Steel tariffs 'rejuvenating' U.S. producers 01/20
Recently announced buyouts of bankrupt Bethlehem Steel and National Steel Corp. are signs that controversial tariffs are helping the ailing U.S. steel industry, analysts say.
When President Bush imposed tariffs of up to 30 percent on steel imports last year, he announced that the goal of the measure was to "facilitate positive adjustment to competition from imports." With the announcement last week that U.S. Steel would buy National Steel, and the pending takeover bid for Bethlehem by International Steel Group, the tariff policy appears to be on the verge of success.
Charles Bradford, president of Bradford Research, a metals consultancy, told the Financial Times of London that "a monumental change is occurring" that will improve the cost-competitiveness of the integrated steel mills.
With three or four strong steel companies, he said, the industry will be able to drive a harder bargain in negotiations with customers, helping to sustain steel prices that were at historic lows before the tariffs.
But trade lawyers and steel market analysts are less sanguine that the deals will do anything to ease international tensions over trade in steel. In the short run, they say, the problems could even get worse.
Richard Cunningham, a lawyer with Steptoe & Johnson, which represents Corus, the UK steel producer, said, "This is an industry that has always (gone), and will always go, back to the well for more import protection if the economy softens and imports are either steady or rising. You shouldn't expect the result of this will be peace in steel trade."
Integrated steel producers are the most important customers to U.S.-flag Great Lakes fleet. Much of the tonnage carried on the lakes consists of taconite pellets, limestone and coal used by intergraded steel mills to produce iron and steel.
The Bush administration, in deciding to impose tariffs on steel imports in March, said that protection would give the industry "breathing room" to adjust to low-cost import competition. But past bouts of protection, including "voluntary" restraints on imports in the 1980s, have done virtually nothing to achieve that goal.
The comprehensive nature of the current Bush tariff program, however, changed the dynamic. In addition to the tariff protection, Bush demanded conspicuous restructuring, as well as moving aggressively to assume a portion of the onerous retirement costs for former steelworkers. A provision quietly tacked onto last year's trade bill could provide billions of dollars to cover health care expenses for retirees.
Wilbur Ross, chairman of International Steel Group, which was created in February last year with the acquisition of bankrupt LTV, said of the tariffs: "It was very important. In our case we made the commitment to buying LTV a week before the Bush announcement, and we did it because it appeared to us that he would do something significant . . . We would never have made this bid without it."
Following the imposition of tariffs in March, spot prices for hot-rolled steel rose from a low of $220 per ton in January 2002 to nearly $400 by July. Perhaps more importantly for US steel companies, the tariffs disrupted many of the relationships between U.S. steel buyers and foreign steel makers, forcing the customers to scramble for alternatives.
Both the companies and the Steelworkers used the opportunity to make what promises to be radical change in the work practices governing the steel industry.
In its negotiations with ISG, the US steelworkers' union agreed to tear up a 750-page labor agreement, eliminating a host of restrictive rules that had sapped productivity. ISG in turn agreed to eliminate several layers of management bureaucracy, turning over most of the day-to-day operations of its steel plants to employees.
If such an agreement can be negotiated with U.S. Steel and other integrated producers, analysts agree the result is likely to be a handful of companies that are far more competitive with low-cost imports.
Reported by: David Anderson