Tuesday , November 21 2017
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Watching the dominoes fall for US steel

Summary:
The domino theory in global politics — pertaining to the spread of communism, kids — is a thing of the past, but it is getting new life in the global steel arena — not the communism part, the domino part. The most recent example in steel is a “double domino.” First, there is market chatter that US mills may soon file unfair trade cases against plate imports in response to an imminent trade case filing by European producers against plate imports from China and other countries. The thinking is that if Europe blocks plate imports, they’ll look for another home, i.e. the US. So the US must take action as well. It’s sort of like if you don’t want a gun, but because everybody else has one, you better get one too. Or, you might like driving cars, but if everyone else has an SUV, you may have to get one to survive on the highway — or at least be able to see road signs and traffic lights before they are on top of you. For the American steel industry, which already wants (has) the metaphorical gun and SUV, plate steel trade case filings are virtually assured, especially now that the US government has made it easier for producers to win such cases. The second steel domino theory also involves the US plate market, but this time has a domestic slant.

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The domino theory in global politics — pertaining to the spread of communism, kids — is a thing of the past, but it is getting new life in the global steel arena — not the communism part, the domino part.

The most recent example in steel is a “double domino.”

First, there is market chatter that US mills may soon file unfair trade cases against plate imports in response to an imminent trade case filing by European producers against plate imports from China and other countries. The thinking is that if Europe blocks plate imports, they’ll look for another home, i.e. the US. So the US must take action as well.

It’s sort of like if you don’t want a gun, but because everybody else has one, you better get one too. Or, you might like driving cars, but if everyone else has an SUV, you may have to get one to survive on the highway — or at least be able to see road signs and traffic lights before they are on top of you.

For the American steel industry, which already wants (has) the metaphorical gun and SUV, plate steel trade case filings are virtually assured, especially now that the US government has made it easier for producers to win such cases.

The second steel domino theory also involves the US plate market, but this time has a domestic slant. Before there was talk of a European plate trade case, US sheet steel producers filed unfair trade cases and one such case, against imports of hot-rolled coils, is so comprehensive that it covers coiled plate as well. Coiled plate competes with discrete plate, ergo blocking coiled plate from the US market could prompt global exporters to switch to discrete plate sales in the US – thereby possibly flooding that market.

Come to think of it, the US sheet trade case, which is helping to prompt the plate case, may have followed the steel domino theory as well. The most recent sheet trade case filing was against imports of HRC, completing a trifecta of expected sheet case filings. US mills had already petitioned their government for relief from imports of cold-rolled coils (CRC) and hot-dip galvanized sheet (HDG) before that — all within the last three months.

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The domino theory may apply here because HRC is used to make CRC, which in turn is used to make HDG. While distinctly different products with different applications, they are nonetheless all related and most sheet producers make all three. So filing against only one of the three products would likely divert foreign mills’ attention to exporting more of the other two products, causing the dominoes to fall again.

Yes, sports fans, you need a score card, but it’s not just monkey-see-monkey-do, especially considering that the game of dominoes is related to another game when it comes to steel trade: Whack-a-Mole. When imports of steel from one country are beaten down by trade cases, they soon pop up from another country, which may then be bludgeoned before another global supplier steps into the void and with any luck gets whacked. And so on.

The basic problem is there is too much steel in the world and when one part of the market is protected from the rough seas of global trade with all that excess steel swishing around, another market — either regionally or by product — may very well be impacted. This virtual 1970s waterbed of global steel never gets deflated.

The filings of conventional dumping and subsidy cases serve to combat the seasickness after the fact, resulting in duties against individual products from individual nations. But there can be pre-emptive, blanket protection (Dramamine?) as well.

Most recently, US Representative Rick Nolan of Minnesota introduced the American Pipeline Jobs & Safety Act of 2015, which would require that virtually all oil and natural gas pipelines be made of 100% American steel. And it’s not just red, white and blue steel the congressman wants  — the proposed legislation says that the iron ore used to make the steel must be “mined, processed or reprocessed in America” as well.

How’s that for comprehensive? And a little double-domino-ish to boot.

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