U.S. steel suffers from global competition
U.S. Steel, the number-two domestic steel-maker (behind Nucor), is set to report third-quarter 2015 earnings after the market closes on Tuesday. The strong U.S. dollar, depressed commodity prices and weak global economic growth are hurting domestic manufacturing and steel exports. And while the Pittsburgh-based company has done a lot to cut costs and improve efficiency, the red ink still flows.
U.S. Steel (ticker symbol X) has lost money in the previous two quarters of 2015 and its stock price has fallen steeply this year. Metals-industry analyst John Anton at IHS Global Insight said that the U.S. steel industry is in better shape — in terms of cost-structure, management and technology — than any other major steel industry in the world. Still, “the steel industry in the United States is not in good shape,” he said. “Prices are down 30 to 40 percent. The problem with the U.S. is that imports are flowing.”
The glut of cheap imports comes mostly from China. Gary Hufbauer at the Peterson Institute for International Economics said that in the 1990s and 2000s, China built the biggest steel industry in the world in order to support rapid modernization and infrastructure-building. Now, China’s economy is slowing, and steel mills are left with massive overcapacity. So the government has funneled direct and indirect subsidies to the industry to keep mills from closing and laying off workers.
“Steel shipped from these mills to the ports perhaps gets very preferential rates — it’s all state-railway,” said Hufbauer. “Surely they get bank loans, and that’s what keeps them from going bankrupt.” Anton agreed that Chinese banks — either partly-owned or controlled by the government — are extending Chinese steel companies (many of which are themselves partly-owned or controlled by the government) big loans to keep them afloat. Anton said those loans are likely to continue in spite of continuing losses at Chinese steel companies, and are unlikely ever to be repaid.
U.S. steel producers, meanwhile, have accused China of unfairly dumping low-cost steel in the U.S. The U.S. International Trade Commission is expected to rule on those complaints over the next several months. If U.S. regulators impose punitive duties on Chinese steel, that could provide some financial relief for the domestic steel industry.
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