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Thread: EU scores steel victory over US

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    Former Staff Senior Contributor Ironduke's Avatar
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    EU scores steel victory over US

    EU scores steel victory over US

    The World Trade Organisation (WTO) has confirmed that US tariffs on steel imports are illegal.
    The WTO's announcement is a victory for the European Union (EU), and puts fresh pressure on Washington to withdraw import duties on steel.

    The WTO appellate body upheld the decision of a panel of trade judges that the tariffs were not consistent with international trade rules.

    The US said it "disagrees" with the ruling and would review the decision.

    The trade organisation said the US measures were "inconsistent" with free trade agreements.

    It said: " The appellate body recommends ... the United States to bring its safeguard measures, ... into conformity with its obligations under WTO rules", the 186-page ruling said.

    The EU, whose steel industry has undergone a painful reorganisation, had joined forces with Brazil, Japan, and other exporters to complain to the WTO about the US tariffs, imposed 21 months ago.


    The European Commission has drawn up a hit list of US imports worth about $2.2bn a year - including Harley Davidson motorcycles, citrus fruits and textiles - which will be targeted with retaliatory sanctions.

    'Re-balancing measures'

    The hit list is said to have been calculated to inflict maximum pain on states whose support will be crucial to President George W Bush's re-election campaign next year.

    EU Trade Commissioner Pascal Lamy has said the retaliatory import tariffs could be in place as soon as early December if the US does not now back down.

    After the decision an EU statement said: "It should be noted that members affected by the US measures will be entitled to apply re-balancing measures and take any other appropriate action in accordance with WTO rules."

    The row traces its origins back to January 2002, when the Bush administration imposed tariffs of up to 30% on steel imports in an effort to protect US producers from tough foreign competition.

    The US said the tariffs were a temporary measure designed to give its beleaguered steel industry a chance to restructure, and were therefore consistent with WTO rules.


    Following the WTO decision a spokesman for Anglo-Dutch steel firm Corus said: "We welcome today's decision by the WTO Appelate Body against the US Section 201 measures.

    "We hope, in light of this decision, that President Bush will act quickly to remove the 201 restrictions, so that we can get on with supplying our US customers on a fair and equitable basis."

    He said exports to the US had generally held up in 2001 and 2002, but would be down in 2003.

    Profits depressed

    Following Monday's WTO announcement the US Trade Representative's office said the tariffs, "were intended to provide the domestic industry with the breathing space needed to restructure and consolidate".

    The US's move had provoked howls of protest from steel exporting nations worldwide, who complained to the WTO.

    The trade watchdog delivered an initial ruling in the EU's favour in July this year, and the appellate body has upheld that decision.

    The US government is considering whether to extend its steel import tariffs to March 2005, after coming under heavy pressure to do so from steel producing states.

    But the tariffs have also been heavily criticised by US manufacturers, who complain that their effect has been to push up steel prices, depressing profit margins and causing job losses.

    http://news.bbc.co.uk/2/hi/business/3256197.stm
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    Staff Emeritus Confed999's Avatar
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    Re: EU scores steel victory over US

    Originally posted by ironman420
    The hit list is said to have been calculated to inflict maximum pain on states whose support will be crucial to President George W Bush's re-election campaign next year.
    Funny how that worked out, couldn't have guessed their real motive was political.
    :roll

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    cry me a river.... F*** the WTO
    Your look more lost than a bastard child on fathers day.

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    All terrifs do is rise the price of the products, thus reducing profit for companies that sell products made from steel and increasing the burden on the consumer. All it does is hurt the economy.

    When we buy imported steel 2/3 of every dollar we spent get reinvested back to the United States. This is on top of the fact that companies can sell products made from steel for a cheaper price and reduce the price for the consumer while making a larger profit then before.

    Protectionism serves no one and hurts everyone. The European is bad in this regaurd, they are the ultimate protectionist.
    Last edited by Praxus; 10 Nov 03, at 22:20.

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    sweet

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    Protectionism serves no one and hurts everyone. The European is bad in this regaurd, they are the ultimate protectionist.
    Ah but it serves lobbiests. And who has the balls to tell them off.

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    "Protectionism serves no one and hurts everyone. The European is bad in this regaurd, they are the ultimate protectionist."

    Take a trip to Pennsylvania and tell that to the unemployed US steel workers whose industry has been savaged. Of course, a lot of that came by the very hand of the US Government, but the fact is, those dudes need jobs.

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    The Steel industry in the US is a key strategic industry. We can't have a trully healthy econmomy consisting of only services. Keeping the US steel industry viable is a long term strategic industrial task for the US. Losing the US steel industry would be a devastating nail in the ooffin of US industry. There are some things indutry can recover from with a different econmoic swing. Deep damage to US steel industry would be extremely difficult to recover from if it were allowed to go past a certain point. This also would have a domino affect on many other US manufacturing industries. Keeping this industry healthy is simply phenominally critical to US industry overall.

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    Man I hate the small impossible to read fonts and color scheme on this board. I can't catch my typos if I can't see them. I guess I'll just have to start using a text editor and cut and paste. I tried to catch the errors in my last post and still botched it.

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    The US steel industry is in desperate need of infrastruture investment. Foreign steel manufacturers have the ability to produce quality steel at lower prices. This is bad news for US steel workers but good news for US manufacturers who can thus produce steel products at cheaper cost. This can translate into manufacturing jobs or a stronger economy if the savings are passed on to consumers. Tariffs protect our steel workers, but can hurt the rest of us. I don't have a perfect solution for this problem.

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    As a strategic resource the US steel industry must be kept viable. The cheap foreign steel argument is a short term and short sided argument. Long term a cheap and heelthy locally sourced steel supply is FAR FAR preferable. It is necessary to get to that state however.

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    Up from the Scrap Heap

    Consolidation has given U.S. steelmakers the heft to compete globally

    Few companies ever had such a glorious reign as United States Steel Corp. Created in 1901, it debuted as the world's biggest steelmaker and the first American company to top $1 billion in market capitalization. Over the next 100 years, it produced the steel for the Panama Canal, the Empire State Building, the San Francisco-Oakland Bay Bridge, 911 ships during World War II, the Superdome in New Orleans, railroads, oil pipelines, tin cans, and upwards of 150 million automobiles. The company built cities, altered the national economy, and lifted generations into the middle class.

    But as U.S. Steel entered its second century, it was struggling just to make it through another year. Cheap imports and domestic minimills, with their nonunion payrolls and ultra-efficient shops, were grabbing sales. Customers were disappearing as they transferred work to lower-wage sites outside the U.S. or simply shut down. Pension obligations were ballooning, while management clung to a top-heavy bureaucracy and its sprawling mills gobbled up cash for repairs. Import duties helped, but Pittsburgh-based U.S. Steel still lost $218 million in its centennial year, its fourth annual loss in a decade. Its global rank: a humbling 10th place.

    U.S. Steel's comedown is by no means exceptional. With the world awash in steel, three dozen steel companies have plunged into bankruptcy in the U.S. since 1998, including three of the nation's top five producers and two brand new minimills. The most recent victim: Weirton Steel Corp., which declared Chapter 11 in May. Over the same span, more than 35,000 steelworkers -- one in every three, by the industry's count -- have lost their jobs, while the government has been forced to pick up the pensions of some 230,000 retirees and dependents. And even though U.S. steel capacity has shrunk to pre-1993 levels, worldwide capacity now tops 1 billion tons a year, exceeding global demand by an estimated 200 million tons -- or twice the annual output of the entire U.S. steel industry. That means that despite the broadest round of steel tariffs in almost 20 years, the carnage is bound to continue.

    Lost in this extraordinary tumult, however, is something even more extraordinary: A new American steel industry is rising from the wreckage. In a whirl of deals, an emergent Big Three -- minimill king Nucor (NUE ) Corp., upstart International Steel Group Inc. (ISG), and a resurgent U.S. Steel -- have acquired the assets of a half-dozen bankrupt peers, consolidating one of the most stubbornly fragmented industries in basic manufacturing. The trio now accounts for nearly half the steel made in the U.S. and two-thirds of sheet steel and other flat-rolled metal that go into vehicles and big-ticket appliances. The three are also going abroad, bidding for mills in Europe and Asia and investing in ventures in South America and Australia. And each wants more. Declares U.S. Steel Chairman and Chief Executive Thomas J. Usher: "This is only the beginning."

    Moreover, thanks to a trailblazing deal with organized labor, U.S. Steel and ISG could soon transform themselves into low-cost manufacturers, enabling each, like Nucor, to reliably make money in the rough world of international steel. "There is absolutely no doubt that U.S. Steel and ISG will be significantly more competitive with Nucor and globally," says Nucor CEO Daniel R. DiMicco. ISG, in fact, is well on its way. The Cleveland-based company, which began only in early 2002 with the idled assets of bankrupt LTV Corp., exported 300,000 tons of hot-rolled steel to China in April -- at a profit. Thanks to personnel cuts, ISG is producing a ton of steel per employee every hour, down from 2.4 hours at LTV. "It's a sea change for the industry," says ISG Chairman Wilbur L. Ross Jr.

    To be sure, the ascent of the Big Three is likely to be traumatic for employees and competitors -- and a challenge for customers and management alike. Still, the industry restructuring may turn out to be an epochal event, possibly ushering in an age of stability and an end to trade protectionism. Over the next decade, many industry analysts predict, consolidation could leave just six or seven global steel companies standing. By getting into the game today, America's Big Three have a good chance of making it into the lineup.

    Already, many have been hurt in the shift. Some 200,000 retirees and dependents have seen their health-care benefits annulled as a result of U.S. Steel's $1.12 billion takeover of bankrupt National Steel Corp. in May and ISG's acquisitions of LTV and Bethlehem Steel Corp. The government's Pension Benefit Guaranty Corp. has picked up these obligations, in the largest such transfer in the agency's 29-year history.

    Now, to bring labor expenses down further to Nucor's rock-bottom level, the two are planning to eliminate 9,000 more jobs by yearend. Moreover, by boosting productivity and capacity, the three will only intensify the industry shakeout, turning up the heat on other steel producers to match them.

    From a customer's perspective, pricing may be another downside. Steel users could be pinched as the Big Three exploit their bulked-up size to tinker with output and shore up prices. Navistar International Corp., for instance, can no longer get the discounts it once did, reports Robert C. Lannert, vice-chairman and chief financial officer. Instead, the truck maker is looking into piggybacking its 80,000-ton-a-year steel order with longtime business partner Ford Motor Co. or lining up a permanent supplier from outside the U.S. Michael J. Wuest, chief procurement officer for Oshkosh Truck (OSK ) Corp., which buys more than 100,000 tons of steel annually, also laments the new order. "You're never going to see the buyer's market you once did," he says.

    Inside the Big Three, management challenges are also daunting. Each one has to mesh operations and whack expenses without letting quality or reliability slip. The troika must also contend with a three-year long slide in U.S. manufacturing, which is sapping demand. Then there is the matter of surviving in a world marketplace without government help. After lobbying by all three companies, President George W. Bush imposed tariffs on steel imports in March, 2002. The barriers will be lifted by early 2005 at the latest, exposing domestic producers once again to an upsurge of foreign steel. And given the drubbing the President took for the tariffs, it's unlikely he will ride to the industry's rescue if it founders again.

    Some of these issues, including the grief of laid-off workers and impoverished retirees, cannot easily be redressed. But other challenges may be less troublesome than they first appear. Take the recently imposed tariffs. To begin with, imports from Canada, Mexico, Brazil, South Korea and other nations were exempt. In addition, the White House has granted hundreds of exclusions, so that the tariffs now apply to only 20% of imports. The tariffs also have been reduced, as they phase down toward zero. "It's been kind of neutered," says Leo J. Larkin, a metals industry analyst with Standard & Poor's (MHP )

    Post-acquisition integrations, too, could go more smoothly than many predict. Nucor, of course, is famous for going head to head with even low-wage producers, thanks to a corporate culture that enshrines productivity. Lately, U.S. Steel's management is showing the same knack. Taking what Usher concedes was a big gamble, the company went overseas for the first time and spent $475 million for Slovakian steelmaker VSZ in 2000. Today, the facility is U.S. Steel's most profitable and the largest producer of flat-rolled steel in Central Europe. ISG's Ross, meanwhile, is a storied contrarian investor who has made a fortune by salvaging bankrupt assets. And to better his chances with ISG, he has enlisted a Nucor alum as chief executive. Investors seem to approve: Shares of U.S. Steel and Nucor both have climbed 20% in 2003. (ISG is privately held.)

    Oddly, a shakeout has been prescribed as the cure-all for the American steel industry for decades. Elsewhere, consolidation did take hold. Over the past decade, steel producers in Europe and Japan have merged into just a handful of giants. Most other basic industries in the U.S., too, are now dominated by a few titans. Yet U.S. steelmakers remained a multitude of bit players slugging it out against each other. As a result, they've often been no match for foreign companies that, with so much excess capacity, have commandeered 20% the U.S. market.

    So why the frenzy of dealmaking today? The catalyst, all agree, was the abrupt shutdown in late 2001 of LTV, then the nation's No. 4 steelmaker. Overnight, 7,500 people were out of work and 82,000 retirees and dependents were on their own. The losses jolted the United Steelworkers of America. Before, the union had resisted every attempt to reduce pensions or retiree health-care benefits. And for good reason: After decades of cutbacks, the retired outnumbered active employees at old-line companies by an average of 8 to 1. But after LTV's failure, the union leadership concluded that it had better do everything it could to keep other steelmakers from liquidating, too, or it would have no dues-paying members at all.

    It takes two to make a deal, however, and no one wanted to bargain with the steelworkers -- until Ross came along. He told the union he would restart LTV, but on two conditions: The steelworkers would have to let him off the hook for the $5 billion in retiree obligations that had helped sink LTV; and they would have to consent to a new contract allowing him to operate the facilities with far fewer employees. In exchange for profit sharing, a defined-contribution retirement plan, and no pay cuts for rehired workers, the union agreed. Ross closed on his $262 million acquisition in April, 2002, through his private-equity investment firm, W.L. Ross & Co. And with Nucor veteran Rodney B. Mott as CEO, ISG began restarting the former LTV mills last summer.

    Using its new labor contract as a template, privately held ISG next picked up the assets of Acme Metals Inc. for $65 million in late 2002. Then, in early May, ISG followed up with its biggest takeover yet, paying $1.5 billion for the assets of Bethlehem Steel, the nation's third-largest steelmaker. With that, ISG leapfrogged U.S. Steel in domestic capacity to rank second behind Nucor. "He accomplished what those of us in the industry couldn't, given all the baggage we carry," notes Robert J. Darnall, former chairman and CEO of Inland Steel Industries Inc. and now a director at U.S. Steel.

    Adopting a growth-by-acquisition strategy, Nucor also has been trawling bankruptcy courts for steel assets. Through its steady rise to the top of the American steel industry, the Charlotte-based manufacturer had built all of its facilities. But in late 2002, it snatched up two insolvent minimill rivals -- Trico Steel Co. for $117 million and Birmingham Steel Corp. for $615 million -- and in March it paid $35 million for a minimill in Arizona that North Star Steel Co. had shuttered. With its new assets, Nucor is expected to reach $6 billion in sales in 2003, up from $4.8 billion last year, with steel shipments topping 16 million tons and profits hitting $105 million.

    As its rivals began passing it by, U.S. Steel got busy, too. In addition to purchasing National Steel's assets, U.S. Steel agreed in March to pay $23 million for a second European steelmaker, in Serbia, and is now one of two finalists for Polskie Huty Stali, Poland's giant steelwork, which is being privatized. If U.S. Steel wins the auction, it will be No. 3 in capacity, up from sixth today and 11th a year ago, with 2003 sales climbing to $10 billion, from $7 billion last year.

    Of the new Big Three, U.S. Steel will have to do the heaviest lifting. The company carries a salaried workforce of 4,000, plus 1,700 brought over from National Steel, and a seven-tier organizational structure. While that white-collar payroll is down from 27,000 in 1983, Nucor gets by with no more than 1,700 nonproduction employees and has just two layers between CEO DiMicco and any shop-floor worker. ISG is down to four levels, too. Moreover, U.S. Steel will have to root out what even Usher characterizes as "an overseer's mentality" inbred for a century. "U.S. Steel has the potential to regain a lot of strength," states Daniel A. Roling, a metals analyst at Merrill Lynch & Co. "But are they stronger? Not today." Indeed, Roling estimates that U.S. Steel will lose $26 million in 2003.

    Usher & Co., however, say they will prevail -- and sooner than outsiders might think. By yearend, the company plans to weed out one of every five administrative employees. Seniority won't necessarily be the deciding factor in who will go. "The people who are left will be people who can adapt to the new model," Usher vows. The others who prefer yesterday's command-and-control mind-set, he adds, "will enjoy their retirement." The inner circle also shows no doubts about the company's wherewithal to pay its bills. A junk-grade debtor, it already owes $175 million a year in interest, at rates of up to 10.75%, and its long-term debt of $1.9 billion is bigger than its market cap. But U.S. Steel has no big debt payments due before 2008. And if it needs more cash, it has $600 million in revolving credit as well as coal mines and other noncore assets it can unload.

    All told, U.S. Steel figures that by yearend it will be able to chop $550 million from its pre-acquisition expenses of $9.65 billion. That would lower its breakeven point by $30 a ton and, based on analysis by Morgan Stanley (MWD ) & Co., lift its 2004 earnings by $310 million. Roling, too, sees better earnings in 2004. He bumped his price target for U.S. Steel to $20 a share, from $15.50 today.

    The race isn't over, of course. ISG's Ross, in partnership with Goldman, Sachs & Co., is bidding $250 million for bankrupt Kia Steel Co. of South Korea. Nucor, meantime, is investing in joint ventures in Brazil and Australia. And U.S. Steel execs are checking out other domestic steelmakers that already are bankrupt or close to it, including Ford's former in-house supplier, Rouge Industries Inc. All of which lends credence to the idea that within several years, the international steel industry could be down to a half-dozen giants. At the moment, hardly anyone is ruling the Americans out.

    http://www.businessweek.com/magazine...9/b3842072.htm

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    The US steel industry is in desperate need of infrastruture investment. Foreign steel manufacturers have the ability to produce quality steel at lower prices. This is bad news for US steel workers but good news for US manufacturers who can thus produce steel products at cheaper cost. This can translate into manufacturing jobs or a stronger economy if the savings are passed on to consumers. Tariffs protect our steel workers, but can hurt the rest of us. I don't have a perfect solution for this problem.
    The Unions is what caused the collapse of the steel industrty in the United States. In order to make steel cheaper you need to get rid of these Unions who are protecting Jobs that can be replaced by machines or are just not needed.

    As a strategic resource the US steel industry must be kept viable. The cheap foreign steel argument is a short term and short sided argument. Long term a cheap and heelthy locally sourced steel supply is FAR FAR preferable. It is necessary to get to that state however.
    I agree and the only way you can do that is to get rid of the labour unions.

    Until then get rid of terrifs and let people volunteerly(sp?) trade with one another. It is the most peaceful thing from different countries can do.

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