marketing of raw materials and steel products. But the steel industry seems to remain a very fragmented sector, particularly on the steel production side.

You mentioned Ukraine; do you buy steel products from Ukraine, HRC or billet or both? DW: e volume of our purchases from Ukraine—mostly flat products—has gone down very drastically over the past couple of years, since China is unbeatable in many markets pricewise. Besides, in terms of quality, China has improved so much in the past five to six years. You can see Chinese products in every market in many diﬀerent mar-

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ket segments. Ukrainian products are having diﬃculty in competing with Chinese materials in cost eﬀectiveness. at is why our purchases from this country have been reduced. We do actively entertain sales activities in Ukraine and in Russia, for certain steel products which see large demand but are low in supply.

Are there any flourishing markets out there? DW: We do see some markets with quite some activity in some parts of Latin America and we see the same in some parts of Africa. However, all these activities are based on low pricing, with low quality requirements. We see continuing good demand in Brazil, although prices are now under pressure. e Brazilian steel industry is actively fighting against imports with strategic pricing policies. In some parts of Southeast Asia there is also continuing good demand, but also for low priced products. ese areas are now mostly nourished by China, with South Korea and Japan losing market shares. SO\

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Interview

DW: Currently, the volatility is not as high as it used to be in the past, both in steel and raw material prices. A certain degree of volatility will exist, because there is limited availability of raw materials, for scrap and iron ore—although in iron ore we are heading to an oversupply situation. We may see times when the current capacities will not be sufficient, and it may occur depending on how good the steel market situation will develop. e steel market will be influenced by developments in eastern Europe, particularly the Ukraine crisis, and also by what is going to happen in the Far East, and in China. For example, will the Chinese government try to influence steel capacities to such an extent as to limit steel production, which they have been doing for years, though less in the recent two to three years? I believe that there is a need for the steel industry to consolidate. If the steel industry consolidates eventually, this will also have an impact on the raw material side. Consolidation would bring more controlled sales and marketing efforts. ese would also affect raw material consumption and could bring

Import/ExportRound-up

Import/Export Round-up

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Volume 7; Issue 3

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Interview

Growingpastthe peak

Han Weidong, President Assistant of Chinese pipe manufacturer the Youfa Group, discusses how the slowdown in Chinese production is affecting the pipe market with SteelOrbis Shanghai.

he Youfa Group is one of the top 500 enterprises in China. e company’s products (sold under the YOFA brand name) have been widely used in a number of key projects: the ree Gorges Project, the Capital International Airport, Shanghai Pudong International Airport, the 2008 Olympic Games venues, the 2010 Shanghai world expo exhibition hall and other national major projects. eir products are also exported to more than 50 countries such as the EU, the United States, Australia, Southeast Asia, the Middle East, etc. YOFA steel pipe’s comprehensive domestic market share is more than 15 percent. Though Chinese finished steel prices have seen some rebound recently, the prices of finished steel have still been at historical low levels. What’s your point of view toward the prospect for the finished steel prices? Will the rebound continue? What’s your opinion on the long-term trend of Chinese steel industry? HW: China’s steel industry is in an overall oversupply situation now. For instance, in Q1 2014, China’s output of crude steel amounted to 202.7 million mt, up 2.37 percent year-on-year, with the growth down 6.73 percentage points compared to the same period of last year. e average daily crude steel output totaled 2.25 million mt, equaling to an annual output of 822 million mt. Also in the first quarter, China’s crude steel output accounted for 49.97 percent of global crude steel output, down 0.03 percentage points year-on-year. China’s consumption for steel has been at the peak arc zone, with very slow growth, if there is any. Under these conditions, the rebound of finished steel prices will always be temporary and periodical. Moreover, with the gradual

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declines of iron ore prices, the finished steel prices will lose support from cost side, thus it will also see drops to some extent.

Over the past year, it was not steelmakers alone who faced difficulties, but also traders. What effects on Chinese steel trading have you experienced? HW: With the development of the steel industry in China, both steelmakers and steel traders face severe competition and need to upgrade their business model. Steelmakers are increasing their direct sales rate, trying to approach downstream users closely. At the same time, traders face the problem of fund shortages, pushing them to adjust their business pattern.

China’s consumption for steel has been at the peak arc zone, with very slow growth, if there is any.

Han Weidong

When facing the overly sluggish domestic steel trading industry, what strategy does your company take? With the gradual declines in consumption of finished steel, market participants believe that Chinese steel exports will see an overall rising trend; do you agree with this? HW: Youfa Steel Pipe has taken advantage of rapid growth over the past few years. Currently, we have production capacity of over 10 million mt, becoming the number one producer in China’s steel pipe industry. We upgrade products, develop quality improvement and marketing enhancement to speed up sales and enhance our company’s competitiveness. As for steel exports, volumes have reached a certain high level. For example, in Volume 7; Issue 3

Q1 China exported 18.33 million mt finished steel, up 27 percent year-on-year, while we think that the growth of exports will slow down in the future.

Market analysts in the raw materials industry believe that global iron ore prices will see an overall declining trend due to increasing production capacity around the world. Do you agree? HW: We agree with that iron ore prices will see a decreasing trend in the future due to the slow growth of steel production capacity and iron ore entering high production level, which will lead to oversupply in iron ore. China’s demand for iron ore has entered a period of low-speed growth following its high-speed growth in previous years, while the country’s demand for the raw material may increase at a year-on-year rate of 3-4 percent over the long term. According to market insiders, China’s demand for iron ore will increase by 32 million mt in 2014, while domestic iron ore output will rise by 31.2 million mt during the given year, limiting any increase in demand for imported iron ore. Based on demand and supply curve, oversupply will finally result in a decline in prices. Meanwhile, the iron ore producing giants will lose their controlling power on prices due to more and more iron ore producers entering the market. In addition, more and more funds will be brought into iron ore production under the standard mode of financing, which could intensify competition among iron ore enterprises and help the whole industry develop in a positive direcSO tion. \ Full interview available at SteelOrbis.com

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SupplyLines

MERGERS & ACQUISITIONS

Many in the United States are sharing a positive outlook on the economy. Not surprisingly, businesses have been working to enhance market share and increase partnerships as a means of bolstering profitability. Vale and Qatar Steel sign iron ore pellet supply contract In early March, Qatar Steel announced it signed an iron ore pellets supply contract with Brazilian mining giant Vale. e contract’s duration is three years, with the option of renewing for another three years at the first period’s conclusion. e contract was signed by Ali bin Hassan Al Muraikhi, Managing Director and General Manager of Qatar Steel and Jose Martins, Executive Director of Vale, at Qatar Steel’s head oﬃce in Doha.

Indian and Mexican steelmakers sign $500 million investment agreement India-based Preet Machines Limited and Monterrey’s Planeación Mantenimiento y Proyectos (Grupo PMP) announced in late March investments of US$500 million in 10 new mini-mills in the next five years. Possible locations include Sonora, Chihuahua, Oaxaca, Guerrero, Baja California Sur, Tabasco, and Quintana Roo. Just one week prior, the two companies signed an agreement initiating the alliance. “We hope that the project can grow in Mexico to about 20 to 50 mini-mills,” said Porfirio González, president of PMP.

Northwest Pipe divests its OCTG assets During the first week of April, US-based Northwest Pipe Company announced that it had sold all of its oil country tubular goods (OCTG) assets to Centric Pipe, LLC, an aﬃliate of Dallas-based OCTG supplier SB International, Inc., for $42.7 million. Northwest Pipe will retain ownership of, and lease to Centric Pipe its Houston, Texas real property. Centric Pipe will have the option to purchase the Houston real property at a later date. “is divestiture will enable us to increase our focus on growing our core Water Transmission business, while placing these assets in the hands of an experienced OCTG company with global relationships. “is announcement in no way aﬀects the company’s commitment to and continued investment in our Atchison, Kansas line pipe facility which is on schedule to complete a major expansion project,” said Scott Montross, Northwest Pipe president and CEO. Canada-based Reliance Resources to acquire American Iron Also in April, Toronto-based Reliance Resources Limited announced that it entered into an agreement to acquire Minnesotabased company American Iron Corp., an iron ore-focused exploration and development company, seeking to acquire projects

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having potential for low pre-development capital expenditure and significant exploration potential in the United States. American Iron agreed to cause its shareholders to sell all of their shares of American Iron to Reliance. In return, Reliance has agreed to acquire the American Iron Shares by issuing a total of 10 million Reliance common shares. e transaction was expected to close by the end of April. Immediately upon closing of the transaction, American Iron shareholders will hold 6 million Reliance shares representing approximately 19.7 percent of the issued Reliance shares.

Vale completes stake sale in its logistics division Brazilian miner Vale announced in mid-April that it concluded the transaction announced in September 2013, transferring 20 percent of the total capital of its logistics division Valor da Logistica Integrada (VLI) to Japan-based Mitsui & Co., Ltd. (Mitsui). e transaction totaled R$1.5 billion ($673.4 million) and 15.9 percent to the investment fund of the Fundo de Garantia do Tempo de Serviço. FGTS, whose assets are managed by the Brazilian bank Caixa Econômica Federal, for R$1.2 billion ($583.7 million).

Steel Technologies acquires Indiana steel processor Louisville, Kentucky-based Steel Technologies LLC announced in late April its agreement to purchase Stripco LLC, Stripco Sales Company, LLC, and Stripco Express Inc. (collectively, “Stripco”). Stripco is a premier value-added steel processor with operations in Mishawaka, Indiana. e transaction has received governmental approval and was expected to close in early May. Formed in 1984, Stripco has continued to expand its value-added processes, which include pickling, slitting, cold rolling, annealing, oscillating, and edging. Stripco was first in the US to install the Eco Pickling System (“EPS”), an environmentally friendly and superior quality pickle line that produces a clean, consistent surface. Stripco processes and ships over 100,000 tons with revenue exceeding $100 million annually. e Stripco acquisition will expand Steel Technologies’ North American platform to 25 facilities, including joint-venture operations, located throughout the US, Canada and Mexico. Steel Technologies is owned as a 50-50 joint venture between Nucor Corporation and Mitsui & Co. (USA), Inc.

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SupplyLines

CAPACITY UPDATES

The US economy is continuing to show signs of strong recovery, and with that, companies are starting to loosen their purse strings, ramp up production, and in some cases, expand in hopes of better servicing their clientele.

Borusan Mannesmann to begin commercial OCTG production in US in May In mid-March, Turkish steel pipe producer Borusan Mannesmann told SteelOrbis that the company’s US oil country tubular goods (OCTG) investment in Houston, Texas remained on track within the projected schedule, with the threading facility already being commissioned. e company said that the trial runs on pipe production had started and that they expected to start commercial production in May, with all facilities ramping up to full capacity in the third quarter of the current year. Borusan Mannesmann announced in late 2012 that, in response to the significant growth of shale gas production in North America, it decided to set up an OCTG pipe facility with an investment of $150 million and an annual output capacity of 300,000 mt to meet the demand driven by shale gas and oil production. Borusan Mannesmann also said that the company has made no major changes in its sales and shipment plans, since it expects no negative impact from the US’ antidumping duty investigation regarding OCTG imports from nine countries, adding that the preliminary results were in line with their expectations. Borusan Mannesmann’s OCTG sales prices in the US stand at quite good levels given the market conditions. e company stated that, independently of the final results of the antidumping investigation, OCTG sales from Turkey to the US will decrease when its Houston facility starts to oﬀer services to the whole US market. In February this year, the US Department of Commerce (US DOC) announced the preliminary results of its antidumping duty investigation regarding OCTG imports from India, the Philippines, Saudi Arabia, Taiwan, ailand, Turkey, Ukraine, and Vietnam, issuing a negative preliminary determination for OCTG imports from South Korea and calculating a zero preliminary dumping margin for Borusan Mannesmann. e final results of the investigation are expected to be announced in July. ArcelorMittal invests in automotive steel production in Brazil Also in mid-March, ArcelorMittal announced it would be investing around $15 million in the production of advanced high strength steel at its Vega do Sul flat steel rolling mill in the state of Santa Catarina in southern Brazil. e plant’s existing production lines will be equipped to produce Usibor, a press-hardened boron steel with an aluminum-silicon coating used mainly in the automotive industry. Using Usibor allows manufacturers to create lighter, safer and more environmentally-

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friendly vehicles at an aﬀordable cost. With a strength of 1,500 MPa after hot-stamping, Usibor is one of the most resistant steels used in automotive applications. Usibor has been imported from ArcelorMittal plants in Europe into Brazil since 2012, while production of Usibor at ArcelorMittal Vega do Sul is due to start in the second quarter of 2015. Hot rolled coils will continue to be produced at ArcelorMittal Tubarão in Espírito Santo, Brazil, and the patented aluminum-silicon coating will be applied at ArcelorMittal Vega do Sul. ArcelorMittal’s $15 million investment is in line with the Brazilian government’s stimulus program, which seeks to encourage auto makers to invest in the Brazilian automotive industry and to produce more eﬃcient, safer, and technology-advanced vehicles.

ThyssenKrupp opens new $15 million coil processing facility in Alabama Toward the end of March, yssenKrupp Materials NA, Inc. opened a 100,000 square-foot carbon, stainless and aluminum coil processing and distribution service center in Woodstock, Alabama. TKMNA invested more than $15 million in the facility, just outside of the Birmingham-metropolitan area, and at that point, employed 20 full-time positions. At full capacity, the facility will create nearly 45 full-time jobs.e new facility processes and distributes carbon steel, stainless steel and aluminum coil for TKMNA’s customers across the southern United States. yssenKrupp Steel Services and Ken-Mac Metals, both divisions of TKMNA, occupy the facility. Currently, two cut-to-length lines and one 72-inch wide slitter process material through the facility. Poised for future growth, TKMNA’s investment includes a surrounding property which will allow the facility to expand up to 250,000 square feet.

Mechel temporarily halts operations at US coking coal mine At the end of April, Russian mining and metal company Mechel announced the temporary halting of mining at Mechel Bluestone in West Virginia, US, which is part of the company’s mining division. Due to unfavorable market conditions, mining operations were temporarily halted at all of Mechel Bluestone’s mines and open pits. Some of the company’s washing facilities will continue operating to meet the company’s contractual obligations. Mechel pointed out that spot prices for coking coal are at their minimum since 2007, which makes coal production at Mechel Bluestone unprofitable. e company will make the decision to relaunch SO \ production depending on the market situation.

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Whensteelattacks

Whensteel

attacks

hile industrial accidents are a tragic, yet not entirely uncommon part of running a steel mill, there have been an inordinate number and variety of disasters in recent months. Whether the frequency is coincidental or indicative of widespread safety failures is not known, but either way, mill employees might want to invest in some Kevlar-lined uniforms soon. Liquid steel spill kills melt shop worker A worker at Arkansas Steel Associates was killed in February when a ladle in the plant’s melt shop accidently spilled an estimated 38 tons of liquid steel. e victim’s name and details of the accident were not released to the public.

Fire breaks out at Chicago steel plant Chicago Fire Department Chief Juan Hernandez said a March fire at National Processing Company started in an oil container and “self-vented” through holes in the roof possibly created by small explosions. Workers were inside the plant at the time of the fire, but no injuries were reported. However, the fire alarm was quickly elevated to a still-andbox alarm with a Level 1 hazardous materials response, with firefighters using foam as well as water to battle flames.

Georgetown wire rod mill shut down from oil spill ArcelorMittal USA temporarily shut down its wire rod mill in Georgetown, South Carolina in March due to an oil spill that was detected in the Sampit River. Operations at the wire rod mill were suspended after the mill was found to be the source of the spill. Roof collapses at Michigan US Steel plant e roof of US Steel’s Ecorse, Michigan facility collapsed in March when a 200-footlong, 20-foot-wide pipe that transfers steelmaking waste broke free while a contractor was cleaning it. No injuries were reported, but the Ecorse plant is the location where

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one worker was killed and two others injured in an explosion in December 2013.

Ammonia leak reported at Essar Steel Algoma An ammonia leak at Ontario, Canadabased Essar Steel Algoma in April was determined to not “pose any immediate risk,” according to the company’s communications manager, who explained that a soil berm around the perimeter of the ammonia tank at the plant had been constructed years ago to contain any of the fluid in the event of a leak. Additionally, the diluted ammonia did not pose an airborne risk, according to the company, as it was already housed in an open air tank. Collection efforts indicated that the leaking fluid would not be able to find its way into the St. Marys River watershed. Bag house catches fire at Ohio steel fabricator Fire crews responded to a two-alarm fire at Clermont Steel Fabricators in Batavia Township, Ohio in April; officials indicated the fire began in the facility’s bag house. No injuries were reported and it was unclear how operations would be affected. e cause of the fire was still under investigation. Oil storage tank ignites at AK Steel’s Middletown plant A fire broke out at AK Steel’s Middletown, Ohio mill in April. Authorities initially believed the fire started with oil in a storage tanker, but the cause was still under investigation. One employee was reportedly inside the building but made it out safely. No other injuries were reported, and the company indicated that they did not anticipate any impact on the plant’s production.

Injuries reported at former mill demolition site In early May, according to local reports, eight people involved in demolition work at the former Bethlehem Steel Plant in Sparrows Point, Maryland were injured after a Volume 7; Issue 3

building collapsed on them. Of the eight, three reportedly had “critical injuries.” Investigators from the Maryland Occupational Safety and Health could not comment on the ongoing investigation of the collapse. e mill was shuttered in 2012, and in March, a controlled implosion of the Basic Oxygen Furnace shop building caused a loud boom.

Transformer explodes at Nucor Auburn Emergency responders were dispatched in mid-May to Nucor Steel in Auburn, New York following reports of a transformer explosion; firefighters were able to secure the substation’s electrical power before extinguishing the fire with dry chemicals to prevent further damage. According to authorities, the damage was contained to the outdoor components of the substation, with no structural damage to the main steelmaking facility. Additionally, no injuries were reported.

Chemical fumes spur evacuation at Republic Steel HAZMAT teams and the Lorain Fire Department were dispatched to Lorain, Ohiobased Republic Steel in mid-May after chemical fumes led to a plant evacuation. In a statement, the company identified the location of the aﬀected area as one that was being prepared for expansion. Employees and contractors were evacuated at the first notice of chemical fumes—one person exposed to the fumes was treated at the scene.e incident caused no damage to the plant and it did not interrupt operations. Explosion rocks Gerdau’s Tennessee mill A May 15 explosion at Gerdau’s Knoxville, Tennessee mill injured six workers, including one who was reportedly critically burned. Investigators were trying to determine the cause of the explosion, and in a statement, Gerdau said: “e company is working with the proper authorities to determine the root cause of the incident.” SO \

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Coney Island, New York

n the heyday of Coney Island’s Luna Park early in the 20th century, the amusement park built a wooden roller coaster—underbolt—that thrilled park goers for almost sixty years. But in 1982 the coaster, built in 1925, was declared too old to continue on, and it was scrapped. But the days of underbolt were not over—in June 2013, park oﬃcials announced that a new all-steel roller coaster would be constructed to carry on the underbolt name. Italian designer and manufacturer Zamperla was tasked with building the new $10 million coaster, which is the first custom steel rollercoaster in Coney Island since the debut of the Cyclone in 1927. e ride will feature over 2,000 feet (610 meters) of track, a top speed of 65 miles per hours, a top height of 125 feet (38 meters), plus a 90-degree vertical drop, five inversions (upside-down loops), a 100-foot loop and zero-gravity roll along with dives, hills and a corkscrew. e entire ride lasts around two minutes. On March 9, 2014, the first ship carrying pre-fabricated sections of the coaster arrived from Italy and Slovakia—where the pieces were constructed—with many more shipments to follow. Although the coaster was intended to open on Memorial Day weekend, the last reports indicated the opening had been pushed back to May 31 after inclement weather slowed the construction process. Other obstacles included the unpredictability of the pre-fabricated pieces and the incredibly nar-

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row work site—the coaster is only 48 feet wide and 800 feet long, situated next to the B & B Carousel, an antique merry-go-round that reopened in the summer of 2013 after extensive restoration. For the next several weeks after shipment, construction workers, engineers and electricians worked tirelessly all day arrange over 200 support structures in place and aﬃx 77 sections of track. At the completion of construction, close to 2,600 steel bolts will have been used to attach the track sections, which average at 38 feet long and weigh up to

12,000 pounds (6 net tons) each. No welding was used in the structure’s construction. One of the major features that distinguishes underbolt from other rides is that its nine-passenger cars have three seats across instead of two or four, to accommodate “different family compositions” according to Zamperla. Zamperla, based in Altavilla Vicentina, Italy, is the majority shareholder of Central Amusement International, the company that runs Luna Park. Zamperla is a family-owned operation, with rollercoaster design and manufacturing credits around the world, including Russia, Iraq and China. Clients include Disney and Six Flags. e cost of the ride will be $10 per perVolume 7; Issue 3

son, but that’s more than worth two minutes of non-stop twists, turns and loops. And whether underbolt opens as scheduled at the end of May, or is delayed further, there is no doubt among regular patrons of Coney Island that the coaster will be the must-see attraction of the summer. Already, locals have gushed over the plans. “Bravo to fellow-Brooklynite and New York City EDC President Seth Pinsky and to CAI for ‘launching’ the eﬀort to bring the underbolt Roller Coaster back to Coney Island at its original site,” said Brooklyn Borough President Marty Markowitz. “anks to the underbolt’s return, all of the other exciting new additions to Coney Island and of course its trademark attitude, Coney Island truly is ‘America’s playground’ and the trip to Coney Island is a ‘ride’ worth taking for families all over New York City and beyond.” e opening of underbolt has added significance as well, coming after the substantial damage Coney Island suﬀered during Hurricane Sandy in 2012. Luna Park didn’t reopen until the following March. City Council Member Domenic M. Recchia Jr. chimed in: “With the coming launch of this coaster, the new Steeplechase Plaza, the renovated Parachute Jump, as well as the thousands of new jobs being created in the neighborhood, there’s plenty of good news to go around. anks to the hard work of our local businesses and the EDC, it’s clear that Coney Island is coming back stronger SO \ and better than ever.”

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Thunderbolt

TradeLawWatch

US whistleblower statute aims to combat schemes to evade AD/CVD duties

n everyday parlance, “transshipment” refers to the movement of goods from their place of origin—through a third country—before arrival at their ultimate destination. Under US law, there is nothing illegal about transshipping goods through an intermediate country as long as the correct country of origin for the goods is reported to US Customs and Border Protection (CBP) at the time of entry into the United States. However, when transshipment is used as a means to conceal the goods’ actual country of origin in order to evade the payment of duties under an antidumping (AD) or countervailing duty (CVD) order, then transshipment becomes part of a fraudulent scheme involving intentional false statements made to CBP about the true origin of the goods. Under these circumstances, transshipment becomes an illegal activity. US manufacturers who have filed successful trade actions have taken several diﬀerent approaches to address illegal transshipment. Confidential e-allegations can be filed with CBP where factual information is alleged regarding a specific transshipment, but this type of information is not generally available to US manufacturers. US companies also can request that the US Department of Commerce (Commerce) conduct an anticircumvention inquiry if goods subject to underlying AD and CVD orders are shipped to a third country where slight alterations or minor processing is done to the product before it is delivered to the United States. In cases where Commerce finds circumvention, the goods are manipulated in some way in the third country but not suﬃciently to change the country of origin to the third country, and consequently, the goods are subject to the assessment of AD and/or CVD duties. However, this type of investigation by Commerce does not address the scenario where a product subject to an AD or CVD order is produced in the subject country (perhaps even by the same foreign mills who participated in the original investigation and

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who face significant dumping or subsidy margins) but the product is shipped to a broker or agent in a third country, where the country of origin of the goods is changed to claim that the product was made in the third country. ere is no further processing done in the third country, just re-labeling, re-packing, or simply new or altered documentation. en when the goods arrive in the United States from the third country, the entry documentation presented to CBP states that the products were made in the third country and, thus, are not subject to AD or CVD duties. It is often diﬃcult if not impossible to prove that those involved in the transshipment scheme actually altered the documents to execute the scheme in the third country. Moreover, the appropriate enforcement mechanism or agency to prevent transshipment schemes is not always identifiable. In response, US industries have gone so far as to lobby Congress to enact legislation to address such illegal transshipment schemes. Amidst this conundrum, it appears that domestic industries and the US Government have discovered a new way to address illegal transshipments, and it comes in the form of a law that involves whistleblowers. The False Claims Act and transshipping e False Claims Act (or FCA) has been on the books for over 150 years. Nicknamed “the Lincoln Law” for its Civil War origins, the FCA allows the Federal Government to recover treble damages (just like the antitrust laws) plus additional penalties against anyone who knowingly makes a false claim to the US Government for payment. e Federal Government can sue on its own, but typically FCA lawsuits involve a private party—or whistleblower—who stands to gain up to 30 percent of whatever proceeds are collected in damages and penalties. Since a change to the law in 1986, the Government and whistleblowers have collected over $35 billion from FCA lawsuits. Who can be a whistleblower? In FCA lawsuits, there are a few hurdles to clear. A Volume 7; Issue 3

whistleblower in an FCA lawsuit cannot provide information that is already public. at is, if news articles or government publications already detail the specifics of the transshipment scheme, then the whistleblower will not be able to participate or take his or her share of the proceeds. Similarly, the whistleblower has to be the original source of the information. If one whistleblower has already come forth with information to the US Government, subsequent whistleblowers making the same allegations cannot be involved in the FCA lawsuit or share in any eventual recovery. In the transshipment context, the alleged false claim under the FCA is made by the US importer to CBP by fraudulently claiming that the products shipped to the United States are made in a third country, rather than the country where the goods were actually manufactured. In recent suits, the US Department of Justice (“Justice”) has argued on behalf of the Government that failing to identify a product’s actual country of origin to CBP and, thus, evading the payment of applicable AD or CVD duties, is a false claim in violation of the FCA.

$1.1 million transshipment settlement in FCA suit and perhaps more to come On November 14, 2013, Ohio-based Basco Manufacturing Company (Basco), agreed to a $1.1 million settlement with Justice in an FCA lawsuit that alleges Basco, along with 20 other companies, conspired to transship merchandise and evade AD and CVD duties on aluminum extrusions made in China. Specifically, the alleged conspiracy involved a number of US companies who purchased aluminum extrusions from a Chinese manufacturer. After Commerce issued AD and CVD orders in 2010 on aluminum extrusions from China, the Chinese manufacturer started to illegally transship the extrusions through Malaysia before they entered the United States at the port of Jacksonville, Florida. e conspiracy allegedly originated at a March 2011 meeting between

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TradeLawWatch

one of the defendants, a US importer, and representatives of the Chinese manufacturer. A whistleblower brought this scheme to the attention of the Federal Government. Justice then took that information and filed a lawsuit alleging a wide-ranging conspiracy by US companies that purchased aluminum extrusions from China. e suit was filed under the FCA in the US District Court for the Middle District of Florida by both Justice and the whistleblower. e whistleblower is the CEO of a US company which helps find foreign sources of aluminum extrusions for US companies. e whistleblower stands to receive 30 percent of whatever damages or settlement amounts are reached in the case—a key provision of the FCA. According to the suit, Basco violated the False Claims Act and evaded the payment of AD and CVD duties on aluminum extrusions manufactured in China but transshipped through Malaysia. As noted earlier, Basco has settled the suit with a payment of $1.1 million. However, the other defendants—a collection of US importers, a logistics company based in Hong Kong, Chinese manufacturers of the aluminum extrusions, sales agents based in the United States, and others—are still defending the lawsuit in Federal Court in Jacksonville. Interestingly, Justice has also named “John Doe Companies,” or as yet unidentified transshippers, as defendants, which suggests the possibility of multiple additional settlements. us, the False Claims Act is providing a new tool to address illegal transshipment, including treble damages and whistleblower rewards, with Justice as the enforcement agency. SO \

Frederick P. Waite Kimberly R. Young William M.R. Barrett

Vorys, Sater, Seymour and Pease LLP (Washington, DC)

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Volume 7; Issue 3

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How better inventory management benefits hardware insertion By Tim Heston, Senior Editor, FMA Communications Inc. Reprinted with permission from THE FABRICATOR, May 2014

ow do you error-proof a hardware insertion operation? One half involves the hardware insertion process itself, including proper training, but the other half entails inventory management: making sure operators have easy access to the right hardware at the right time. Missing or incorrect hardware got under Ed Kittelson’s skin. Nothing was worse than answering a call from an annoyed customer about a batch of parts with incorrect or missing hardware. So the president of Micron Metalworks, a Ham Lake, Minn., custom fabricator, and his management team decided to do something about it. ey labeled and organized the fastener inventory. ey bagged fasteners to ensure every part in a batch had all the fasteners it needed. If there were fasteners left in a bag, there was a problem. e later an error occurs in a job, the more expensive that error is, especially when a problem part ships to the customer without being caught. “ere’s nothing more a customer hates than a hardware problem,” Kittelson said. e price of fasteners belies their importance. Even minor hardware errors can be ex-

pensive, both for the custom fabricator and its customer. On critical parts, errors can even be life-threatening. “Using the wrong fastener could create a failure with whatever product it’s fastened to,” said Winona, Minn.-based Jeremy Johnson, director of sales, Fastenal Managed Inventory (FMI), at Fastenal. “is is a serious topic. Spending a little time on the right thing can be meaningful in the long term.” All sources agree that errorproofing hardware insertion of course involves operator training: what hardware goes with which part or which material grade, how much force it requires, and why. But so much in the hardware insertion arena involves everything that happens before the actual act of inserting hardware into a workpiece: organization; labeling; and tight control over inventory, particularly in the highly variable environment of the sheet metal job shop. To that end, here are three questions shop managers can ask to make life easier for the hardware operator. Each essentially takes one step back in the chain of events that leads to a fastener being pressed into a sheet metal part.

1. When the hardware insertion operator retrieves fasteners, what does he or she see? “An organized, well-lit, well-labeled stocking area with signage is the first step to ensure the right parts are easily found,” said Johnson, who emphasized the value of color-cod-

ing: labeling and color-coding certain fastener types to corresponding products or product families, for instance. And then there are the basic visual management tools, like putting part photos or drawings on the bins themselves. Sources also recommended kitting in boxes or bags. Lean manufacturing discourages processing large batches just to save on setup; flooding the floor with work-inprocess makes part flow that much more difficult to control. e same thinking applies to fastener inventory. In a white paper, Neal Lober, director of sales and marketing at Allied Fasteners, Los Angeles, described a typical case study. A bin of fasteners had a safety stock of 500 parts, stored and replenished in bags of 250—quite a lot, but typical for inexpensive purchased items (what the Institute for Supply Management calls “Class C”). “Because of the small price and high importance of C items,” Lober wrote, “most manufacturers carry excessively high levels of C inventory.” After all, running out of fasteners can halt an operation, so when it doubt, pad the stock, right? Of course, just as in WIP between workstations, a large amount of hardware inventory can make a process more diﬃcult to control. Hardware can go missing, get lost, or mixed in with other hardware. An operator may open a large bag, and fasteners would spill into crevices. To streamline matters, the company in Lober’s case study organized hardware into

Fabricator’sCorner

Right fastener, right place, right time

Fabricators Corner

Fabricator’sCorner

30-piece “per-assembly” bags. Like splitting an order up into smaller batch sizes, such bagging eﬀectively decreased the batch size of fasteners and allowed for more precise inventory control. Like at Micron Metalworks, when operators emptied a bag, they knew they had installed all the necessary hardware for the job at hand. Bin arrangements can make a diﬀerence as well, as described by another Allied Fastener white paper, this one authored by Greg Liepman, executive vice president. As with a lot of elements of 5S, the idea is to make the system obvious for everyone, no matter how much experience they have or how much training they receive. Someone may be having a bad day and absentmindedly pull hardware from the wrong bin. Part replenishment systems often entail two bins, one primary and one secondary. Depleting the primary one triggers a replenishment order, and the secondary bin moves over to the primary bin location. But say an untrained worker grabs a handful of hardware from the secondary bin, uses a certain amount, then throws back the remainder in the primary bin. As Lober wrote, this can easily happen, and it sometimes takes more than clear labeling to fix it. A shop may have primary and secondary bins that are side-by-side or even in a rotating arrangement, in which a two-sided rack has primary bins on one side (usually the side closest to the workcells), with secondary bins

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on the other. e problem in both cases is that workers (and anyone, really) can access the secondary bin somewhat easily. If an operator is having a bad day, he may unknowingly reach into the adjacent bin. In a rotating two-sided-rack arrangement, a new employee who may have forgotten recent training may mistakenly take hardware from the wrong side of the rack. If a primary bin has parts, why does anyone—outside the people replenishing stock—need easy access to the secondary bin? is is why Lober recommends a backto-back arrangement. “In a back-to-back system, the racks themselves are deeper, and the secondary bin is physically placed behind the primary bin. When the primary bin is exhausted, it is turned over as a replenishment signal, and the secondary bin slides forward to become the new primary bin.” is is classic kanban. Two full bins represent the maximum stock, only one full bin represents the minimum, timed as such so that replenishment occurs before the shop reaches its safety stock level, the emergency savings account of sorts that’s there just in case replenishment problems should arise. But how much “just in case” inventory does a hardware insertion operation really need, and for which fasteners? is can be a challenge to pinpoint, especially for highproduct-mix, low-volume operations with a wide variety of parts, part geometries, and associated hardware. is is where the next question comes into play.

Volume 7; Issue 3

2. How do those fasteners make it to the bin? In a vendor-managed inventory, or VMI, arrangement, the vendor actively manages a fabricator’s inventory, replenishing when needed. In traditional arrangements, the vendor sends a representative to the facility to check bin inventory levels and replenish them as needed. But according to sources, in recent years this process has become far more immediate and responsive, thanks in large part to technology. Consider an operator who depletes a bin of hardware. He may scan an empty bin with a bar code scanner, signaling that it’s time to replenish. at information is transmitted immediately to inventory management software, which keeps a comprehensive history of usage, which in turn helps plan for future needs. “Technology has been a huge driver here,” Johnson said. “It’s now so much easier to identify which parts need to be managed, and at what stocking levels. e technology is actually very straightforward, but it can really make a diﬀerence, both for the supplier and fabricator. If I walk into a facility and see someone hand-writing parts down [to replenish fastener stock], that’s a red flag. ere’s potential for error.” e technology need not be sophisticated or expensive, either—even at some of the largest contract fabricators. Fastenal actively manages the hardware inventory of Mayville Engineering Co. (MEC), a $312 million

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Fabricator’sCorner

contract manufacturer based in Mayville, Wis. For some of its hardware, MEC has simple webcams aimed at certain inventory bins. Fastenal representatives need not visit the facility to check inventory levels. Instead, when they see that the hardware reaches a certain level on the webcam, they send in a replenishment order. “It’s an intelligent bin, so to speak,” said Bob Kamphuis, CEO at MEC. “Previously they had to send someone to take inventory. Now they can get a sense [of inventory] without sending a person in to do it.” According to the Institute for Supply Management, manufacturers spend more money on expensive purchases, what it calls “Class A and B” items, but spend far more time ordering and managing Class C items, which of course includes fasteners. As Lober put it in his white paper, “A well-run VMI program addresses this imbalance by automating much of the ordering process for Class C items.” As Johnson explained, part of what makes a VMI good is setting goals at the outset: inventory reduction, material costs, the labor involved with stock replenishment, country of origin requirements, and so on. Establishing these goals from the get-go, he said, will determine the direction the program takes. Next up is a review of the current state of things, focusing especially on a comparison between what parts are in stock versus what parts are moving on the shop floor. “If there are old parts not moving,” Johnson said, “they may need to be thrown away or sit in a staging area for a specific amount of time before disposal.” is review also covers the current organization strategy (as described in question No. 1): labeling, color-coding, bin arrangement, worker access to inventory, and so on. ese small changes can make all the diﬀerence in the world. As Kittelson said, “It really comes down to the little things.” Next comes determining the parts to be managed: Which represents the most used parts, those that take up the most time in purchasing? How much does the demand vary over a period of time? Are there unexpected spikes? Johnson added that if a fabricator doesn’t have this data, the vendor may be able to draw information from similar op-

erations as a starting point. All this helps determine inventory minimums, maximums, and safety stock levels. Over time the VMI program can use historical data to identify usage patterns so as to better manage the inventory. Still, the reality on a job shop floor can be extremely complicated. A new part print may call for plating or other engineering changes, which of course aﬀect the fasteners used in hardware insertion. A fabricator may need to manage numerous fasteners, and that variety adds complexity, which in turn can create unpredictability. Here, the third question comes into the picture.

3. How were these fasteners chosen for this part? Although not an option for every situation, some fabricators get involved during the early stage of product design. Better communication among the fabricator, the fabricator’s customer, and fastener vendor can (theoretically, at least) minimize surprises that can change hardware insertion. Is there a reason nonstandard fasteners are used for a certain product? Could a clinching or an alternative hardware-free joining method work instead? Does the operator need to maneuver the part as many times as he does to insert all the hardware? ese questions and others like it could lead to time-saving results. And when a new job does come up with unusual hardware requirements, some fabricators will communicate with their fastener vendor on the front end. “Some are sending our folks locally a print to review,” Johnson said, “to make sure we can find a conforming product to meet the deadline.”

Small Price, High Importance It’s easy to order a lot of fasteners, of course. It makes sense to pad a stock of inexpensive items, especially if the cost of running short is really high. But hoarding parts can lead to disorganization, which in turn can lead to the wrong or missed fastener going into a subassembly. As sources explained, regardless of how cheap or expensive something is, there are costs and risks of having too much. Volume 7; Issue 3

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BrainTeasers

Crossword Across

1. 1992 US presidential candidate that predicted a giant “sucking sound” after NAFTA was passed (last name) 3. Steel consumption in this South American country grew 7 percent in 2013 5. Acronym for the government office that increased pipe inspection staff by 50 percent in the last two years 8. is Japanese steelmaker signed a potential JV agreement with Metal One Corp., Osaka Seiko Ltd, and Republic Steel in March 10. Steel Technologies LLC agreed to purchase this company in April 12. A Nova Scotia man was arresting for stealing these from a church and trying to sell them for scrap 13. Five years ago, this Chinese pipe producer received 0 percent preliminary margins and 99 percent final margins in a US trade case 16. Chairman of CANACERO (last name) 20. Rumors of this Russian steelmaker selling its North American operations started to swirl in May 21. is Russian mining company temporarily halted operations at a West Virginia facility in April 22. US President when NAFTA went into effect (last name) 25. e government of this country has set its economic development target at 7.5 percent for 2014 26. A factory in Mexico that produces exportable goods from imported raw materials 28. Qatar Steel and this company signed an iron ore pellet supply contract in March 30. President of Gerdau Long Steel North America’s business division (last name) 32. is US pipe company divested its OCTG assets in April 34. is country represents 10 percent of TMK IPSCO’s North American business 35. According to Piotr Galitzine, optimism in this pipe market is long-term

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38. Illegal theft of this material cost Mexico $1.5 billion in 2013 (two words) 39. Nickname for the annual North America Leaders’ Summit (two words) 41. Residential construction demand in this European country is comparatively good, according to Kim Marti 42. is corridor to facilitate transport between Canada and Mexico was established as part of NAFTA

Down 1. US Secretary of Commerce (last name) 2. is Turkish company opened a new rebar mill in June 2013 4. C & F International’s purchases from this country have drastically reduced in volume in the last couple years 6. Zinchitalia Spa started out with a small dip galvanizing plant in this Italian city 7. One of the most significant end-use sectors to Mexico’s steel industry 9. Borusan Mannesmann started production of this product at a new Texas facility in May 11. US Steel and other companies in this state were allegedly hacked by Chinese spies in May 12. Jeﬀrey Funk plans to turn scrap from this type of structure into art 14. e designer of the unique steel teeth worn by this James Bond villain was arrested for impersonating a dental hygienist 15. A synthetic silk identical to silk made from this creature is said to be stronger than steel 17. Tariﬀs one-half of exports from this country to the US were instantly eliminated from NAFTA 18. One of the benefits of NAFTA was to stabilize this in Mexico 19. Micron Metalworks solved the problem of missing pieces in this inventory 23. Raul Gutierrez, co-CEO of DeAcero, wrote an editorial in this US city’s newspaper 24. is Chinese steel producer predicts that China’s steel production will rise by 3.8 percent in 2014 26. According to the CEO of Al Jazeera Steel, higher steelmaking capacity in this region has reduced import demand 27. An Arkansas judge shut down this company’s latest appeal against Big River Steel in March 29. yssenKrupp opened a $15 million coil processing facility in March in this US state 31. Canadian Prime Minister who signed NAFTA agreement in 1992 (last name) 36. Latin America accounts for less than 5 percent of global consumption of this steel product 37. is company was fined $37,000 in California in relation to the death of a worker building the 49ers stadium 40. Iron ore shipments on the US Great Lakes dropped in March due to thick formations of this

Volume 7; Issue 3

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Across 1. PEROT 3. PERU 5. PHMSA 8. KOBE 10. STRIPCO 12. BELLS 13. TIANJIN 16. ANCIRA

20. SEVERSTAL 21. MECHEL 22. CLINTON 25. CHINA 26. MAQUILADORA 28. VALE 30. CAMPO 32. NORTHWEST 34. CANADA

35. LINE 38. IRON ORE 39. THREE AMIGOS 41. GERMANY 42. CANAMEX

Volume 7; Issue 3

BrainTeasers

Down: 1. PRITZKER 2. TOSYALI 4. UKRAINE 6. MONSANO 7. AUTOMOTIVE 9. OCTG 11. PENNSYLVANIA

12. BRIDGE 14. JAWS 15. SPIDER 17. MEXICO 18. DEMOCRACY 19. HARDWARE 23. HOUSTON 24. BAOSTEEL 26. MENA 27. NUCOR

www.steelorbis.com 29. ALABAMA 31. MULRONEY 36. FLATS 37. GERDAU 40. ICE

Crossword Answers:

Steel ‘Toon

week 13 week 14 week 15 week 16 week 17 week 18 week 19 week 20

Rebar

12-25 mm 8-12 mm CIS Turkey Export FOB Black Export FOB Sea (USD/mt) (USD/mt)

week 13 week 14 week 15 week 16 week 17 week 18 week 19 week 20

Min. Max. 565 575 565 575 565 575 575 585 575 585 565 575 565 575 565 575

Average 525 530 530 525 525 525 525 525

Hot Rolled Coils

(2 mm) Russia Export FOB (USD/mt)

(2 mm) Ukraine Export FOB (USD/mt)

week 13 week 14 week 15 week 16 week 17 week 18 week 19 week 20

Min. 520 520 520 530 530 530 530 535

Min. 510 510 510 510 510 510 510 520

Max. 560 560 560 560 560 560 560 565

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Max. 520 520 520 520 520 520 520 525

A3 CIS Export FOB Black Sea (USD/mt) Min. Max. 340 345 351 356 351 356 339 344 336 341 336 339 334 336 331 336

Base Sizes USA Domestic mill price (USD/mt) Min. 739 739 739 739 739 739 750 750

(3-12 mm) China Export FOB (USD/mt) Average 520 520 520 520 525 525 520 520

Max. 761 761 761 761 761 761 772 772

USA domestic mill prices (USD/mt) Min. 650 683 705 705 705 739 739 739

Max. 672 705 728 728 728 761 761 761

Billets week 13 week 14 week 15 week 16 week 17 week 18 week 19 week 20

ST 37 CIS Export FOB Black Sea (USD/mt) Min. Max. 495 505 495 505 500 510 495 505 495 505 495 505 495 505 495 505

Wire Rod week 13 week 14 week 15 week 16 week 17 week 18 week 19 week 20

ST 37 Turkey Export FOB (USD/mt) Min. 5200 520 530 530 530 530 530 525

Turkish USA import USA Low carbon Turkish Export DDP Domestic FOB Loaded mill price (USD/mt) Truck USG (USD/mt) (USD/mt) Min. Max. Min. Max. Min. Max. 683 705 739 761 585 600 683 705 739 761 585 600 683 705 739 761 585 600 683 705 739 761 585 600 683 705 728 750 595 605 683 705 722 744 595 600 705 728 722 744 595 605 705 728 722 744 595 605

Cold Rolled Coils

(0.5 mm) Russia Export FOB (USD/mt)

(0.50 mm) Ukraine Export FOB (USD/mt)

week 13 week 14 week 15 week 16 week 17 week 18 week 19 week 20

Min. 615 615 615 600 600 600 600 600

Min. 580 575 575 585 585 590 590 590

Volume 7; Issue 3

Max. 530 540 550 550 550 550 550 540

Q235 China Local (RMB) including 17% VAT Average 2963 3023 3063 3025 3005 2998 2958 2915

PriceReports

Scrap

HMS I/II 80:20 HMS I/II 60:40 USA Europe Export FOB East Export FOB Coast (USD/mt) (USD/mt) Min. Max. Min. Max. 340 345 315 325 350 355 325 330 353 358 330 335 350 355 330 335 350 355 330 335 344 345 325 330 344 346 325 330 344 346 325 330

Max. 650 650 650 650 650 650 650 650

Max. 585 585 585 595 595 595 595 595

(1.0 mm) China Export FOB (USD/mt)

USA domestic mill prices (USD/mt)

Average 620 610 610 615 615 615 615 615

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Min. 805 838 849 849 849 849 849 849

Max. 827 860 871 871 871 871 871 871

Editor’sCorner

Bipartisanrage

t is unlikely that when US politics developed into a two-party system in the country’s infancy, the founding fathers could have anticipated the 24/7 circus of fact-spinning, self-interested, shrill punditry enveloping elected officials and infotainment networks alike. ese days, citizens are more aware of the stark differences between Democrats and Republicans than they are the details of the Constitution, and discord is such an accepted reality that rare moments of harmony are looked upon with confusion and mistrust. Apparently, all it takes to bring two sworn enemies together is an outside enemy that threatens one of their only common interests: the US steel industry. Big-business-worshipping Republicans and public-works-pushing Democrats both have stakes in the prosperity of the steel industry, which has remained one of the cornerstones of the US economy for over a hundred years. But even cornerstones can start to crumble, and the industry in 2014 barely resembles the industry at its peak in the mid-20th century. Aside from economic pressures and technological innovation, one of the most influential game-changers has been the rise of globalization and the influx of imported steel into the US. At a glance, this isn’t a problem: the US doesn’t produce as much steel as it consumes, so imports would appear to have a natural function in the market. But when imports are offered for prices substantially lower than US prices, and/or import are flooding into the US market at extremely high volumes, the effects ripple across the entire industry, threatening domestic steel producers and raising the hackles of the political representatives sworn to protect them. In April, the rare miracle that is bipartisan effort was exemplified in a letter from 31 Senators to the Department of Commerce regarding the current trade case against Turkish and Mexican rebar. Before the DOC issued preliminary rulings on April 21, the Senators (16 Republicans and 15 Democrats) urged Commerce Secretary Penny Pritzker to consider the impact of cheap imports on the

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US steel companies, hoping steep margins would be announced from both sources. e result—whether the DOC actually took the letter into consideration is debatable—was a mixed bag: Mexican producers received preliminary margins ranging from about 20-60 percent, whereas Turkish producers only saw margins of less than 3 percent. Despite the half-disappointing outcome for the US steel industry, the fact alone that Senators of wildly diverging political and economic philosophies could come together to support anything proves just how flimsy all that wild divergence really is. e issues that Republicans and Democrats argue the

most passionately over are often those that mean the least to the US population at large, pandering only to the loudest (if not the largest) segments of each party’s demographic. But deep down, when an outside crisis threatens something that does aﬀect a large swath of the population, regardless of party aﬃliation, politicians are more than capable of pushing aside their default setting of acrimony and work across the aisle for a common goal. If only such solidarity was the default setting instead. Volume 7; Issue 3

But then again, if US Senators can prove to be such a shining example of bipartisanship and cooperation, why can’t the US do the same with its trade partners? Sure, the “common enemy” isn’t as clear: trade conflicts lead to uncertainty in the global market, which aﬀects everyone, but there isn’t a central authority to complain to (well, there’s the WTO, but it’s often no more eﬀective at settling disputes than the UN). Instead of assigning blame and lobbing unfair accusations that rarely, if ever, elicit a positive outcome in trade disputes, why can’t US steel producers listen and compromise and even drop disputes every once in a while when it’s clear that a ruling in their favor won’t change the overall trade situation? And why can’t foreign steel producers keep a closer eye on volumes to the US, and hang back a little when tonnage levels get too high? What’s it going to take to get each side to work together, instead of at cross purposes? Steel imports from space? An extraterrestrial common enemy? In all seriousness, it’s probably too much to hope that, aside from a solid free trade agreement, the US steel industry will ever cooperate with current anti-dumping case target Turkey (not that Turkey would be safe with an FTA—just look at Mexico’s role in the rebar debacle). at leaves the US with few options: ignore imports and step up their own game, cutting costs and/or increasing capacity; or continue to decry the plague of imports while still pulling in massive profits SO \ quarter after quarter.

Katie Memmel

www.steelorbis.com

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