The U.S. Steel Industry Faces an Uncertain Future

Inquiries : 0 - 2014/7/22 18:11:40

The last week has been a turbulent one for U.S. Steel (NYSE: X ) , AK Steel (NYSE: AKS ) , andSteel Dynamics (NASDAQ: STLD ) . These three companies, and indeed thewider U.S. steel industry ingeneral, have been buffeted by a barrage of newsregarding import tariffs.

　　The good news came in the form of the Commerce Department's decisionto place hefty import tariffs on some steel companies importing steel fromKorea. This move followed claims that some Korean companies had been dumpingcheap steel tubes into U.S. steel markets, denting sales of domestic producers.

　　Dumping steel

　　Over the past decade, steel producers across Asia, especially inChina, have been looking to boostprofits by selling their products in U.S.markets. This influx of low-cost steel hit the industryhard, and companiesstarted to lobby hard for policymakers to step in.Finally, during 2010, policy makers levied import duties on Chinesesteel; this was a victory for the American steel industry. However, the importsdid not stop as other Asian producers stepped into the void.

　　According to Commerce Department filings, South Korea"dumped" 894,300 metric tons of steel tubes into the U.S. marketduring 2013 at a value of around $800 million. Seven other exporters dumped anadditional $630 million of steel tubing into the market during the same period."Dumping" is a term used for goods sold into the market at less thanfair value.

　　Taking action

　　To combat steel dumping, the Commerce Department announced on July11 that it was placing import tariffs of 9.89% to 15.75% on eight steelproducers found to be dumping their steel on the market. All that remains isfor the U.S. International Trade Commission to make the levies permanent.

　　These tariffs were great news for the U.S. steel industry. It wasmainly steel tubing being dumped on the market, a play on the shale oil boom.U.S. Steel has already been forced to shut down some of its tubular goodsmanufacturing capacity due to a weak pricing environment. The ruling shouldhave a significant effect for all U.S. Steel producers going forward.

　　Wall Street analysts estimate that the price gap between importedand domestically manufactured steel tubing is around $200 per ton. After theimport tariffs are applied, this gap should drop to $65ton $120 per ton. It isestimated that a differential of less than $100 per ton will stave off imports.

　　One door opens, another closes

　　While the introduction of tariffs on South Korean steel was good forthe industry, investors were hit with the bad news a few days later. The WorldTrade Organization reprimanded the U.S. for placing import tariffs on Chineseand Indian steel.

　　Specifically, the WTO has ruled that the U.S. had illegally acted toprotect its own domestic producers of steel by placing hefty tariffs on Indianand Chinese steel mills.

　　The case lodged with the WTO is complicated and has many movingparts, some of which were approved and others were rejected. In the end, theU.S. was found to have broken WTO rules and has been urged to "correct itswrongdoings." The U.S. has said that it is weighing its options.

　　Foolish summary

　　The last week has been an eventful one for the steel industry. Onone hand, South Korean dumping has been slowed. On the other, it's not clear ifthe U.S.'s protectionist policies regarding steel tariffs are legal; they couldend up being lifted.

　　As of yet, it's not clear what the outcome of these cases will be.The next few months will be eventful for the steel industry.

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　　Rupert Hargreaves has no position in any stocks mentioned. TheMotley Fool has no position in any of the stocks mentioned. Try any of ourFoolish newsletter services free for 30 days. We Fools may not all hold thesame opinions, but we all believe that considering a diverse range of insightsmakes us better investors. The Motley Fool has a disclosure policy.