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Report: Global steel glut may cripple U.S. industry

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Report: Global steel glut may cripple U.S. industry
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DULUTH -- Cheap, imported steel subsidized by foreign governments is flooding the U.S., in a growing, unfair trade crisis that threatens a half-million American jobs.

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That’s the conclusion of a report released last week by the Washington-based Economic Policy Institute that goes on to call for U.S. government sanctions to prevent unfair steel imports from China and other nations.

The situation is so dire, one of the report’s authors says, that it threatens the viability of the U.S. steel industry and the taconite iron ore industry that supplies it.

The Economic Policy Institute’s report, partially funded by an industry-labor trade group, found that global steelmaking capacity now exceeds demand by a half-billion metric tons per year, with oversupply especially pronounced in China, South Korea and India.

The problem is that foreign steelmakers – many of them government owned or government subsidized – continued nearly full-scale production even though the global economy tanked in 2008. Since then, there has been an oversupply of steel. That means foreign steelmakers are looking to get rid of the steel they can’t sell at home, and many are looking at the U.S. thanks to an improving construction economy here and growing U.S. automobile production.

The American Iron and Steel Institute reported last month that 25 percent of all steel used the U.S. is now imported.

The Economic Policy Institute’s report found that steel imports into the U.S. increased from 28.5 million tons in 2011 to 32 million tons in 2012, a 12.3 percent hike. The figures jumped again in the first two months of this year, hitting 6.4 million tons, a 24.5 percent hike in imports from the same time last year.

The report says the result of all that imported steel has been tougher times for U.S. steelmakers, which lost $388 million collectively in 2012 and $1.2 billion in 2013, despite a growing U.S. economy. U.S. Steel mills are currently operating at only about three-fourths of their capacity.

“A large, capital-intensive industry cannot long survive in its present form when subject to such chronic financial losses,’’ the report says before going on to call for “trade remedies’’ such as tariffs or duties to prevent under-cost dumping of foreign steel into the U.S.

Worse than 2001?

Bob Scott, an economist with the Economic Policy Institute and one of five authors of the report, said the looming crisis could be as bad or worse than the last major steel industry decline from 1999 to 2001, when 33 different U.S. steelmakers declared bankruptcy as imported steel flooded the U.S. market.

That U.S. steel mill crisis caused Minnesota taconite production to drop from nearly 45 million tons in 2000 to just 31.6 million tons in 2001, a more than 30 percent decline. It also spurred the permanent shutdown of LTV Steel Mining, which had been one of Minnesota’s largest iron ore operations, and the loss of more than 1,400 jobs.

Because nearly all taconite iron ore produced in Minnesota goes to U.S. steel producers, the health of the steel industry is critical for the mining industry -- northeastern Minnesota’s single largest employer.

“This is going to affect everyone along the line, from the ones who mine the ore to the truckers who deliver the finished steel,’’ Scott said.

American steel companies filed 40 unfair trade complaints in 2013 and the first few months of 2014 covering nine products from 18 countries, Scott noted. That includes steel pipe used in the growing energy sector, as well as rolled steel, semi-finished slabs, even steel wire.

The 2013 total of 38 filings was the highest since 2001, when the industry received help from the U.S. government in the form of higher tariffs and penalties on government-subsidized foreign steel. Scott and others say that help is needed again.

The U.S. Commerce Department determines whether there has been illegal dumping into the country. The U.S. International Trade Commission then decides if there has been any injury to U.S workers before an order to impose import duties and, if so, how much.

Senators call for action

Some 54 U.S. senators joined in the fight Thursday when they called on the U.S. Commerce Department to begin the process of imposing tariffs on nations that are unfairly dumping cheap steel into the U.S. market. That list includes Minnesota Democrats Al Franken and Amy Klobuchar.

“We need to make sure that American workers and businesses involved in the steel industry, like those in northern Minnesota, are competing on a fair and level playing field,’’ Klobuchar said in a statement. “That’s why it’s so critical that we fully enforce our trade laws and take action against any unfair foreign competition that could undermine jobs in Minnesota and across the country.”

Franken agreed.

“America’s steel industry can compete with anyone in the world when there’s a level playing field,” the senator said in a statement. “We can’t accept when other countries dump their goods at anti-competitive prices, essentially sidelining Minnesota’s iron and steel producers. That’s why I’ve been pressing the Commerce Department to keep unfair trade practices in check and give our producers a fair shake.”

The Economic Policy Institute report’s authors say that even if the global supply remains flat, it would take until 2019 for consumption to catch up. But they say supply almost certainly will increase as nations continue to invest in new capacity.

Worldwide steel capacity increased from 716 million tons in 1980 to 1.6 billion tons by 2013, with most of that increase in Asia. China alone jumped from producing 37 million tons of steel in 1980 to nearly 780 million tons by 2013.

Over the same time period, U.S. steel production dropped from 101 million to 87 million tons per year.

Moreover, the report notes, governments in Korea, India, Vietnam, Argentina, Ecuador, Peru and Bolivia all are planning massive expansions of their steelmaking capacity over the next five years, and none of those are planning to use U.S. mined iron ore.

Of the half-million jobs the report says are at risk if the U.S. steel industry fades include 125,000 directly involved in steelmaking and 55,000 in mining related jobs. The rest are in related or spinoff fields.

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