RELATIONSHIP BETWEEN STEEL IMPORTS AND U.S. STEEL INDUSTRY CAPACITY UTILIZATION Prepared by: Martin Associates www.martinassoc.net 941 Wheatland Ave., Suite 203 Lancaster, PA 17603 April 18, 2018
Justification of Recommended Action Under Section 232 on Steel Imports Current quantities of imported steel weaken internal economy Potential impact on limiting capacity of U.S. steel industry in a national emergency due to additional plant closures Secretary has determined that the only effective means of removing the impairment is to reduce import levels that should, in combination with good management, enable U.S. steel mills to operate at 80% or more of their rated production capacity Due to the threat as defined in Section 232, to national security from steel imports, the Secretary recommends that the President take immediate action by adjusting the level of these imports through quotas or tariffs. The quotas or tariffs imposed should be sufficient, even after any exceptions (if granted), to enable U.S. steel producers to operate at an 80% or better average capacity utilization rate based on available capacity in 2017. Source: The Effect of Imports of Steel on the National Security, An Investigation Conducted Under Section 232 of the Trade Expansion Act of 1962, As Amended, U.S. Department of Commerce, Bureau of Industry and Security, Office of Technology Evaluation, January 11, 2018 2
Steel Industry Capacity Utilization Has Remained Below Post Recession Levels 120% 100% Percent Capacity Utilization 80% 60% 40% 20% 0% 2000Q1 2000Q3 2001Q1 2001Q3 2002Q1 2002Q3 2003Q1 2003Q3 2004Q1 2004Q3 2005Q1 2005Q3 2006Q1 2006Q3 2007Q1 2007Q3 2008Q1 2008Q3 2009Q1 2009Q3 2010Q1 2010Q3 2011Q1 2011Q3 2012Q1 2012Q3 2013Q1 2013Q3 2014Q1 2014Q3 2015Q1 2015Q3 2016Q1 2016Q3 Source: American Iron and Steel Institute (AISI) 3
Total Steel Mill Products - Imports 60.0 50.0 40.0 Million Tons 30.0 20.0 10.0 0.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: American Iron and Steel Institute (AISI) 4
U.S. Steel Industry Capacity Utilization and U.S. Steel Mill Products Imports Capacity Utilization Tends to Increase as Imports Increase, and Decrease When Imports Decrease 60.0 100% 90% 50.0 80% Million Tons 40.0 30.0 20.0 70% 60% 50% 40% 30% % Capacity Utilization 10.0 20% 10% 0.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Imports Capacity Source: American Iron and Steel Institute (AISI) 0% 5
U.S. Durable Goods Manufacturing Output and Steel Mill Products - Imports Durable Goods Manufacturing and U.S. Steel Mill Products Imports $3,500 60.0 $3,000 50.0 Billions of Current $ $2,500 $2,000 $1,500 $1,000 $500 $0 Steel mill products imports move with the value of output of U.S. Durable Goods Manufacturing 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 40.0 30.0 20.0 10.0 0.0 Million Tons Durable Goods MFR Source U.S. Bureau of Economic Analysis and AISI Imports 6
U.S. Durable Goods Manufacturing Output and Steel Industry Capacity Utilization $3,500 $3,000 Durable Goods Manufacturing and US Steel Capacity Utilization 100% 90% 80% Billions of Current $ $2,500 $2,000 $1,500 $1,000 $500 $0 U.S. steel industry capacity utilization is positively correlated with the value of output of U.S Durable Goods Manufacturing 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 70% 60% 50% 40% 30% 20% 10% 0% % Capacity Utilization Durable Goods MFR Capacity Source U.S. Bureau of Economic Analysis and AISI 7
U.S. Steel Price Relative to China Steel Price and Steel Industry Capacity Utilization 2.5 120% US Steel Price/China Steel Price 2 1.5 1 0.5 U.S. steel industry capacity utilization declines as the U.S. price of steel falls relative to China price of steel, and increases with an increase in US steel prices relative to China price of steel 100% 80% 60% 40% 20% % Capacity Utilization 0 2000Q1 2000Q3 2001Q1 2001Q3 2002Q1 2002Q3 2003Q1 2003Q3 2004Q1 2004Q3 2005Q1 2005Q3 2006Q1 2006Q3 2007Q1 2007Q3 2008Q1 2008Q3 2009Q1 2009Q3 2010Q1 2010Q3 2011Q1 2011Q3 2012Q1 2012Q3 2013Q1 2013Q3 2014Q1 2014Q3 2015Q1 2015Q3 2016Q1 2016Q3 0% US Price Relative to China Source: Steel Benchmarker Data and AISI Capacity 8
U.S. Steel Price Relative to World Steel Price and Steel Industry Capacity Utilization 2 120% US Steel Price/World Steel Price 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 U.S. steel industry capacity utilization declines as the U.S. price of steel falls relative to World price of steel, and increases with an increase in US steel prices relative to World price of steel 100% 80% 60% 40% 20% % Capacity Utilization 0 2000Q1 2000Q3 2001Q1 2001Q3 2002Q1 2002Q3 2003Q1 2003Q3 2004Q1 2004Q3 2005Q1 2005Q3 2006Q1 2006Q3 2007Q1 2007Q3 2008Q1 2008Q3 2009Q1 2009Q3 2010Q1 2010Q3 2011Q1 2011Q3 2012Q1 2012Q3 2013Q1 2013Q3 2014Q1 2014Q3 2015Q1 2015Q3 2016Q1 2016Q3 0% US Price Relative to World Price Source: Steel Benchmarker Data and AISI Capacity 9
Steel Industry Capacity Utilization During Section 201 of the Trade Act of 1974 March 2002 Through December 2003 120% 100% Imposition of Section 201 80% 60% 40% 20% 0% U.S. steel industry capacity utilization actually declined during imposition of Section 201 from 90.7% in second quarter 2002 to 79.2% in fourth quarter 2003, and then increased after the tariffs were lifted 2000Q1 2000Q3 2001Q1 2001Q3 2002Q1 2002Q3 2003Q1 2003Q3 2004Q1 2004Q3 2005Q1 2005Q3 2006Q1 2006Q3 2007Q1 2007Q3 2008Q1 2008Q3 2009Q1 2009Q3 2010Q1 2010Q3 2011Q1 2011Q3 2012Q1 2012Q3 2013Q1 2013Q3 2014Q1 2014Q3 2015Q1 2015Q3 2016Q1 2016Q3 Capacity Utilzation Source: AISI 10
Steel Industry Capacity Utilization During Section 201 of the Trade Act of 1974 March 2002 Through December 2003 100% 95% Imposition of Section 201, March 2002 90% 85% 80% 75% 70% 65% U.S. steel industry capacity utilization actually declined during imposition of Section 201 from 90.7% in second quarter 2002 to 79.2% in fourth quarter 2003, and then increased after the tariffs were lifted Removal of Section 201, December 2003 60% 2002Q1 2002Q2 2002Q3 2002Q4 2003Q1 2003Q2 Capacity Utilzation 2003Q3 2003Q4 2004Q1 2004Q2 Source: AISI 11
Conclusions There does not appear to be a relationship between steel imports and U.S. steel industry capacity utilization During the imposition of Section 201 import tariffs, the capacity utilization of the U.S. steel industry actually declined (March 2002 to December 2003) The imposition of the Section 201 steel import restrictions cost the U.S. Marine Transportation System 22 million person hours, $77.3 million of Federal Taxes and $391 million of output to the U.S. Economy (The Economic Impact of the Section 201 Import Restrictions on the Marine Transportation System, 2006 by Martin Associates for the American Institute for International Steel) The proposed 25% tariffs on Steel Imports are projected to cost the U.S. Economy a loss of 146,000 jobs (The Trade Partnership - Laura Baughman) 12
Steel Imports by Mode 2003-2017 - Water Transportation Accounts for More than 75% of Steel Imports 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Land Value Air Value Vessel Value Source: USA Trade OnLine
Steel Imports by Water and Source Country 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 - All Others Canada Thailand Italy Netherlands Vietnam India Mexico Germany Japan Taiwan Turkey Russia South Korea Brazil China Source: USA Trade OnLine
Steel Imports by Water by Country of Export Brazil is Growing, while China s Share Has Fallen 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% All Others Canada Thailand Italy Netherlands Vietnam India Mexico Germany Japan Taiwan Turkey Russia South Korea Brazil China Source: USA Trade OnLine
The 34.4 Million Tons of Imported Iron and Steel Handled at the Nation s Seaports in 2016 Supported the following: 16
Economic Activity at Risk Due to Steel Import Restrictions 84,000 direct, induced and indirect jobs in the Marine Transportation System handling the imported iron and steel products An additional 1.2 million jobs with users of the imported iron and steel products Potential impact on 47 million tons of grain exported via Lower Mississippi River ports in 2016 - Empty steel ships provide backhaul for grain exported via the Lower Mississippi River - 10,830 direct, induced and indirect jobs created by these grain exports on the Marine Transportation System - An additional 39,000 jobs are supported in U.S. agricultural sector 17
About Martin Associates Founded in 1986 More than 1,000 economic, planning, feasibility and logistics studies for ports, ocean carriers, terminal operators throughout the U.S., Canada, Europe, South America, Caribbean and Asia Key economic impact studies of national importance: - Economic Impact of the Section 201 Steel Import Quotas - Economic Impact of the 2002 West Coast Shutdown used in enactment of Taft Hartley - Economic Impact of the U.S. Port System for the American Association of Port Authorities, 2015 - Economic Impact of the West Coast Port Slowdown in 2014-2015 during labor/management contract negotiations 18