During colonial times, the British porcelain industry drove the fledgling U.S. porcelain business under through dumping, that is, selling a product for less than it's worth to secure long-term market share.
The 21st century American steel industry, which has its largest manufacturing operations in Northwest Indiana, is facing the same issue. Imports captured a record 29 percent of the market share in 2015, resulting in the idling of mills such as East Chicago Tin and the layoffs of more than 19,000 steelworkers nationwide.
Domestic steelmakers like ArcelorMittal USA and U.S. Steel, two of Northwest Indiana’s largest employers, petitioned the International Trade Commission with more than seven trade cases for tariffs against dumped and subsidized metal in 2016. They also succeeded in getting tough new trade laws passed to stem the tidal wave of offshore steel sold in the U.S. market for less than it cost to make, in a bid by foreign steelmakers to increase market share and put U.S. producers out of business.
Imports have fallen off by 20 percent over the first nine months of the year, and now account for only a quarter of the market share, according to the American Iron and Steel Institute.
Political winds have largely shifted, and steel was a hot topic during the presidential campaign, American Iron and Steel Institute President and CEO Thomas Gibson said.
"Both candidates supported our industry's position on the need to strengthen enforcement on dumping and subsidies, especially with regard to China," he said.
But the price of a hot-rolled steel coil, one of the main products manufactured at Northwest Indiana mills, has fallen below the “psychologically important” $500 per ton threshold because of waning demand. Auto sales plateaued this summer, and construction spending fell by 0.7 percent in August, according to U.S. Census data.
Steel prices have been rising in Asia, which could make their imports more expensive and less competitive. U.S. prices rallied sharply during the trade cases, but have been in free fall since the tariffs were actually imposed. The price floor in North America may now be around $480 per ton, New York City-based analyst Charles Bradford said.
“It’s come down dramatically off the peak, by more than 20 percent, but with no sign of a bottom,” he said.
CME Group estimated the metal was selling for around $490 a ton in September. The drop from about $590 earlier in the summer was expected to squelch efforts by ArcelorMittal USA and U.S. Steel efforts to restore profitability in 2016, Bradford said.
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Cost increases in coking coal may force steelmakers to raise prices, but price hikes have largely failed to stick after the rally this summer petered out, Bradford said. Scrap prices have come down quite a bit, dragging down overall steel prices.
Steelmakers still should have good financial numbers in the third quarter because of the lag time it takes for prices to affect balance sheets, Bradford said.
“It shouldn’t be that bad until the fourth quarter,” he said. “For ArcelorMittal it’s even more complicated, since so much of their business is outside the U.S. Brazil is a major market for them; they’re a dominant producer in Brazil, but the economy there is doing so poorly. Europe is a major market for them, but it has a lot of difficulties.”
The U.S. economy has to grow at an estimated rate of 2.5 percent just for steel sales to remain flat, Bradford said.
"The economy is the key to this whole thing," he said.
Auto sales, which had been a big driver of steel demand, have plateaued at an annualized rate of about 17 million vehicles a year after years of growth. And aluminum has been cutting into steel’s automotive market share, with a 45 percent to 50 percent increase in sales of automotive aluminum sheet each quarter.
“Those are pretty big numbers,” Bradford said. “But we may be at the end of that. They added a new plant, and built up from zero, so of course it grew by double digits. Now they’re limited by the amount of aluminum they can make. This is heat-treated aluminum capacity. It’s costly to make.”
U.S. steelmakers are fighting against the rise of aluminum and other alternative metals, which automakers are flirting with because of tough new federal emissions standards. But it may be a war they ultimately lose even if they win short-term battles.
Car companies use more advanced high-strength steel to make cars more lightweight, but it cuts down on the volume of metal they order. So far, steelmakers haven’t been able to make up the difference by charging the medium on price.
“They haven’t been able to offset the revenue loss that comes with the weight loss,” Bradford said. “At least they haven’t been successful in the past.”