November 2017

CRU Steel Conference Report Questions Loom

Steel insiders at the CRU North American Steel Conference share their thoughts on some of the biggest uncertainties facing the industry, including labor, trade and overcapacity.

By Jonathan Samples, Associate Editor

These are uncertain times, and the steel industry is in no way immune to the volatility.

Organizers of last month’s CRU North American Steel Conference stepped into the unknown and looked at some of the ways steel producers, distributors and end users can hope to create success out of uncertainty in the coming year.

Topics covered during the three-day conference, held Oct. 2-4 in Chicago, included government policy, the U.S. economy, market forecasts and global trade. To open the summit, a panel of steel executives discussed the biggest question marks in the industry, focusing on the potential risks and rewards for both mills and service centers in the ever-changing global marketplace.

“It seems today there’s a heightened sense of uncertainty,” said Dave Cheney, president of Bedrock Industries. “There are a number of factors out there that we can’t control. What we can do is stay educated and stay on top of these things.”

Unsurprisingly, labor issues were a major point of emphasis for both sectors of the steel supply chain represented on the panel. The problem is that about half of the people employed in the steel industry are older than 45 and around 25 percent are 55 and older, according to Dave Sumoski, executive vice president of merchant and rebar products at Nucor Corp., Charlotte, N.C. “We’re losing a lot of talent out of the industry, and the influx of talent is decreasing,” he said.

Berlin Metals owner and President Roy Berlin noted that many service centers are able to find the average warehouse worker but struggle to attract more highly skilled employees, such as mechanics and engineers. He said it all comes back to secondary education and a movement away from curriculum focused on the trades and manufacturing. “You don’t have the same kind of skillsets in people, so we have difficulty finding people for those more skilled jobs.”

Nucor is one company that’s looking to give potential employees those skills required for a career in steel that they likely aren’t getting from a basic high school education. The company recently established a pilot program with a community college near Tuscaloosa, Ala., that trains Nucor employees using a combination of classroom learning and on-the-job training.

“We set up a curriculum with the school so they would have the skills it would take to work in the steel industry,” Sumoski said. “Part of the time they’re in the program, they’re also working at one of our facilities. We pay them while they’re going to school.”

Nucor also works with Seattle-area high school on various STEM programs, as well as with other institutions around the country. Bedrock Industries takes a similar approach of partnering with schools and institutions as a way to attract new talent. “There are good workers out there,” Cheney said. “We just have to proactively reach out to them and explain why this is a good industry.”

Trade, China and 232
While workforce issues dominated talks of the industry’s future, issues related to trade and policy underscored much of the discussion about steel’s present challenges.

Early on in the Trump presidency, many steel executives were optimistic that a Republican president would pass new legislation to boost manufacturing and help support the domestic steel industry. Berlin called this initial good favor the “Trump bump.” That sentiment has waned for the most part, however, as the new president has done little to usher in new, beneficial policy changes.

“You’ve obviously had trade issues raised, you’ve had tax issues raised but nothing has really been done,” Berlin said, though there has been some movement on tax reform since the event. “In terms of policy, there have been all sorts of pronouncements without any official action.”

Trade is one area where these presidential proclamations have been strongest, whether it be threatening to withdraw the U.S. from NAFTA or the decision to initiate a Section 232 review of steel imports. And while many at the conference held differing opinions on what an ideal U.S. trade policy would be, everyone agreed that promoting fair competition between foreign and domestic suppliers should be the goal.

“We’re not against imports coming into the United States,” said Sumoski. “We have the right people, we have the right technologies and we’ll compete with anybody, as long as we’re on a fair playing field.” Ultimately, the Nucor executive thinks companies should be held accountable to rules established by the World Trade Organization.

Cheney of Bedrock Industries didn’t mince words when it comes to trade. “Right now, we are besieged on all borders in North America by illegally traded imports. If you work through the risk map and understand how this impacts your business, it’s the biggest uncertainty.”

According to Philip Bell, president of the Steel Manufacturers Association, trade cases alone aren’t enough to address illegal steel imports. Bell, who spoke during a session on conducting business in the new trade environment, said the recent case concerning Chinese and Vietnamese cold-rolled and corrosion-resistant steel products is an example of what he calls the “whack-a-mole effect.”

After duties were issued against China in 2015, Vietnam saw a spike of imports to the U.S. Bell noted that Vietnam essentially did not have a cold-rolled or corrosion-resistant market prior to those duties being introduced. “What you have is a situation where countries just kind of pop up out of nowhere when other countries have duties applied to them,” he explained.

It’s these types of imports that Alan Price, partner and international trade group practice chair at Wiley Rein LLP, thinks are doing the most damage. Citing the recent decision by steelmaker ArcelorMittal to idle its Conshohocken, Pa., facility, Price said increased steel imports are causing direct harm to the domestic steel industry. Furthermore, he agreed with Bell that trade cases simply don’t do enough to deter illegal trade.

“The normal antidumping and countervailing duty cases don’t bring sufficient pressure to address a macro problem like this,” he said. “They give some breathing room, they give some short-term benefit, but ultimately something else is needed.”

For many, that something else is Section 232.

In April, the Trump administration invoked Section 232 of the Trade Expansion Act of 1962, which authorized the U.S. Department of Commerce to investigate whether steel imports pose a threat to the country’s national security. The Commerce Department has until Jan. 16 to determine what, if any, action should be taken and to make recommendations to the president, who would then have 90 days to make a final decision.

The president would then decide to impose measures such as tariffs or quotas on imports of some or all steel products from any or all countries. And if that happens, Price expects other countries to take similar actions to bring global pressure on the issue of steel overcapacity. “The status quo will not change without a forcing event, and that forcing event is hopefully going to be 232,” he said.

In the meantime, the nature of the Section 232 investigation has caused some unintended harm to the industry it’s designed to protect. After Commerce Secretary Wilbur Ross set a self-imposed and premature deadline for the Commerce Department’s report, service centers and manufacturers began stocking up on foreign steel. “By doubling down on this June 30 date, [the administration] may have helped cause a surge in imports in the first half of this year,” Bell explained. “It created some unrealistic expectations and some volatility in the market.”

Nucor’s Sumoski also noticed some negative impacts from the June 30 deadline. “It was probably more detrimental to us because people started importing in anticipation of 232 going through. We had a lot of imports coming in, and that’s been an issue.”

Despite these issues and a lowering of expectations as to Section 232’s scope, both Bell and Sumoski welcome an affirmative recommendation and remain optimistic it will have a positive outcome.

Not everyone is sold on Section 232, however. Richard Chriss, executive director of the American Institute for International Steel, said any new steel trade restrictions to come out of Section 232 would cause irreparable harm to not just the steel industry but the U.S. economy as a whole. According to Chriss, trade restrictions would threaten tens of thousands of jobs throughout the steel supply chain, trigger significant trade retaliation in industries other than steel and open the “Pandora’s box of trade,” which he described as a rash of national security-based trade restrictions from other countries in a variety of markets currently served by the U.S.

“If we implement these restrictions, we can hope that we won’t see job-killing retaliation, we can hope that other countries won’t follow our example and find that they also have sensitive products that are too important to their national security to permit any competition with the United States,” he said. “We can hope and hope and hope, but hope is not a good basis for an effective, robust, consistent, coherent U.S. trade policy.”

Still, there was near universal agreement that severe global overcapacity in steel production is one of the most pressing issues facing the steel industry. Citing estimates from the Organization for Economic Co-operation and Development, Price said global overcapacity of steel at the end of 2016 was about 700 million tons, half of which is in China.

And while Price and Bell see Section 232 as a necessary step in addressing Chinese overcapacity, Chriss cautioned against taking a unilateral approach. “The U.S. is not capable of carrying all this weight,” he said. “What we can do is lead a very solid diplomatic effort. We need to really talk in serious ways with our trading partners and our diplomatic colleagues about how we come together to deal with the China overcapacity issue.”

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