# Steel: Price and Policy Issues

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/crs%3ARL32333

## Record

- **Collection:** Congressional research report
- **Document type:** CRS Report
- **Published:** October 31, 2007
- **Citation:** RL32333

## Text

Order Code RL32333

Steel: Price and Policy Issues

Updated October 31, 2007

Stephen Cooney
Specialist in Industrial Organization and Business
Resources, Science, and Industry Division

Steel: Price and Policy Issues
Summary
The rapid growth of steel production and demand in China is widely considered
as a major cause of continued high steel prices and prices of steelmaking inputs.
Steel companies have achieved much greater pricing power, in part through an
ongoing consolidation of the industry. High prices persist, despite the revocation in
2003 of President Bush’s broad safeguard order on imports.
U.S. steel production in 2006 was 108 million tons. The integrated side of the
industry continues to lose share domestically to the minimills. Imports rebounded
in 2006 to reach the highest tonnage level ever, though they declined in 2007. Input
prices, especially ferrous scrap and iron ore, remain high, meaning higher costs,
which have been largely passed along to industrial consumers.
China now produces 40% of the world’s steel and is the world’s largest
steelmaker and steel consumer. This contributed to a large global increase in demand
for both steel and steelmaking inputs. China has become a large net exporter as well.
In 2006, its steel exports to the U.S. market more than doubled, and it became the
second-largest import source.
Congress became increasingly concerned over allegedly unfair trade competition
from China, and has considered many proposals to deal with these issues. In the
110th Congress, bills were introduced to allow penalty tariffs to offset a country’s
manipulation of its currency exchange rate for trade advantage. The Commerce
Department undertook a countervailing duty case against China, and the U.S.
government also brought a case in the World Trade Organization against China over
subsidies, including subsidization of steel exports. The U.S. steel industry sponsored
in 2007 a report that detailed alleged government subsidies to the Chinese industry.
The U.S. International Trade Commission (ITC) has terminated some trade
remedy cases and orders against imported steel products. But in other cases, orders
have been upheld, and new cases are proceeding. President Bush decided in a China
safeguard case not to provide relief for domestic producers of steel pipe, despite a
positive ITC determination. The Byrd Amendment, under which domestic steel
producers receive distributions of trade remedy duties, was repealed by P.L. 109-171,
and is no longer in effect from October 1, 2007.
Internationally, the Organization for Economic Cooperation and Development
has abandoned the effort to achieve an international agreement to ban subsidies for
steel mills. In April 2006 the World Trade Organization (WTO) Appellate Body
ruled against the “zeroing” methodology used by the U.S. Commerce Department in
calculating dumping margins.

Contents
Introduction

.....................................................1

Current State of the Steel Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
U.S. Production and Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
North American and Global Steel Industry Consolidation . . . . . . . . . . . . . . 7
ArcelorMittal: Global Industry Giant . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
North American Restructuring Affects Other U.S. Companies . . . . . . 10
Building New U.S. Mills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Local Ownership Ends at Canadian and Mexican Mills . . . . . . . . . . . 15
Labor Relations Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
World Steel Output Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
U.S. Import Patterns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Steel Price Trends and Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Steel Prices Remain at a High Plateau . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Steel Input Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Steel Scrap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Rise in the Price of Iron Ore . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
The Cost and Supply of Coke . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
The Price of Natural Gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Shipping Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
The Impact of the Growth of China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
China as a Steel Producer, Consumer, and Exporter . . . . . . . . . . . . . . 30
China’s Proposed Steel Industry Restructuring . . . . . . . . . . . . . . . . . . 33
The U.S. WTO Case Against Chinese Subsidies . . . . . . . . . . . . . . . . . 37
Chinese Measures to Restrain Steel Exports . . . . . . . . . . . . . . . . . . . . 38
China’s Foreign Investment Policy on Steel . . . . . . . . . . . . . . . . . . . . 39
Congressional Reaction to Competition from China . . . . . . . . . . . . . . 40
Steel Policy Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Failure to Achieve a Global Steel Subsidies Agreement . . . . . . . . . . . . . . . 44
Repeal of the Byrd Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Industry Petitioners Lose Wire Rod Antidumping Case —
Pursue Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
President Bush Denies Relief in China Safeguard Case . . . . . . . . . . . . . . . 50
ITC Revokes Duties for Steel Flat Products in 2006 . . . . . . . . . . . . . . . . . . 52
ITC Broadly Upholds Steel AD/CVD Tariffs in 2007 . . . . . . . . . . . . . . . . . 54
WTO Decision on “Zeroing” and Proposed U.S. Trade Law Changes . . . . 56

List of Figures
Figure 1. Sources of U.S. Steel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Figure 2. Employment in the U.S. Steel Industry . . . . . . . . . . . . . . . . . . . . . . . . . 6
Figure 3. Steel Exports by Country . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

List of Tables
Table 1. Top Global and North American Steel Producers . . . . . . . . . . . . . . . . . . 8
Table 2. Steel Price Series, 2001-2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Steel: Price and Policy Issues
Introduction
With growing demand at home and abroad, the domestic steel industry is strong
and profitable, but also more subject to globalized ownership and international
competitive pressures. Many American businesses are concerned by a long-term
increase in the price of steel that has resulted from these trends. Some Members of
Congress were once concerned that the steel safeguard tariffs, imposed in 2002 by
President Bush under the terms of Section 201 of U.S. trade law, could have been
keeping steel prices artificially high. Before those tariffs were terminated on
December 4, 2003, the costs of raw materials and other inputs in steelmaking rose,
thus creating a cost-driven increase in the price of steel. After the tariffs were
removed, the price increase nevertheless accelerated. On the other hand, after decades
of implementing efficiency improvements while struggling to be profitable, many
steel companies in 2004 found themselves making more money than in many years.
Higher steel prices for consuming industries since then have been exacerbated by
global economic growth, which increased demand for steel.
In 2005 the rate of growth of U.S. industrial output moderated, and the price of
steel, domestic steel output, and steel mill companies’ earnings all declined. But the
growth of China contributed to a large increase in global demand for both steel and
steelmaking inputs, thus keeping the cost of domestic steel high. China has become
both the world’s largest steelmaker and steel consumer. China also became a net
exporter of steel, including such a large increase of exports to the U.S. market that
it became the second-largest national import supplier in 2006.
Since 2005 a number of policy decisions have adversely affected the interests
of domestic steel producers:
!

The Organization for Economic Cooperation and Development
(OECD) abandoned its efforts to negotiate an agreement among all
major steel-producing countries to ban domestic subsidies for steel
mills.

!

Congress approved and President Bush signed into law a federal
deficit reduction bill repealed the Continued Dumping and Subsidy
Offset Act (“Byrd Amendment”), under which many domestic steel
producers received distributions of antidumping and countervailing
duties charged on imports.

!

The U.S. International Trade Commission (ITC), in two five-year
sunset reviews of existing trade remedy tariffs on widely traded
products, decided in December 2006 that the threat of material injury

CRS-2
to domestic producers no longer existed from imports of cut-tolength steel plate or from imports of corrosion-resistant cold-rolled
steel from most countries, and thereby eliminated the subject remedy
duties.
!

The ITC decided in late 2006 that domestic steel wire rod producers
were not materially injured, and thereby terminated an antidumping
case brought by domestic steel companies against imports from
China, Turkey, and Germany.

!

President Bush decided in a special trade safeguard case not to
provide trade relief for domestic producers of steel pipe against
imports from China.

!

The World Trade Organization (WTO) Appellate Body in April
2006 ruled that the so-called “zeroing” methodology used by the
U.S. Commerce Department in calculating dumping margins
violates WTO rules, when used in administrative reviews. The
Commerce Department has modified its assessments in a way that
led to lower dumping margins in steel industry cases.

But in decisions that were more positive for the steel industry in sunset reviews
of andtidumping and countervailing duty (AD-CVD) orders, the ITC decided to keep
most penalty duties on hot-rolled, line pipe and reinforcing bar imports, though it
eliminated AD duties on many steel products used by the domestic petroleum
industry. Furthermore, the Bush Administration announced in February 2007 that it
was taking a case against China to the WTO under the organization’s rules on
prohibited subsidies. The U.S. domestic steel industry has complained about
pervasive and continuing government subsidies of Chinese producers. In its
announcement, the U.S. government explicitly included steel among the Chinese
industries that had benefitted from subsidies. Both steel producers and steel
consuming industries have complained that China manipulates its exchange rate to
enhance its trade competitiveness, and a number of bills have been introduced in
Congress that would define China’s exchange rate policy as a distortion of trade and
subject to U.S. retaliatory measures.
Whatever the net impact of these policy developments, the price of steel is
generally double or triple the price when steel safeguards were introduced in 2002.
Although costs of steelmaking inputs have also increased, as this report describes in
detail, the steel industry as a whole has become highly profitable, in direct contrast
to its condition just a few years earlier.
Profitability may be partly the result of global industry consolidation. Two of
the four largest U.S. steelmakers are now foreign-owned, as opposed to none of the
top 10 steelmakers being foreign-owned less than 15 years ago. There is also only
one significant Canadian-owned steelmaker left, and it is in the process of being
acquired by U.S. Steel. Most of the industry in Mexico is now owned by companies
from outside North America. ArcelorMittal, the world’s largest steelmaker, with
operations on virtually every continent, is now also the largest steel producer in North
America, though U.S. Steel may regain the lead. Some American companies,

CRS-3
particularly U.S. Steel, have also expanded abroad, but to a much lesser extent than
foreign investment here. While financially stronger and more profitable than at any
time in the last generation, the steel industry in the United States and North America
is also far more internationalized in its ownership. Moreover, while the sustained
high price of steel has encouraged a spate of plans and actual new construction of
steel mills, in virtually all cases the mills are being financed and controlled by foreign
interests.

Current State of the Steel Industry
U.S. Production and Employment
The sharp rise in demand for steel, plus the consolidation of the industry, led to
higher steel prices and profits almost across the board in the industry in 2004. But
in 2005, production, prices and apparent domestic consumption all declined. The
resurgence of supply in 2004 coincided with a dramatic rise in domestic steel prices.
As production declined with demand in 2005, prices also declined. But they
remained historically strong, and fell nowhere near the levels seen before the
imposition of trade safeguard remedies in 2002. In 2006 overall prices remained
high, even as domestic production increased significantly and imports set an all-time
record.
Despite the volatility in steel prices over the past decade, domestic steel output
has remained surprisingly constant. Since 1997, U.S. domestic raw steel production
has only been more than 110 million net tons in one year (2000), and less than 100
million tons also in just one year (2001). In 2004, output increased from 103 million
tons to nearly 110 million tons, as U.S. mills benefitted from a worldwide recovery
in demand and prices. Then output fell back a little, to less than 105 million tons in
2005, before recovering again to more than 108 million tons in 2006. Capacity
utilization (defined in the industry as “capability utilization”) declined from 94.6%
in 2004 to stabilize at 87.5% in 2005-06.1
As prices have now remained strong for an extended period, several new U.S.
mills or expansions of existing mills are being completed or are on the drawing
board.2 It remains to be seen if this leads to an extended period of long-term growth
in domestic capacity. The restructuring and consolidation of the steel industry, which
is detailed below, has, according to many analysts, led to greater control over
production. This has led to higher prices as demand increased.3

1

American Iron and Steel Institute (AISI). Annual Statistical Report, 2006, Tables 23 and
25. All tonnage figures in this CRS report are “short tons” (2,000 lbs.), as commonly used
in the U.S. steel industry. The exception in this report are international data, which are
reported in metric tons (MT, or “tonnes”) that are about 10% larger.

2

Wall St. Journal, “Steel’s Latest Hot Spot: The U.S.” (August 14, 2007), p. A10. New U.S.
steel mill investments are discussed in the following section.

3

See, for example, John Anton of Global Insight, “Steel Makers in U.S. Acting Responsibly,
(continued...)

CRS-4
Through the first part of 2007, overall prices remained high, as declining
demand and prices for automotive steels were offset by higher prices in some other
products. Total shipments of steel mill products were down by 4% through August
2007 and capacity utilization slipped to 86.1%, but the industry has continued to be
highly profitable, both domestically and globally.4
Though production has been stable in recent years, the relationship between the
two steelmaking technologies used in the United States has dramatically reversed in
terms of market shares. Figure 1 illustrates the changing patterns of U.S. steel
supply. Integrated mills produce steel from iron ore, using coke and other inputs.
They are characterized by unionized workforces and, in competing with both
minimills and imports, have been absorbing high levels of employee and retiree
benefit costs.5 The production of the large integrated mills using basic oxygen
furnace (BOF) technology (the last U.S. open hearth plant closed in 1991) hovered
around 60 million tons per year in the 1990s, then fell substantially below that figure
after 2000. The integrated side of the industry has consolidated by closing older
operations and increasing productivity. In 2004, production from integrated mills
increased 4% to 52.6 million tons, but in 2005 it decreased to 47.1 million tons, the
lowest level from this type of furnace since 1982. In 2006, BOF output fell again to
46.4 million tons. Integrated mills remain the sole source of certain high-volume
products, such as external sheet for automobiles, and U.S. motor vehicle production
has been on a down trend for the past two years.
Minimills employ electric-arc furnaces (EAFs), a newer technology. They have
overtaken integrated mills as the leading source of steel by tonnage in the United
States, and are now virtually the only domestic source of “long” products, such as
concrete reinforcing bars, steel wire rod, and construction beams. Although they may
use various forms of iron ore input, most minimills rely primarily on steel scrap,
which they remelt. The minimill sector is largely non-union, and, by contrast with
the integrated mills, provides defined-contribution employee pension packages
instead of benefits defined by union contract.6
Minimills steadily increased production after the recession of 1991 and gained
market share. Figure 1 shows that their production topped 50 million tons for the
first time in 2000, when it reached 47% of domestic raw steel production, up from
37% at the beginning of the 1990s. Minimill output fell significantly in 2001, then
recovered steadily. In 2006, annual minimill production exceeded 60 million tons
for the first time, and accounted for 57% of U.S. output, compared to 43% for the
integrated mills — almost exactly the reverse of the situation 10 years earlier.
3

(...continued)
Rest of the World Needs to Join,” Steel Monthly Report (November 2006), pp. 1-2.

4

Data from American Iron & Steel Institute(AISI), “Selected Steel Industry Data” (August
2007).

5

The so-called “legacy cost” issue is discussed detail in CRS Report RL31748, The
American Steel Industry: A Changing Profile, pp. 25-29. See also CRS Report RL33169,
Comparing Steel and Automotive Industry Legacy Cost Issues.
6

The best-known business model in the minimill industry, that of Nucor Inc., the largest
EAF producer, is described in detail in Business Week, “The Art of Motivation” (May 1,
2006), pp. 57-62.

CRS-5
Figure 1. Sources of U.S. Steel
70

Millions of Net Tons

60
50
40
30
20
10

19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06

0

Basic Oxygen Furnace & Open Hearth
Electric Arc Furnace
Imports
Source: American Iron & Steel Institute. Annual Statistical Reports.

Figure 1 also shows the level of imports, which has been somewhat erratic, but
on an upward trend and reached an all-time record in 2006. They increased steadily
in the 1990s, then surged in 1998 to more than 40 million tons. The movement of
imports has been up and down since that peak. During the application of safeguard
tariffs, imports fell in 2003 to 23.1 million tons, the lowest level since 1993. Once
the safeguards were removed, and given strong domestic demand, imports increased
more than 50% in 2004, to 35.8 million tons. Imports in 2005 fell back to 32 million
tons. But they increased again to a new record of 45.1 million tons in 2006. Part of
the reason, as is observed later in the discussion of prices, is the shift in the structure
of demand toward products used in energy and industrial production, even as demand
for flat steel in the auto and appliance industries softened. Another major shift in the
2006 was in the sources of U.S. imports, as is discussed below. Through August
2007, imports declined about a quarter by tonnage, according to the American Iron
and Steel Institute.
This figure does not show the rising significance of steel exports as a share of
total U.S. steel production. This has become increasingly significant as the decline
in the exchange rate of the U.S. dollar against most foreign currencies. While
exports of steel mill products were around 5-6 million tons between 1997 and 2002,
the export trend began to strengthen in 2003, and reached 9.7 million tons in 2006.7
While imports declined substantially through early 2007, exports increased by 10%,

7

AISI. 2006 Annual Statistical Report, Table 14.

CRS-6
and had risen to one-third the level of imports for the year.8 But the overall bulk of
U.S. steel exports are to the North American Free Trade Agreement partners, Canada
and Mexico. Of 9.7 million tons exported in 2006, 6.1 million tons went to Canada,
and another 2.2 million tons to Mexico. Together, they accounted for 85% of all U.S.
steel mill exports.9
Figure 2. Employment in the U.S. Steel Industry

Employees, thousands

200

150

100

50

19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06

0

Iron and Steel Mills (NAICS 3311)
Steel Products From Purchased Steel (NAICS 3312)

Source: U.S. Department of Labor. Bureau of Labor Statistics.

The recovery of the steel industry was reflected in steel mill employment levels
in 2005, as measured under the North American Industry Classification System
(NAICS 3311). As reported in average annual employment levels by the Bureau of
Labor Statistics, 2005 was the first year since 1990 that employment in the industry
did not decrease (Figure 2). It grew marginally from 95,400 to 95,700, despite
continued progress in both the minimill and integrated sectors in reducing the
worker-hours required to produce a ton of steel.10 This compares to an overall
decline of almost 50% in steel mill employment since 1990, which had occurred year
by year, whatever the economic conditions in the industry. The only difference had
been slower decline in the mid-1990s, as opposed to a faster decline during and after
the late 1990s, when the industry was under heavy pressure from imports or low
demand levels because of recessionary conditions. In 2006, employment attrition
resumed, at a slow pace, to 94,400 steel mill employees.

8

AISI. “Selected Data” (August 2007).

9

AISI. 2006 Annual Statistical Report, Table 16.

10

Employees per thousand tons of steel mill shipments have declined by almost half since
1990, from 1.93 to 1.11 in 2006. AISI, Annual Statistical Report 2006, chart in executive
summary.

CRS-7
Figure 2 also illustrates employment levels in industries that fabricate steel
products from primary steel produced elsewhere (NAICS 3312). This includes
rolling mills, and pipe and tube producers. These data showed a little more
fluctuation with domestic macroeconomic trends than employment in the mills that
make steel. By 1995, employment regained the level of 70,000 seen in 1990, and by
2000 it had increased to more than 73,000. The recession of 2001, followed by the
increased price of raw steel after late 2003, saw the annual employment level decline
to about 60,000.

North American and Global Steel Industry Consolidation
One of the stated purposes of the presidential action of 2002 on steel safeguards
was to effect a restructuring of the domestic steel industry.11 To a great extent, that
restructuring has been achieved. There are now two dominant players among
integrated steel mill companies in the United States and North America, and two
clear market leaders among the minimill producers. Moreover, the leading North
American and global producer, Mittal Steel, in 2006 acquired the global number-two
producer, Arcelor.12 The recovery of pricing power in the domestic industry may be
attributable to industry consolidation, as well as to rising global demand spurred by
China. But, ironically, the establishment of industry pricing power, plus the rise of
global demand and steel prices and the falling exchange rate of the dollar, have also
made establishment of new production facilities in the United States an attractive
proposition.

11

“I have determined that the safeguard measures will facilitate efforts by the domestic
industries to make a positive adjustment to import competition...[including] consolidation
of United States steel producers...” President George W. Bush. Memorandum on “Action
under Section 203 of the Trade Act of 1974 Concerning Certain Steel Products” (March 5,
2002) in Message to Congress (House Doc. 107-185), March 6, 2002, p.56.
12

Both companies are headquartered in western Europe, although Mittal Steel’s production
assets were widely distributed around the world, including Indonesia, Kazakhstan, South
Africa, Poland, Ukraine, South Africa, Mexico and the United States. Arcelor was itself the
result of consolidation of two French-owned steel companies, the Luxembourg steel
company and a Spanish steel company. Arcelor’s global assets included control of CST of
Brazil, the world’s largest merchant exporter of semi-finished slab steel. It had no U.S.
production assets, though it acquired the leading Canadian producer, Dofasco, in January
2006. See: Bloomberg.com, “Mittal Makes $22.7 Bln. Unsolicited Bid for Arcelor” (January
27, 2006); Wall St. Journal, “Arcelor Transfers Dofasco Unit to Block Takeover” (April 5,
2006), p. A3; Wall St. Journal, “Arcelor Assails Mittal’s Structure” (May 4, 2006), p. C4;
Wall St. Journal, “Profits Decline at Mittal, Arcelor as They Continue Takeover Duel” (May
13, 2006), p. A2; and, “Arcelor Expected to Reject Higher Mittal Bid That Evens Voting
Rights” (May 20, 2006), p. A3; AMM, “Arcelor Trips Mittal with Severstal Deal” (May 30,
2006). On accession of the Arcelor board to Mittal’s increased offer in June 2006, see Wall
St. Journal, “Arcelor Agrees to Acquisition by Rival Mittal” (June 26, 2006), p. A3, and
“Arcelor Shareholders Accept Mittal Takeover Offer” (online ed., July 26, 2006); and,
Chicago Tribune, “Steelmakers Forge Merger Deal” (June 26, 2006), p. 1. For a detailed
analysis of the implications and impact of a Mittal-Arcelor deal on the global steel market,
see Economist, “Age of Giants” (February 4-10, 2006), pp. 55-56; and, “Little Love Lost”
(July 1, 2006). Lakshmi Mittal’s account of his own business strategy is in Wall St. Journal,
“Big Steel” (August 3, 2006), p. A6.

CRS-8
Table 1 shows the results of global consolidation in the industry in recent years,
and the relative position for leading companies in the United States, Canada, and
Mexico. The table includes the world’s 20 leading producers, then all of the other
top producers in North America, whether they are domestic- or foreign-owned. The
table reveals that not only is the largest steelmaker in North America a company
based outside the region, but also that recent and pending acquisitions have put much
of the domestic industry in the hands of foreign-owned companies. Locally owned
Canadian and Mexican steel companies have virtually disappeared or are
disappearing.

Table 1. Top Global and North American Steel Producers

ArcelorMittala
Nippon Steel
POSCO
JFE Steel
Tata Steelb
Shanghai Baosteel
U.S. Steel
Nucor
Tangshan
Riva
OAO Severstal
ThyssenKrupp
Evraz Holding Groupd
Gerdau
Anshan
Jiangsu Shagang
Wuhan Iron & Steel Group
Sumitomo
Steel Authority of India Ltd.
Techint Group
SSAB/Ipscoe
BlueScope Steel
AK Steel
Essar/Algoma Steelf
Steel Dynamics
Stelcog
Altos Hornos de Mexico
Commercial Metals Co.
Vallourec
Acerinox
Wheeling-Pittsburgh Steel

Global
Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
39
43
50
54
63
71
79
88
95
105
113

HQ
Country
Lux.
Japan
Korea
Japan
India
China
USA
USA
China
Italy
Russia
Germany
Russia
Brazil
China
China
China
Japan
India
Argentina
Sweden
Australia
USA
India
USA
Canada
Mexico
USA
France
Spain
USA

Makes Steel in
N.Am.?
Y
N
N
Y
Y
N
Y
Y
N
N
Y
Yc
N
Y
N
N
N
N
N
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y

2006 Output
(MT mils.)
117.98
32.91
31.20
32.20
23.95
22.59
21.25
20.31
19.06
18.19
17.60
16.80
16.10
15.57
15.00
14.63
13.76
13.58
13.50
12.83
7.21
6.83
5.65
5.19
4.26
3.81
3.36
3.09
2.79
2.58
2.27

Source: Adapted from Metal Bulletin (March 12, 2007) for data on tonnage and global rankings.
a. Includes total 2006 production of both Arcelor and Mittal Steel.
b. Acquired Corus Group of UK/Neth. in Apr. 2007, incl. U.S specialty steel operations; output is
combined total for 2006.
c. Produces stainless steel at operation in Mexico.
d. Acquired Oregon Steel; combined 2006 output.
e. Ipsco agreed to acquisition by SSAB in Jun. 2007; combined 2006 output.
f. Algoma Steel of Canada agreed to acquisition by Essar in Jun. 2007 — combined 2006 output;
Essar has also acquired Minnesota Steel, a new mill being built in the Mesabi iron range.
g. Agreed to acquisition by U.S. Steel (Aug. 2007).

CRS-9
ArcelorMittal: Global Industry Giant. At the top of the table is
ArcelorMittal, whose combined 2006 output of 118 million MT was three times that
of any other company. Lakshmi Mittal, an entrepreneur originally from India, has
been building a global steel empire with operations in places as varied as Poland,
South Africa, and Central Asia. With completion of the Arcelor deal, Mittal controls
a combined company that produces 10% of global steel output.13 Among Mittal’s
earlier acquisitions was a U.S. integrated steel mill, Inland Steel. He also acquired
a major Mexican producer, the integrated steel works on the Pacific coast at Lazaro
Cardenas. But his major coup in becoming the leading North American steelmaker
was the acquisition of the International Steel Group (ISG). This occurred after the
North American steel industry had nearly collapsed with more than three dozen
bankruptcies after 1998. About one-third of the companies on earlier lists of leading
U.S. and Canadian steel mill operators in 2002-2003 disappeared from independent
existence, either having gone out of business or merged into other companies.
The first bankruptcy that started a consolidation process was that of LTV Steel,
which became the foundation for ISG in 2002, when financier Wilbur L. Ross led a
group that bought the company out of liquidation. Ross put together a steel empire
under the ISG name that soon came to challenge U.S. Steel as the largest U.S.
integrated steel producer. He acquired another venerable, but bankrupt, producer,
Bethlehem Steel, in 2003. In 2004, ISG acquired Weirton Steel, a former National
Steel spinoff that had tried to survive as an independent, employee-owned
corporation, but was finally forced to sell out after 20 years. Ross’ group also
acquired a South Carolina minimill operation, Georgetown Steel, which had gone
into bankruptcy twice in recent years. Ross’ group was not responsible for the
pension and health care legacy costs of the acquired companies. The underfunded
pension funds of bankrupt steel producers were taken over by the Pension Benefit
Guaranty Corporation (PBGC), an entity chartered by Congress, while retirees lost
their company-sponsored health care benefits. Ross also negotiated new labor
contracts with the United Steelworkers (USWA) and other unions representing the
integrated mills. These agreements conflated the number of job descriptions within
integrated mills and otherwise streamlined the organization of labor within plants.14
But ISG’s own days as an independent operator were short-lived.
In 2004 Ross reached an agreement with Mittal, under which the latter’s global
holdings were first consolidated as Mittal Steel, then merged with the holdings of
ISG in April 2005 for a payment of about $4.5 billion to Ross and other ISG
shareholders. Thus, Mittal Steel became the largest domestic U.S. steel producer,
considering both the ISG acquisition and its previously owned Inland Steel
operations, as well as the largest in the world.15
13

Wall St. Journal, “Arcelor Agrees to ... Mittal” (June 26, 2006); Bloomberg.com,
“ArcelorMittal Buys Villacero Mill for $1.4 Billion” (December 20, 2006).
14

For a quick summary of steel legacy cost developments, see CRS Report RL33169,
Comparing Automotive and Steel Industry Legacy Cost Issues, esp. pp. 6-7 and 12-13. An
earlier and more detailed account is in CRS Report RL31748, The American Steel Industry:
A Changing Profile.
15

Ispat International N.V., Ispat International to Acquire LNM Holdings to Form Mittal
(continued...)

CRS-10
In approving the subsequent ArcelorMittal merger under U.S. antitrust law, the
Justice Department did indicate a concern with how the deal would affect the tinplate
market. Ultimately, Justice determined that ArcelorMittal would have to dispose of
its Sparrows Point integrated steel mill (formerly owned by Bethlehem Steel) near
Baltimore. In August 2007, it was announced that Sparrows Point would be sold to
a joint venture led by Esmark, which had also acquired Wheeling-Pittsburgh Steel
(see below), with participation by companies from Brazil and Ukraine.16 Mittal Steel
also decided in 2005 to end steelmaking operations at Weirton, though tin-coating
operations there are continuing.17
North American Restructuring Affects Other U.S. Companies. Only
two other companies with major operations in the United States are among the top
10 globally — U.S. Steel and Nucor, the two largest U.S.-headquartered companies.
Both have substantially increased the global scale of their operations through
acquisitions made during the period of low prices and difficult operating conditions
after 2001. They are respectively seventh and eighth on the global list, with each
producing more than 20 million metric tons worldwide in 2006.
Historically, the largest domestic steelmaker had been U.S. Steel, the integrated
steelmaking company that had held the title for a century until 2002. It significantly
expanded its domestic operations, and took an important step in the domestic
consolidation process, when it acquired another major integrated company, National
Steel, out of bankruptcy in 2003. As in the creation of ISG, U.S. Steel only made this
acquisition after PBGC declared National Steel’s pension fund insolvent and took it
over. Also, U.S. Steel used the new pattern of labor relations with the USWA,
established earlier by ISG in its dealings with the union, to write a new labor contract
for all its U.S. steelmaking operations — both the continuing U.S. Steel plants and
the newly acquired National Steel facilities.18

15

(...continued)
Steel Co. — International Steel Group to Merge with Mittal Steel for Cash and Stock,” news
release (October 25, 2004); Washington Post, “Steelmaker to Be Sold for $4.5 Billion”
(October 26, 2004), p. E1; Wall St. Journal, “Deal Would Create No. 1 Steelmaker”
(October 26, 2004); Financial Times, “Mittal Plan to Create First Global Steel Group”
(October 26, 2004); and “Merger Reveals Details of Mittal Empire” (October 29, 2004);
Business Week, “A New Goliath in Big Steel” (November 8, 2004), pp. 47-8; and, “The Raja
of Steel” (December 20, 2004), pp. 50-2.
16

Wall St. Journal, “Mittal Sells Mill in U.S. as Part of Arcelor Deal” (August 3, 2007), p.
A6; AMM, “Esmark Joint Venture to Buy Sparrows Point Mill” (August 3, 2007); and,
“Justice Asking for Trustee to Sell Sparrows Point Mill” (August 8, 2007).
17

Ibid., “Mittal Tells Weirton Plant: Tin Is In, But Furnace Out” (December 15, 2005); and,
“Mittal Formally Announces Weirton Plant’s Shutdown” (January 2, 2006). In 2007,
ArcelorMittal announced closure of all operations except the tinplate mill at Weirton; ibid.,
“Arcelor Mittal to Shut Weirton Hot-Strip Mill” (October 19, 2007), p. 6.

18

The story of U.S. Steel winning a takeover battle for National against AK Steel, with the
support of the USWA, was described as it unfolded in AMM, January 10, 13, 24 and 27;
February 3 and 10; April 21 and May 21, 2003; See also, Bloomberg.com, “AK Steel Makes
Rival $1.02 Billion Bid for National Steel” (January 23, 2003). On the USWA role in
(continued...)

CRS-11
In 2007, U.S. Steel made other major North American acquisitions, purchasing
Lone Star Technologies, a specialist in producing tubular steel products, for $2.3
billion and Stelco, the last major independent Canadian steelmaker (see below). The
takeover of Stelco would increase U.S. Steel’s North American steelmaking capacity
to more than 25 million tons, enough to make it again the leading producer on the
continent. U.S. Steel is also the U.S. domestic steelmaker that has been most active
in expansion abroad in recent years, having acquired a large integrated mill in
Kosiče, Slovakia (now known as USSK) and another in Serbia. With the Stelco
acquisition, U.S. Steel would have more than 30 million MT in global steel capacity,
enough to move up in Table 1 to fifth place among world steel companies.19
All of the net expansion in U.S. production in recent years has occurred in the
minimill sector. Nucor is the leading U.S. minimill operator. Before the creation
of ISG, it temporarily became the largest domestic steel producer in 2002, passing
U.S. Steel. It now operates 18 mills in 13 states, and poured more than 20 million
MT of steel in 2006. In recent years, Nucor has expanded mostly by acquisitions,
notably through buying financially struggling Birmingham Steel Corporation out of
a “prepackaged” bankruptcy in 2002. Birmingham Steel at that time was the secondlargest U.S. minimill operator.20
The second-largest minimill operator in North America is GerdauAmeristeel,
the subsidiary of a company based in Brazil. While in 2006 it produced only about
a third of the tonnage of Nucor in the domestic market, it has clearly distanced itself
from the remaining minimill companies and is the other major U.S. minimill
consolidator. Gerdau in 2002 acquired a Canadian-based company with U.S.
minimill operations, Co-Steel, plus one mill from Birmingham Steel. It consolidated
these mills together with its own North American operations to create Gerdau
Ameristeel, operating in both the United States and Canada. Then, in 2004, Gerdau
acquired North Star Steel, controlled by Cargill Inc., which was seeking to exit the
steelmaking business.21 In July 2007 GerdauAmeristeel also announced that it had
reached agreement on a $4.2 billion deal to acquire Chaparral Steel, a company with
minimills in Texas and Virginia, and which is a major competitor in the market for
structural beams.22

18

(...continued)
reorganizing the industry and renegotiating labor contracts more generally, see AMM,
December 24, 2002, January 8, 2003 and “A Template for Change” in January 20, 2003
print ed., pp. 2-4; Business Week, “Salvation from the Shop Floor” (February 3, 2003), pp.
100-01.
19

On these acquisitions, see AMM, “U.S. Steel Completes Purchase of Lone Star” (June 18,
2007), p. 6; U.S. Steel, “U.S Steel Agrees to Acquire Stelco,” press release (August 26,
2007); AMM, “U.S. Steel Agrees to Buy Stelco in $1.1 Billion Deal” (August 28, 2007).
20

For a summary of Nucor’s acquisitions and other developments, including Gerdau’s
expansion, in consolidation of minimill operations, see AMM, “Out of Easy Targets, Buyers
Are Beginning to Look Upstream” (February 7, 2005 print ed.), pp. 10-11.
21

AMM, September 10 and November 3, 2004.

22

Wall St. Journal, “Gerdau Sets Deal to Acquire Chaparral Steel” (July 11, 2007), p. A10;
(continued...)

CRS-12
A result of this consolidation is that two companies based outside North
America, Mittal, the largest operator of U.S. integrated steel mills, and Gerdau, the
second-largest operator of U.S. minimills, together control between a quarter and a
third of annual North American industry output. This is an historic change for a
domestic industry that had been almost exclusively North American-based.23
In effect, the industry is highly integrated across North America. There are no
tariffs or trade barriers across the borders under terms of the North American Free
Trade Agreement. Although imports from Canada and Mexico are fully subject to
U.S. antidumping and countervailing duties, they were exempted by President Bush
from the safeguard tariffs, and therefore achieved share gains in the U.S. market.
Also, the USWA, the major union in the industry, operates in both the United States
and Canada. It is not present in Mexico, where government interference in union
affairs was a major issue in 2006.24
The smaller integrated steel mills have almost disappeared as independent
entities under the wave of international consolidation. Rouge Steel, originally
founded by Henry Ford to supply his Detroit motor vehicle manufacturing operation,
was acquired by a large Russian company, Severstal. The company subsequently
rose to the eleventh position in world steel production rankings in 2005, as shown in
Table 1. As part of Arcelor’s efforts to fend off potential acquisition by Mittal,
Severstal’s CEO, Alexei Mordashov, agreed in May 2006 to merge his company with
Arcelor, which would have made the combined company the new top global steel
producer. Mordashov was to take a 32% share of the combined company, with the
right to appoint one-third of the directors, but Arcelor’s shareholders ultimately
approved the merger with Mittal and rejected the deal with Severstal.25 While this
deal failed, Severstal has taken the major financial interest in building a new minimill
in Mississippi (see below).
The remaining U.S. independent integrated mills are:
!
!

AK Steel (no. 50 on the global list), a widely diversified steel product
manufacturer with integrated steel operations.
Wheeling-Pittsburgh (no. 113) had been bankrupt, but used an
Emergency Steel Loan Guarantee to secure financing to build a new

22

(...continued)
AMM, “Ameristeel Agrees to Buy Chaparral for $4.22 Billion” (July 12, 2007).
23

A good summary list of all industry takeovers and mergers through early 2005 is in
Timothy J. Considine, The Transformation of the North American Steel Industry (April
2005, available through American Iron and Steel Institute, Washington, DC), tab. 3.
24

The Mexican government effectively removed from office Napoleon Gómez Urrutia, head
of the Miners and Metalworkers union, by recognizing as its head a dissident rival. It
charged Gómez with malfeasance and misuse of funds. He has legally challenged this action,
amid strong national protests against the government, and has been supported internationally
by the AFL-CIO and the USWA. A detailed report is in AMM, “A Deposed Leader Ignites
the Labor Reform Movement in Mexico” (March 13, 2006, print ed.), p. 12.
25

AMM, “Severstal Vote Clears Way for Arcelor-Mittal” (July 3, 2006).

CRS-13

!
!

minimill, and also become an operator of both technologies.26
Losing money again, despite a steel market that has remained strong
and relatively stable, Wheeling-Pitt became the object of a takeover
battle between Brazil’s CSN and Esmark, a steel distribution
company. It was eventually acquired by the latter.27
WCI Steel of Warren, Ohio (not on list) reorganized out of
bankruptcy in May 2006.
Republic Engineered Products, not on the list and also based in
Ohio, now specializes in bar products, primarily for the automotive
industry, and operates both an integrated mill and a minimill. The
company is the successor of Republic Steel, founded by Cyrus Eaton
in 1930. It has gone through several major changes in recent
decades, including operation as an employee-owned company and
two periods of bankruptcy. In 2005, Republic was acquired by
Industrias CH, a company based in Mexico.28

Steel Dynamics and Commercial Metals (CMC), on the bottom half of the
global list, are U.S.-based minimill operators. Two foreign-owned companies with
significant U.S. steelmaking operations are also in the lower end of the table.
Vallourec (no. 95) is the French-based parent of V&M, a tube-making specialist that
operates a minimill in Youngstown, Ohio. Acerinox of Spain is listed 105th because
it specializes in stainless steel, a low-volume but high-value product. Its North
American Stainless plant in Kentucky is the largest stainless steel plant in the United
States.
In another acquisition by a foreign steelmaker in the U.S. market, Evraz, a
Russian producer that ranked behind Severstal as the thirteenth global producer in
Table 1, acquired Oregon Steel in a $2.3 billion friendly takeover bid. The target
was a minimill producer based in Portland. Oregon Steel did not rank among the
largest U.S. minimill companies, but it was the last independently owned steelmaker
on the West Coast. The deal makes the combined company the world’s largest rail
producer (the main product of Rocky Mountain Steel Mills in Colorado, which is
owned by Oregon Steel).29 Oregon Steel also operates one of the few mills in North

26

Ibid., August 4 and September 10, 2003; March 8, 2004 print ed.

27

The outcome is summarized in ibid., “New Executive Team in Place at Wheeling-Pitt”
(December 22, 2006).
28

Cleveland Plain Dealer, “Mexican Company Buys Republic Engineered” (July 23, 2005),
p. C1.
29

Financial Times, “Evraz Group to Buy Oregon for $2.3 Billion,” and “Combination Will
Dominate Rail Market” (November 21, 2006); AMM, “Evraz Buy of Oregon Steel Fills Void
at Both Producers” (November 21, 2006). Aspects of the deal reportedly concerned the
Committee on Foreign Investment in the United States, the multiagency Executive Branch
body that reviews acquisitions by foreign-owned companies with respect to national security
issues; ibid., “Evraz-Oregon Steel Deal Raising Questions in DC” (December 13, 2006). But
it ultimately was allowed to go through; ibid., “Evraz Given ‘Go’ to Pursue $2.3B Buy of
Oregon Steel” (January 11, 2007); and, “Oregon Steel Purchase Complete” (January 25,
2007), p. 6.

CRS-14
America capable of producing large-diameter pipe, necessary for building longdistance natural gas pipelines.30
Building New U.S. Mills. While international consolidation has brought
more ownership from overseas to the U.S. and North American market, it has also
increased interest in building new steel production facilities in the United States.
Partly this can be explained by higher steel prices and exchange rate developments
that make dollar-based production more favorable. But probably the main driver is
the interest of major foreign-owned companies in establishing a larger presence in
the domestic market. With the major assets already acquired by competitors, the
alternative is to establish new production.
!

The biggest new project is the plan of Germany’s ThyssenKrupp,
number 12 on the list in Table 1, to build a new mill in Alabama at
an estimated cost of nearly $3 billion, in order to have steelmaking
capacity close to U.S. automotive assembly plants. This mill will
primarily roll semi-finished steel slab that the company will import
from a joint venture plant being built in Brazil.31 The project
followed ThyssenKrupp’s failure to acquire the Canadian steel
company Dofasco (see below).

!

With the same target of supplying the southern U.S. auto assembly
plants, a new minimill in eastern Mississippi is already starting
production. Severstal is the primary financial source and controlling
owner of the new plant, which is being managed by John Correnti,
former CEO of Birmingham Steel.32

!

There is also the Minnesota Steel project, originally financed locally,
to build a new steel mill on the Mesabi range, and to utilize directly
the taconite produced at a nearby mine. Essar Global Ltd., a leading
steel company in India, in 2007 acquired the project.33

30

See CRS Report RL33716, Alaska Natural Gas Pipelines: Interaction of the Natural Gas
and Steel Markets.
31

These developments are summarized in Ibid., “ThyssenKrupp Launching New Strategies
for Growth” (August 14, 2006); “TK to Step Up US Plans; Court Nixes Dofasco Plea”
(January 24, 2007); and, “Alabama Picked as Site of TK’s New Steel Plant” (May 14, 2007).
TK also plans to melt and roll stainless steel at the new plant, for shipment to its Mexican
stainless steel facility for further processing.

32

Ibid., “SeverCorr Rising” (December 5, 2005 print ed.), pp. 4-5; “SeverCorr Goes Hot,
Produces First Steel Sheet” (August 30, 2007); and, “Severstal Sold on SeverCorr, US Steel
Market” (October 25, 2007).

33

Minneapolis Star-Tribune, “Iron Range’s New Steel Plant Deal Is Sealed” (October 25,
2007); AMM, “Essar’s $1.65B Minnesota Steel Buy Completed” (October 26, 2007), p. 7.
Note, however, that Minnesota Gov. Tim Pawlenty has threatened to block the transaction
because of concern with Essar’s reported plan to build a large oil refinery in Iran; ibid.,
“Minn. Leader Tosses Wrench in Essar’s Iron Range Plans” (October 30, 2007).

CRS-15
!

Magnitogorsk Iron & Steel Works (MMK), a Russian company,
filed plans in 2007 with the state regulators in Ohio to build a 1 .0 to
1.5 million ton annual capacity minimill on the Ohio River near the
town of Haverhill. In the views of some analysts, MMK’s plans
remain a bit vague.34 MMK is not listed in the global table above,
but in the source for the table, it ranked twenty-third as a global steel
producer in 2006 with 12.5 million MT.

!

Vaguer than the MMK proposal is an otherwise unidentified “group
of European investors” also reported to be interested in building a
“billion-dollar-plus” steel mill in Ohio.35

Local Ownership Ends at Canadian and Mexican Mills. Another
feature of the table is the virtual disappearance of Canadian companies from the list.
One of the two largest and the most profitable, Dofasco, in January 2006 was the
target of a takeover battle between two large European-based companies, Arcelor and
ThyssenKrupp.36 Ultimately, control was acquired by Arcelor, which then placed
Dofasco in a trust operated by a Netherlands-based foundation to make more difficult
the parent company’s hostile takeover by Mittal. Mittal had agreed to sell Dofasco
to ThyssenKrupp, if it acquired Arcelor, but the deal was blocked by the Dutch
trust.37
Canada’s largest minimill operator was also acquired by a company based
outside North America. Ipsco had moved its headquarters to Illinois, but its origins
were in western Canada, and it maintained operations in both countries. On May 3,
2007, it announced agreement on a friendly acquisition by Svenskt Stal AB (SSAB),
a producer of high-value and specialty steel products.38 The 2006 output of the two
companies rank their combined output 39th among global steel companies.
In another friendly acquisition of a Canadian company, Essar of India acquired
Algoma Steel, based in Sault Ste. Marie, Ontario, in a $1.7 billion deal. The EssarAlgoma combination ranks 54th in Table 1, based on more than five million MT in
2006 output. Thus, the Algoma acquisition is part of Essar’s plan to operate
integrated operations in the upper Great Lakes region.39

34

Ibid., “Ohio May Be Near to Landing Mill Project” (October 8, 2007), p. 4; and, “MMK
Mill Plan Is Bigger, Bolder Than Anticipated” (October 22, 2007).

35

Ibid., “Second Group Eyes $1-Billion Ohio Steel Mill” (October 23, 2007).

36

For example, see ibid., January 4 and 10, 2006.

37

See Wall St. Journal, “Arcelor Transfers Dofasco ...” (April 5, 2006); Financial Times,
“ArcelorMittal Will Have to Sell US Plant” (November 14, 2006); and, AMM, “TK Sues
Mittal Steel Over Foiled Dofasco Purchase” (December 27, 2006).

38

“Ipsco To Be Acquired by SSAB for U.S. $160 per Share for a Total Equity Value of U.S.
$7.7 Billion,” joint Ipsco-SSAB press release (May 3, 2007).
39

AMM, “Algoma Shareholders Approve Sale to Essar” (June 12, 2007), p. 6.

CRS-16
Finally, on August 26, 2007, U.S. Steel announced an agreement to acquire
Stelco. Stelco was in 2005 Canada’s largest steel producer and remained its last
locally owned major steel company. It reorganized in 2006 after two years in
bankruptcy protection.40 Its 2006 production of 3.81 million MT, well below the
company’s earlier levels, ranked it 71st globally in Table 1. The company, based in
the Canadian steelmaking center of Hamilton, Ontario, continued to struggle
financially, losing more than $C300 million in 2006, and was reported as negotiating
sales of some major assets. U.S. Steel announced an acquisition price of $1.1 billion
(U.S.), plus assumption of Stelco’s debts and pension liabilities.41
There is also just one company in Table 1 from Mexico. Altos Hornos de
Mexico S.A. (no. 79) is the last independently owned large Mexican steel mill. It has
operated in bankruptcy for much of the last 10 years.42 Argentina’s Techint Group
moved up to number 20 on the global list after acquiring other Latin American
operations, including Hylsamex, a Mexican minimill operation. In June 2006
Techint’s subsidiary Tenaris, reportedly the world’s largest supplier of seamless pipe
for the oil and gas industry, announced that it had reached a deal to acquire Maverick
Tube Corp., based in Missouri and the largest maker of oil country tubular goods in
North America.43
Labor Relations Issues. Another structural change in the industry was the
merger of the United Steelworkers union with the Paper, Allied Industrial, Chemical
and Energy Workers International Union (PACE). The executive boards of the two
organizations agreed to the merger on January 11, 2005. The new union reportedly
totaled 850,000 members, located in bargaining units in the United States, Canada
and the Caribbean. While the merged union would have perhaps the longest formal
name in labor relations history (the “United Steel, Paper and Forestry, Rubber,
Manufacturing Energy, Allied Industrial and Service Workers International Union”),
its abbreviated name is the United Steelworkers, and Leo Gerard, the USWA
president, is the head of the merged union.44
Labor issues have affected the operations of two major U.S. producers in 200506, and represent fallout from the industry consolidation process. AK Steel locked
out 2,400 workers represented by the Armco Employees Indepenedent Federation
(AEIF), a union not affiliated with the USWA, at its integrated Middletown, Ohio
mill on March 1, 2006, after the deadline passed to negotiate a new labor contract.

40

On Stelco’s emergence from bankruptcy, ibid., “Mott Paying $4.7 Million for 1M Shares
in Stelco” (April 4, 2006).
41

Ibid., “Unexpected Challenges Hurt Stelco Results” (March 9, 2007); “Stelco, Cliffs
Agree to Sell Wabush Stake” (June 7, 2007); “U.S. Steel Agrees to Buy Stelco ...” (August
28, 2007). U.S. Steel press release (August 26, 2007); and, AMM, “USS’ Shopping Spree
Is Not Over Yet” (October 2007 print ed.), p. 12.
42

Ibid., “Ahmsa Expected to Remain Major Player in Mexican Steel Industry” (January 25,
2007), p. 6.

43

AMM, “Techint Inks Deal to Acquire All of Hylsamex for $2.25B” (May 20, 2005); and
“Tenaris Opens Door into US via $3.2B Deal for Maverick” (June 14, 2006).
44

Ibid., “Executive Boards of USW, PACE Union Vote to Merge” (January 12, 2005).

CRS-17
The company stated that the expired contract was outdated by the new contracts
negotiated at the other integrated mills, discussed above, operated the mill for a year
with salaried and temporary workers. Labor-management issues were further
complicated by an AEIF negotiating proposal for its members to be covered under
a mulitemployer health benefits plan operated by a third union, the International
Association of Machinists (IAM). The USWA represents other AK operations and
has tried to organize Middletown, but AEIF members in July 2006 voted to affiliate
with the IAM instead.45
Agreement between the IAM and AK management was reached after further
negotiations, and ratified by 85% of the workers represented. The company was able
to freeze pension liabilities, and going forward made defined contributions to IAM’s
multi-employer pension plan. While increasing wages, the company in return
received contract changes similar to the USWA deals at other steel companies and
health care cost sharing. Besides the wage increase, employees gained job protection
for returning workers who had been locked out, and improved language related to
grievance procedures. But the new contract does not guarantee a base workforce
(earlier more than 3,000). About 1,800 employees returned to operate the plant.46
Another company significantly affected by labor-management concerns was
Gerdau Ameristeel. Although most minimills are non-union, the Brazilian-based
company acquired three union-represented mills from North Star. It locked out union
members at the mill in Beaumont, Texas, after the existing contract expired, and talks
failed to establish a new one. But eventually the company terminated the lockout
without agreement on a new collective bargaining arrangement. Meanwhile, labor
contracts also expired at the former North Star mills in Minnesota and Iowa, though
operations continued without a new replacement contract.47 The company succeeded
in December 2006 in achieving ratification by workers of a new contract at the wire
rod mill in Perth Amboy, New Jersey, a union shop which it had acquired when it
took over Co-Steel.48 In early 2007, workers also ratified new contract agreements

45

The development of the dispute is described in detail in ibid., “90 Days and Counting”
(May 29, 2006 print ed.), pp. 4-5. On inter-union issues, see ibid., “AEIF Blasts USW over
Call to Strike Down Tie with IAM” (June 12, 2006); “Locked-Out Union Picks IAM, But
Will AK, USW Let It Pass?” (June 16, 2006); “AK Won’t Recognize IAM Representation”
(June 21, 2006); “AK Workers Vote IAM In, But the Issues Remain the Same” (July 31,
2006; “Now It’s the IAM’s Turn To Try To Retool What’s Broken at Middletown” (July
31, 2006 print ed., p. 9); and, “AK ‘Puzzled’ by IAM Comment about Latest
Counterproposal” (December 27, 2006).
46

Ibid., “Union Ratifies New Contract to End Lock-Out by AK Steel” (March 16, 2007);
and, “After a Marathon-Long 54 Weeks, the Sun Comes Out in Middletown” (March 19,
2007, print ed.).
47

Other labor contracts inherited from acquisitions of Co-Steel and Sheffield Steel of
Oklahoma are also expiring. The Gerdau Ameristeel labor situation is summarized in an
AMM interview with CEO Mario Longhi, appointed in 2006, “‘You Don’t Go Through
Transition Without Some Level of Challenge’” (May 15, 2006 print ed.), p. 13.

48

Ibid., “Union Members at Ameristeel Mill Approve Contract” (December 26, 2006).

CRS-18
between management and USWA representatives for the three former North Star
plants.49

World Steel Output Totals
World steel output in 2006 was 1.24 billion metric tons (MT), a new all-time
record. Over the past 10 years, global steel output has increased by 65%, and since
2000, it has increased by nearly 50%. The main driver in this increase in production
has been the People’s Republic of China. It produced 419 million MT in 2006,
more than four times the total it produced in 1996, when China first became the
world output leader. During this ten-year period, China’s share of global raw steel
production increased from 13.5% to 34%.50
The European Union (EU) as a whole and Japan both produce more steel than
the United States. The EU in 2006 produced 173 million MT, more than 16% of
global steel production. The leading producer was Germany (44 milllion MT),
followed by Italy (29 million MT), France (20 million MT) and Spain (18 million
MT). Among the newer EU members from Central and Eastern Europe, Poland was
the leading producer with 10 million MT.
Japan produced 116 million MT in 2006 and the United States produced 98.6
million MT. These two countries ranked number two and three globally, behind
China. Japan’s global share was 9% and the U.S. share was 8%. As Canada and
Mexico each produced in the 15-16 million MT range, the total North American
output of 130 million MT was 10.5% of the global total.
The former Soviet Union was once a leading producer, and ahead of the United
States. In 2006, the production of Russia was 71 million MT (5.6% of world
production), and Ukraine was 41 million MT (3.3%). Together with the smaller
producers from the Commonwealth of Independent States, their share was about
10% of global steel production. Other major producers in a second tier include
South Korea, India, Brazil, Turkey, and Taiwan, all in a 20-50 million MT annual
range.51

U.S. Import Patterns
The pattern of U.S. imports underwent a significant change in 2006, as total
steel imports increased dramatically. During the period of the Bush safeguards,
Canada and Mexico became the top two suppliers to the U.S. market. By 2005, the
United States imported more than 9 million MT from its NAFTA partners, compared
to about 5 million MT from all western Europe, traditionally the number-one source.
A third western hemisphere producer, Brazil, became the third-largest national

49

Ibid., “Workers Ratify New Pacts at Ameristeel Mills” (March 9, 2007).

50

Data from International Iron and Steel Institute (IISI), as reported and analyzed by
Purchasing Magazine Online (February 15, 2007). A later IISI report gives Chinese
production for 2006 as 422.7m. MT.

51

IISI. World Steel in Figures, “Major Steel Producing Countries, 2005 and 2006.”

CRS-19
source, at 2.3 million MT in 2005. Imports from China grew to almost 2.2 million
MT, Russia and Germany were about 1.4 million MT each, with Japan, Korea, and
Turkey (about 1.2 million MT each) the other sources over a million tonnes.
There was a major rearrangement of rankings in 2006. The expanded European
Union was the top source of steel imports, with 5.7 million MT (but with a total of
1.2 million MT, Germany was the only European supplier to top one million tonnes).
Canada remained the leading national supplier, but its shipments to the U.S. market
were flat compared to the previous year at about 5.4 million MT. Imports from
Mexico were down by 11.5% and fell behind the total from China, which became the
second-largest import source, as shipments more than doubled to 4.9 million MT.
Imports from Russia grew even faster, to about the same total as Mexico. Brazil’s
exports to the United States in 2006 increased by 12% to 2.6 million MT, being
restrained by a major mill outage. Turkey, Korea and Japan all saw substantial gains
in the U.S. market, with shipments in 2006 rising to about two million MT or more
each. Imports from Canada and, especially, China, both increased in the first half of
2007, but imports from most other sources declined.

Steel Price Trends and Developments
Steel Prices Remain at a High Plateau
Notwithstanding the removal of President Bush’s steel safeguards, which had
been heavily criticized by many steel-consuming industries and their representatives
in Congress, the price of steel moved up, not down, after the President’s action.
Most economists would expect that, everything being equal, removal of the safeguard
tariffs would encourage importation of steel into the domestic market, more
competition with domestic steel producers, and, consequently, lower prices. But
instead the price of steel in early 2004 rose sharply, and has stayed at a much higher
level than it was before the initial presidential safeguard action of 2002.
A few months before the imposition of the Bush safeguards in March 2002, the
price of hot-rolled carbon steel, a benchmark industrial product, fell as low as $222
per ton. During the period that the safeguards were in effect, average steel prices
were generally just above or below $300 per ton. By September 2004, nine months
after termination of the safeguards, the average spot price of this product was $700800 per ton.52 Note that large industrial users, such as automotive producers,
generally negotiate longer-term contract prices, which may be significantly lower.53
52

Data on steel prices before, during and after the Bush safeguards are taken from ITC.
Steel: Monitoring Developments in the Domestic Industry (Investigation no. TA-204-9) and
Steel-Consuming Industries: Competitive Conditions with Respect to Steel Safeguard
Measures (Investigation no. 332-452), issued together as Publication no. 3632, Vol. 1, Table
II-27; Global Insight. Steel Monthly Report, various issues; and, specifically on the
September 2004 peak price, AMM, “‘Let’s Take It Slow ...’” (May 9, 2005).
53

This system is described in Al Wrigley, “Car Talk: Wheeling and Dealing Steel in
Detroit,” AMM, December23, 2002 print ed., p. 3. It is also summarized in Brian C. Becker
(continued...)

CRS-20
Thus, the steel users most immediately and adversely affected by high steel prices
were small and medium-sized companies that bought steel on the spot market.54
The data in Table 2 indicate that while the price of all steel products has risen
since 2001-02, there are considerable variations, depending in part on demand
patterns in consuming industries. For example, some products widely used in the
automotive industry peaked in 2004, fell back in 2005, and increased again in 2006,
but fell again in 2007, in the face of major auto industry production cuts. This
pattern is exhibited, for example, by hot-rolled and cold-rolled sheet steel, and by
hot-rolled carbon “special bar quality” (SBQ) steel. Cold-rolled sheet, used for auto
exteriors, was down by $65 per ton in 2007, and SBQ bars, widely used for auto
structural parts, was down by more than $125. Prices for products used heavily in
non-residential construction rose or fell by a much smaller amount. The price of
concrete reinforcing bar increased in 2007 over 2006. Plate, normally less expensive
than sheet steel, remained more expensive in late 2007, though down from its 2006
peak. Industrial quality rod, widely used in capital goods industries, stayed as high,
or higher, in 2007 as in 2006.
There are also considerable variations in the overall rates of price increases.
Cold-rolled stainless sheet steel (grade 304) increased almost four times in price,
from the average low of $1,295 per ton in 2003 to $4,742 in late 2007. Steel plate,
a product used in much greater volume, increased almost as rapidly, rising more than
three times in value from its 2001 lows to 2007. On the other hand, oil country
tubular goods have only risen by an average of only 40-60% from their lowest
average values (in 2003) to the 2007 level. Prices have fallen in late 2007, after an
ITC ruling revoked trade remedy duties that had been placed on imports (see below).
Cold-rolled and hot-rolled sheet in 2007 were only about double the 2001 low prices,
compared to the higher rate of increase for plate steel.

53

(...continued)
and Kevin Hassett, The Steel Industry: An Automotive Supplier Perspective (February 2005,
funded by the Motor & Equipment Manufacturers Assn.), p. 13.
54

See U.S. House. Committee on Small Business. Spike in Metal Prices — What Does it
Mean for Small Manufacturers? Hearings, March 10 and 25, 2004.

CRS-21

Table 2. Steel Price Series, 2001-2007
Products

Average Annual Price Per Short Ton ($)
2001

2002

2003

2004

2005

2006 2007a

Hot-Rolled Sheet

234

329

296

617

557

596

530

Cold-Rolled Sheet

319

422

383

693

647

695

630

Hot-Dipped Galvanized

328

440

402

734

675

762

760

Cut-to-Length Plate

258

305

314

638

792

829

790

Coiled Plate

240

314

320

674

820

829

790

Reinforcing Bar

310

306

318

447

486

526

580

HR Carbon Steel - SBQ 1000

340

353

372

546

719

838

710

Cold-Fin. Carbon Steel 1018

455

465

503

773

899

880

910

Merchant Angles (2”x2”x1/4”)

288

252

306

482

520

582

677

Low-Carbon Industrial Quality

310

317

323

568

583

592

590

High-Carbon Industrial Quality

330

330

333

599

605

618

670

OCTGb Carbon, Welded

880

811

788

1130

1345

1368

1270

OCTG Carbon, Seamless

1009

926

884

1228

1534

1567

1454

OCTG N80, Welded

1071

999

998

1341

1614

1735

1491

OCTG N80, Seamless

1163

1092

1072

1422

1764

1869

1549

1376

1301

1295

1734

2515

3287

4742

Flat Products
(Sheet)

(Plate)

Long Products
(Bar)

(Rod)

Tubular Products

Stainless Steel
Cold-Rolled Sheet 304

Source: Annual price data from AMM historical steel base price series, and 2007 data as reported in
AMM.com (Oct. 26, 2007). Except for OCTG, prices converted from cwt. to per ton basis by CRS and
rounded to nearest dollar. Selected categories based on those used in Global Insight, Steel Monthly
Report price forecasts.
a. Latest 2007 avg. data.
b. Oil Country Tubular Goods.

CRS-22
While the price of steel has risen all over the world since 2000, price changes
have moderated in recent years, with a tendency to converge across regions.
Comparisons are based on “SteelBenchmarker,” a historical series provided by
American Metal Market and the consulting firm World Steel Dynamics. Their data
show that the relative U.S. price of hot-rolled steel, compared with other major
markets, dramatically changed in 2002-2004. It went from lower than European and
Chinese prices in 2002-03 to higher than European and world export prices, and
double the Chinese price, for much of 2004. There was a sharp, brief fall in the U.S.
price in late 2004, but then it recovered to run higher than other market prices for
2005 and the first half of 2006. With the weakening of the dollar exchange rate and
stronger economic demand in Europe, the price of European hot-rolled steel rose by
late 2007 to $672 per metric ton (MT), while compared to a U.S. price of $577. The
latter figure was about the same as the reported world export price, helping to explain
a decline of U.S. import tonnage in 2007 from the 2006 record level. As John Anton
wrote for the economics consulting firm Global Insight, “In a real sense, the United
States and the Eurozone have switched places as far as prices and imports are
concerned.”55 The Chinese price remained far below the U.S. price, but at $470 per
MT in mid-2007, the gap was only about one-third that seen in 2004-05.56
The continued high price of steel, as well as its volatility in some recent years,
has led to suggestions that steel consumers might be able to hedge against price
changes, futures contracts were traded in global commodity markets, as in the
example of other metals. There is a counter argument that the chemistry and other
specifications of steel supplied under contract are so precise, that it is impossible to
consider it as a commodity item. Nevertheless, the board of the New York Metal
Exchange (Nymex) in October 2007, reportedly approved launching futures contracts
on hot-rolled steel, sold in units of 20 short tons, with prices settled on the basis of
those reported in the “SteelBenchmarker.” Internationally, the Dubai commodities
exchange is reported to be about to introduce a rebar futures contract, and the London
Metal Exchange to introduce a steel billets contract for trade in the Asian and
Mediterranean regions.57

Steel Input Costs
From the perspective of the steel industry, a substantial and at least semipermanent rise in the price of steel has been justified by the rapid rise in the price of
many steelmaking inputs.
Steel Scrap. Initially, the rapid rise in steel prices in 2003 was especially
linked to a rapid rise in scrap prices. This especially affected the minimill sector,
because scrap is the major input in U.S. electric arc furnaces, the production
technology they use. By 2002, total U.S. EAF production had overtaken the output
of basic oxygen furnaces, the steelmaking technology of integrated mills that produce

55

Global Insight. Steel Monthly Report (September 2007), p. 6.

56

See “SteelBenchmarker” chart in AMM, “Hot Band Rise in World Export Market Bucks
Regional Trend” (October 25, 2007).
57

Ibid., “Nymex’s Board Gives Final Approval to Steel Contract” (October 24, 2007).

CRS-23
raw steel from iron ore, coke and other materials. While scrap is usually the principal
input in minimill furnaces, it is also frequently added to iron in making steel at
integrated mills (up to 25-30%). Scrap enables EAFs to produce a more
competitively priced product, especially where absolute purity of the steel is not a
prerequisite. Thus, all parts of the industry are affected by changes in the scrap price,
though the minimills more than the BOFs. Since minimills are the low-cost
producers of many steel mill products, a less competitive minimill price enables the
integrated mills to raise their prices as well in a tight market.
The price of ferrous scrap tripled or even quadrupled in 2002-04, and has been
highly volatile in the period since then. During some recent periods, the price of
scrap has been higher than the price of finished steel in 2001-03.
In early 2002, the price of scrap was about $65 per ton, the composite price for
“number 1 heavy melt scrap,” a common commercial category, as reported by
American Metal Market. The price reached a plateau of about $100 from mid-2002
through mid-2003. Then the price rise accelerated to $160 by the end of 2003, and
climbed more steeply to an average of more than $237 by early March 2004. More
premium grades commanded higher prices, up to reports of more than $300 per ton.
At three different times during 2004 (March, August and November), the price of this
benchmark category of scrap peaked near or above $250. In 2005, at three different
times during that year the price of scrap again peaked at more than $220 per ton, but
at one point it also fell to about $120. In 2006, the price peaked once more above
$250, but was generally more stable. However, in March 2007, it skied to more than
$300 per ton, with better grades even higher, and it stayed above $240 through
October 2007.58
Many in the industry ascribed the rising price and reduced availability of
domestic steel primarily to the rise in scrap prices, driven in turn by rising global
demand, especially in China. For example, one witness at a House hearing linked the
rise in scrap prices to a doubling of U.S. ferrous scrap exports, from 6 million tons
in 2000 to 12 million tons in 2003. About half of the exports in the latter year went
to just two Asian countries: China, and South Korea, whose steel exports increased
because of demand in China.59 Concerned that rising metal scrap exports were
driving up domestic prices and aiding their foreign competitors, U.S. metalsconsuming industries unsuccessfully petitioned to restrict non-ferrous metal exports.
Steel users also considered such a request.60 No petition was ever filed, however, for

58

See charts in AMM, February 7 and May 9, 2005 print eds., both on p. 15; January 9, 2006
print ed., p. 11; June 5, 2006 print ed., p. 14; August 28, 2006 print ed., p. 11 and, December
4, 2006 print ed., p. 11; May 14, 2007 print ed., p. 11; October 15, 2007, p. 9.
59

House Small Business Comm. Hearing (March 10, 2004). Statement of Robert J. Stevens
(Impact Forge Inc. and President, Emergency Steel Scrap Coalition).
60

On export controls on both ferrous and non-ferrous scrap, see AMM, “Short Supplies,
Export Angst” (February 23, 2004 print ed.), p. 2; “Scrap Wars Create Turmoil, Skepticism”
(March 3, 2004); and, “Commerce Nixes Copper’s Plea to Cap Scrap Exports” (July 22,
2004), p. 1; also, Washington Trade Daily, “Limiting Copper Scrap Exports” (April 8-9,
2004).

CRS-24
short supply controls on steel scrap exports, nor was any legislation introduced to
restrict such exports.
U.S. ferrous scrap exports have remained high. According to Commerce
Department data, they were 11.7 million MT in 2004 and 12.4 million MT in 2005.
China in those years took nearly 30% of the total, and was still the leading
destination, but Korea fell behind Canada, Mexico, and Turkey.61 In 2006, total
ferrous scrap exports remained at the 12.4 million MT level, but exports to China fell
by a quarter, and exports to Turkey were almost equal — 2.7 million MT to China,
2.5 million MT to Turkey. In the first half of 2007, Chinese imports of U.S.-origin
ferrous scrap again declined compared to the same period in 2006, but overall scrap
exports were up 36%. Turkey imported U.S. ferrous scrap at an annual rate of more
than 3.5 million MT, and was the leading destination.62
Among other major exporters of scrap, Ukraine and Russia have restrictions
on ferrous scrap exports, which serve to maintain a scrap supply for their domestic
steel industries. The United States is a major net scrap exporter, and does not import
large amounts from these countries, but their exports are important in terms of the
overall global supply. For example, restrictions on scrap exports from the two
countries may help explain the increased interest of the Turkish steel industry in
importing scrap from the United States.
U.S. negotiators sought to eliminate scrap export restrictions as part of
negotiations with the Ukrainian government to establish bilateral permanent normal
trade relations (PNTR) and in negotiations related to U.S. acceptance of Ukraine’s
accession to the WTO. On March 6, 2006, U.S. and Ukrainian representatives signed
a WTO accession agreement. On March 23, 2006, President Bush, following
approval by Congress, signed into law a measure to establish PNTR with Ukraine
(P.L. 109-205).63 Ukraine had already passed legislation to cut its ferrous scrap
export tax in half to about $18/MT by the end of 2006. In the negotiations with the
United States, Ukraine agreed to reduce the ferrous scrap export tax further to onethird of the previous level. Further reductions or elimination of the tax were made
in negotiations with other WTO members.64
61

AMM, “U.S. Scrap Exports a Two-Sided Affair” (February 15, 2006), incl. table.

62

2006 data from unpublished AMM tables reporting revised Commerce Dept. data. Data
for January-April 2007 from AMM, “US Exports of Ferrous Scrap by Destination” (June 13,
2007), table on p. 4.
63

See CRS Report RS2114, Permanent Normal Trade Relations (PNTR) Trade Status for
Ukraine and U.S.-Ukrainian Economic Ties, by William H. Cooper. This report notes that
in 2005, “over half of U.S. imports from Ukraine consisted of steel plus coke that is used
in making steel.” A key U.S. policy change, sought by Ukraine and granted in February
2006 by the Commerce Dept., was change in Ukraine’s designation from a “non-market” to
a “market” economy. Domestic steel industry associations opposed this policy change,
which they said will make it much more difficult to win antidumping cases against
Ukrainian exporters; AMM, “Ukraine Still Playing Under Old Rules Despite New Trade
Status” (March 27, 2006 print ed.), p. 2.
64

Ibid., “Ukraine OK of Export Duty Cut Stokes Fears of Scrap Shortages,” (November 21,
(continued...)

CRS-25
Russia also agreed to include export taxes and restrictions on scrap exports as
part of its WTO accession negotiations. It accepted in the final bilateral agreement
of November 2006 that it would reduce export duties on ferrous scrap to one-third
of current levels over a five-year period following WTO accession.65
While the steel industry claims that it uses the world’s most recycled material,
reports are that the rate of recycling declined significantly in 2006. The officially
reported rate by the Steel Recycling Institute (SRI) for 2006 was 68.7%, down from
75.7% in the previous year. SRI attributed the decline in recycling to the rising
global demand for and production of steel. Its president stated that as demand
increased, more readily available supplies of scrap in urban areas were being used up,
and recyclers were having to dig into reserve supplies farther out into the
countryside.66
Rise in the Price of Iron Ore. High iron ore costs have the greatest impact
on the integrated steel industry, which must make steel from some form of iron ore.
But it also impacts the minimills, which generally must use at least small amounts
of pig iron or other iron units for purity. They have been seeking cheaper sources of
iron units, also as an alternative to high-priced scrap.
In February 2005, when the major global steel making companies arranged their
supply contracts for the coming year, Nippon Steel agreed to an unprecedented
71.5% price increase with the large Brazilian iron mining company, CVRD. This
deal set the pattern for international iron ore purchases by other integrated steel
companies, and compares with the previous high one-year price increase of less than
20% in 1980.67 In 2006 CVRD negotiated a further 19% iron ore price increase with
major European and Asian producers. After protracted negotiations with the major
iron ore producers, Chinese steelmakers also accepted the same level of prices
increase for 2006.68 In late 2006 the Chinese steelmaker Shanghai Baosteel initiated
64

(...continued)
2005), p. 7; and interview of May 26, 2006, with Jean Kemp, Director of Steel Trade Policy,
Office of U.S. Trade Representative. Business Week, in its issue of September 3, 2007,
reported that, despite an ongoing political crisis, the Ukraine parliament in July 2007
“approved laws that lowered export taxes on metals [that] ... should help pave the way for
Ukraine’s entry” into the WTO by 2008 (p. 51).
65

Office of the U.S. Trade Representative (USTR). Trade Facts, “Results of Bilateral
Negotiations on Russia’s Accession to the World Trade Organization (WTO): NonAgricultural Goods Market Access” (November 19, 2006), p. 2.
66

AMM, “Steel Recycling Rate Falls to 68.7% in ‘06: SRI” (August 24, 2007), p. 6.

67

AMM, “CVRD Wins 71.5% Increase in Japanese Iron Ore Deal — Asian Steelmakers
Gird for Domino Effect” (February 23, 2005), p. 1.
68

CVRD did, however, agree to a 3% reduction in the price of iron ore pellets. AMM,
“CVRD Deals Call for 19% Hike in Iron Ore Fines” (May 19, 2006), and “ CVRD Seals
Iron Ore Supply Deals with Arcelor, China Steel [Taiwan]” (May 25, 2006); Wall St.
Journal, “China’s Steelmakers Hold Out as Suppliers Set Pricing Deals” (May 19, 2006),
p. B4; and, “Steel Prices Are Likely to Jump, Adding to Manufacturers’ Woes” (May 24,
2006), p. A2; Washington Post, “China Agrees to Steep Increase for Iron Ore” (June 21,
(continued...)

CRS-26
price negotiations with CVRD on behalf of the Chinese steel industry for the next
year’s price level. The result was a further 9.5% price increase for iron ore, which
set the standard for the world level, since China imports 40% of all internationally
traded iron ore.69
Domestic U.S. iron ore production, which is in the form of taconite that is
subsequently pelletized, increased in 2004-05. It is not directly affected by the global
increase in iron price. After averaging less than 50 million MT in 2001-03,
production was 54.7 million MT in 2004, 54.5 million MT in 2005, and 52.9 million
MT in 2006. But these annual levels were still much less than the recent peak of
more than 63 million MT in 2000. Most iron ore used by the U.S. steel industry is
domestically produced. Exports and imports in 2005-06 were close to level, with
imports slightly higher. Exports were 8.3 million MT in 2006, with 11.5 million MT
imported. Canada and Brazil are by far the leading suppliers of imported ores and
pellets.70 U.S. steelmakers are not insulated from the high global price of iron ore,
which doubled in price from $26 per ton in 2002 to $52 in 2006, according to the
U.S. Geological Survey.71 According to a press report, the typical price in mid-2007
was $60 per ton.72
Minimills frequently use direct-reduced iron (DRI), a product that converts raw
iron ore into units that may be substituted for scrap. However, this product requires
large amounts of natural gas, and the rise in price of this input has led to the three
DRI plants in the United States being dismantled to be reassembled and put into
production in Trinidad and Saudi Arabia. A new coal-fired plant is being built in the
Minnesota iron range, as noted earlier. This development indicates renewed interest
in this historically important producing region.73
The Cost and Supply of Coke. Coking coal has been in relatively short
supply, both domestically and internationally. According to the Department of
Energy, U.S. domestic production of coke, derived from a grade known as
metallurgical coal and used almost exclusively in blast furnaces by integrated steel
mills, was 22 million tons in 1997. It was more than 20 million tons annually from
1998 through 2000, 18 million tons in 2001 and about 17 million tons in 2002-03.
68

(...continued)
2006), p. D10.
69

Wall St. Journal, “China Steelmakers Agree to Ore Deal; Likely Benchmark” (December
22, 2006), p. A2; AMM, “N. America Iron Ore Pellet Price Yet to Be Set” (December 26,
2006).
70

Iron ore data from Dept. of the Interior. U.S. Geological Survey. Mineral Commodity
Summaries, 2004 and 2006; and, January 2007 Monthly Report.
71

Ibid., p. 82.

72

Wall St. Journal, “Ship Shortage Pushes Up Prices of Raw Materials” (October 22, 2007),
p. A1.
73

AMM, “The Sourcing Game,” and “In Alternative Iron, Finding the Right Fit May Mean
Moving the Plant” (May 15, 2006 print ed.), pp. 4-7. Transportation costs and problems,
particularly a shortage of rail cars, have also contributed to raw material sourcing problems
for the steel industry.

CRS-27
It remained below 17 million tons annually in 2004-06.74 With China as the key
source of coke on the world market, and China’s own domestic demand growing,
availability has been squeezed, and the price has risen. The consequence in recent
years has been volatility in both the price and availability of coke.
These problems were exacerbated by a mine fire and an interruption in coke
supplies from U.S. Steel, a major coke producer, to other steelmakers in 2003-04.
This created a shock wave through the integrated steel industry. According to one
industry source, the cost of coke rose from $145/ton to $250/ton between November
2003 and early 2004.75 With the recovery in domestic steel demand, imports had to
make up the gap. They more than doubled, from 2.8 million tons in 2003 to 6.9
million tons in 2004, then leveled off to 3.5-4.0 million tons annually after integrated
steel production declined somewhat and domestic coke sources came back on line in
2005.76 Full supplies have been subsequently resumed for U.S. Steel, but the
company has declared itself out of the merchant coke market. Existing coke plants
are being reopened or modernized, and some new ones are being developed, although
in the latter case coke plants sometimes engender opposition on environmental
grounds.77
China is the world’s leading supplier of coke in international trade, and the
United States has been the number-two importer, behind the European Union (EU).78
As more Chinese coke output is being used in domestic steel production, export
growth flattened.79 A witness before the House Small Business Committee noted that
the Chinese coke export price had risen from $55 per ton to between $200-300 per
74

U.S. Dept. of Energy. Energy Information Administration (EIA). “Coke Overview, 19492003” (February11, 2005); and, “Quarterly Coal Report” (January-March 2007), table 2.
75

Scott Robertson, “For Some Steelmakers, a Lump of Coal Would be a Welcome Gift,”
AMM print ed. (March 15, 2004), p. 3. The information on the price rise is from industry
consultant Charles Bradford, in Tom Balcerek, “Back Behind the Wheel,” AMM print ed.
(February 9, 2004), p. 6. The thrust of the article, however, is that higher scrap prices have
made the integrated industry overall more competitive against minimills.
76

EIA. “Quarterly Coal Rept.” (January-March 2007), table 2.

77

Weirton Steel, once a purchaser of coke from U.S. Steel, has ceased to produce raw steel
since its acquisition by Mittal. Another former U.S. Steel customer, Wheeling-Pittsburgh
has been rebuilding and modernizing its coke plant in Follansbee, WV, but the process has
been more difficult and costly than originally planned. AMM.com: “More Demand Attracts
More Supply?” (July 23, 2004); “Wheeling-Pitt Mulling Post-BF Coke Strategy” (August
9, 2004), “Some Coke Batteries at 50% as Woes Continue” (January 21, 2005); AMM,
“Construction of Ohio Coke Plant May Start Soon” (January 2, 2006), p. 1, and, “Things
Aren’t Quite Going to Plan with W-P’s Oven Rehab” (May 15, 2006 print ed.), p. 8. Plans
for other coke plants are affected by environmental issues; ibid., “Sun Drops Coke Plant
Plan; Others Still in Works for Now” (November 9, 2006); and, “Proposed Ohio Coke Plant
Hits Another Snag” (June 8, 2007), p. 6.
78
79

AMM.com, “Mills Face Coke Quandary as Chinese Prices Soar” (May 16, 2003).

A Chinese official stated that, “China would limit coal exports in 2004 to meet the
increasing domestic demand;” “China Coal Policy,” China Business News On-Line (January
29, 2004); also; “China Coke Exports Seen Even Lower,” Platts International Coal Report
(December 8, 2003).

CRS-28
ton by early 2004, and that in February 2004, China was actually a net importer of
coking coal versus typical net exports of 1 million tons per month.80
As a consequence, China sought to tighten its allocation system, and to
substantially reduce exports by reducing export quotas and raising the price of export
licenses. The EU brought a World Trade Organization case against China, which
then agreed that the amount of coal exported to the EU would not decline in 2004.81
China also maintained this level of exports in 2005, but the EU has argued that such
temporary amelioration does not resolve the complaint. “They are under an
obligation to remove restrictions on the export of coke for steelmaking,” according
to EU external trade commissioner Peter Mandelson.82 Chinese coke prices dropped
from a short-lived peak of more than $400 per MT in 2004, to less than $150 in late
2005.
In contrast to the situation in 2003-04, “massive investment” in Chinese coke
resources had created a surplus of supply over demand. U.S. prices fell below $140
by the end of 2005.83 In early 2007, average receipts at U.S. coke plants were
reported to be less than $100 per ton by the Energy Department.84
But trends reversed again later in the year. In August 2007, Warren
Consolidated Industries of Ohio, the smallest U.S. integrated steel operation and one
wholly dependent on the merchant coke market, predicted that a sharp rise in coke
prices of “$55-70 per ton” in the second half of 2007 would have seriously adverse
operational cost consequences for a company already losing money.85 Industry
analysts reported September 2007 coke prices in China of $325 per ton, which would
translate to $450, when delivered to the U.S. market, owing to high costs of shipping
(see below). By contrast, the cost of making coke domestically was $250 pere ton,
which, according to an analyst, is “... why all these companies are scrambling to
become self-sufficient.” U.S. merchant coke producers were also scrambling to get
on the bandwagon. For example, the International Coal Group, acompany controlled
by Wilbur Ross, that produced only 100,000 tons of metallurgical coal in 2006,
planned to increase output to 2.4 million tons by 2009.86
The Price of Natural Gas. Natural gas is widely used in the steel industry,
by both integrated mills and minimills. Steel must be heated and cooled frequently

80

House Small Business Committee hearing (March 10, 2004), statement of W. Atwell, p.

2.
81

Europe Energy 2004, “EU and China End Their Coke Trade Battle” (June 4, 2004);
interview with Jean Kemp, Director for Steel, Office of U.S. Trade Representative (January
27, 2005).
82

AMM, “EU Presses China to Change Coke Export Rules” (November 9, 2005), p. 4.

83

AMM, “A Cool Down in Coke Prices” (November 7, 2005), pp. 4-5.

84

EIA. “Quarterly Coal Report” (January-March 2007), table 23.

85

AMM, “WCI Facing Difficult 2d Half But Planning a Turnaround” (August 10, 2007).

86

Ibid., “Coke Prices Said Set to Jump Near ‘04 Record Pace;” and, “ Higher Prices, Strong
Demand Spur Met Coal Production Hike” (October 11, 2007), p. 8.

CRS-29
in the course of melting or remelting materials, as well as shaping and tempering
steel mill products. Among all steelmaking inputs, perhaps none has risen higher in
price recent years than gas. As of November, 2005, the benchmark Henry Hub cash
price of natural gas, at $13.83 per million BTUs, was more than double the level of
one year earlier. On comparative indices of input costs, natural gas in late 2005 was
nearly five times its long-term benchmark level and more than double the level of
one year earlier. Scrap was about double its benchmark, while coal was still within
about 15% of its benchmark.87
Gas prices have ameliorated since then. The late 2005 spike was partly caused
by Gulf “shut in” production, resulting from hurricanes Ivan (2004), Katrina, and
Rita (both 2005). With a mild winter, prices dropped more than $2/mmBTU in
January-February, and settled at just over $7/mmBTU in March-May 2006.88
Despite concern regarding winter demand in 2006-07, the average spot price did not
again reach a level close to $10 during that period. Prices are holding steady for
2007, although the consulting firm Global Insight predicted that at $8-9 per million
BTUs, 2007-08 winter gas prices would be somewhat higher than year-earlier
levels.89
Shipping Costs. Both rail and ocean shipping costs have increased
substantially in recent years, though these rising costs have affected the steel industry
in different ways. Rail transportation costs, seen as railways have consolidated and
created more “capitive shippers,” have had a negative effect on industry, particularly
in raising the costs and reducing the options for shipping inputs like scrap and
delivering finished product to customers. According to the Government
Accountability Office (GAO), while rail rates have declined over the long term, they
increased by 9% in 2005, basically for all products across the board.90 The steel
industry specifically reported increases of around a third in rail costs since 2003, and
in some cases as high as 60%. “Transportation costs have escalated to the point that
they now account for 15-20% of the total cost of producing steel.”91
On the other hand, the high increase in ocean shipping rates has not been
unfavorable from the perspective of U.S. steelmakers. According to the Wall Street
Journal, the average price of renting a ship in October 2007 to carry raw materials

87

Gas price statistics from Global Insight, Steel Monthly Report (November 2005), tab. 1;
and, Natural Gas Weekly (January 11, 2006).
88

Global Insight. Steel Monthly Report (March 2006), p. 8; and Natural Gas Monthly (May
2006), pp. 1-2 and table 5.
89

Ibid. (September 2007), p. 2.

90

U.S. Government Accounting Office. Freight Railroads: Updated Information on Rates
and Other Industry Trends (GAO-08-218T), Testimony before U.S. Senate. Committee on
Commerce, Science and Transportation. Subcommittee on Surface Transportation and
Merchant Marine (October 23, 2007), p. 1.
91

Thomas A. Danjczek, Steel Manufacturers Assn. Statement, U.S. House. Transportation
and Infrastructure Committee (September 20, 2007), p. 2. For more details on the rail
competition issue, see CRS Rept. CRS Report RL34117, Rail Access and Competition
Issues, by John Frittelli.

CRS-30
from Brazil to China has tripled to $180,000 per day over the cost one year earlier.
That means the cost per ton of shipping iron ore works out at about $88 per ton, or
higher than the $60 per ton price of the ore itself.92 The Global Insight analyst finds
that this means higher prices for steel imports, as well as a discouragement to the
export of ferrous scrap to competing steel producing nations. With relative prices in
the United States falling compared to those of other global producers, “When leadtime risks and the explosion in sea-borne freight rates are incorporated, the advantage
in [steel] imports is minimized or even negated.” This source notes that investment
in ocean shipping, iron ore mines and coke ovens globally should eventually reduce
such domestic price advantages, but all this will take time to come on stream.93

The Impact of the Growth of China
While U.S. domestic demand and input cost factors have helped account for an
overall increase in the price of steel in the domestic market, China’s emergence as
a major, market-oriented economic power is having more of an impact on steel
markets and prices than anything else today. Chinese steel mainly goes to its
domestic market. What has concerned the U.S. steel industry is that, as China adds
new and modernized steel capacity, it will be used increasingly to export surplus steel
as domestic demand is adequately met. Moreover, the steel industry and its
customers have alleged that Chinese steel and steel product exports are unfairly
subsidized. On February 2, 2007, the Office of the U.S. Trade Representative
(USTR) filed a complaint at the WTO against China regarding this general issue.
The Chinese government has responded by some reductions of measures that
encourage steel exports. More broadly it has also taken limited steps to allow its
currency to rise against the dollar on foreign exchange markets, which makes
Chinese products less competitive against U.S.-produced goods. But the steps taken
to date have not been sufficient to satisfy the domestic U.S. steel industry, the Bush
Administration, nor critics of China in Congress.
China as a Steel Producer, Consumer, and Exporter. China has
become the world’s largest steel producer, as discussed in the earlier section on world
output. At the same time, in the years after 2000, it briefly became the largest
importer. It absorbed increasing amounts of the world supply of scrap and other
inputs, while its demand drove the global price of steel higher, notably in 2004.
China’s rapidly growing appetite for steel also drew in high levels of imports from
other major Asian producers such as Japan, Korea and Taiwan, probably diverting
them from the U.S. market. The consequences were higher prices for steelmaking
inputs in the United States and lower availability of imported finished steel at
competitive prices. Meanwhile, U.S. steel consuming industries increasingly must
compete with fabricated steel products from Chinese suppliers.
The Chinese government in 2004 sought to restrain growth by curtailing
consumer credit, thus reducing the growth in demand for products made of steel, such

92

Wall St. Journal, “Ship Shortage ...”

93

Global Insight. Steel Monthly Report (September 2007), p. 2.

CRS-31
as motor vehicles. It has also sought to brake the development of capacity, or at least
to insure that new, modern facilities replace outdated mills. But, as Global Insight
analyst John Anton noted, if this were the Chinese central government’s policy, it did
not work.
Chinese steel production has grown at incredible rates, rising 14% in 2001 and
nearly 25% annually since. In context, China and the United States produced
roughly the same tonnage in 2000, but China is likely to produce almost three
times the U.S. output in 2005.94

China once more became a net steel exporter in 2005: 27.6 million MT of
exports, against 27.1 million MT of imports, according to official sources.95 China
also fell behind the United States in total steel imports. In March 2006 a top official
of the China Iron and Steel Association (CISA), an industry body, reassured an
international audience that Chinese steel exports would be about 20 million MT in
2006. This was described by him as a “ reasonable” level, given total capacity of
more than 400 million MT, and he also stated that capacity would be nearly matched
with domestic demand.96 Some private sector sources said that while China still has
significant labor cost advantages, these are counterbalanced by raw material and
energy costs, as both are in short supply in China.97
Despite such assurances and statements, China’s total steel exports in 2006
reportedly more than doubled to 57.4 million MT, while imports fell by a quarter.98
According to the U.S. industry, China was a net steel exporter of 33 million MT in
2006.99 Moreover, in the first half of 2007, official Chinese data indicated that
exports of finished steel from China virtually doubled over the rate for the same
period in 2006. Some of this increase, however, may be attributable to Chinese
producers seeking to beat government measures to discourage steel exports, which
are described below.100
The International Iron and Steel Institute, representing steel producers globally,
has estimated that the rate of growth of Chinese demand for steel will slow in
forthcoming years. Nevertheless, it may still account for more than half of the
anticipated world growth in steel consumption between 2005 and 2015.101 But an

94

Global Insight, Steel Monthly Report (November 2005), p. 1. According to IISI figures
cited earlier, China in 2005 actually produced four times as much steel as the U.S.
95

Reported in AMM, “December Increase Makes China Slight Net Exporter of Steel in ‘05”
(January 13, 2006), p. 7.
96

Ibid., “China’s Steel Exports Will Not Explode in ‘06: CISA Official” (March 29, 2006).

97

Ibid., “Is the China Threat Overstated?” (May 8, 2006 print ed.), p. 14.

98

Ibid., “China’s Finished Steel Exports Up” (January 11, 2007), p. 6.

99

AISI, SMA, and Specialty Steel Institute of North America. “American Steel Industry
Comments on Chinese Steel Paper,” press release (June 1, 2007).
100

AMM, “Finished Steel Exports Soar 98% in First Half” (July 11, 2007), p. 13.

101

Hans Mueller, “IISI Sees Global Expansion Until 2015,” Metal Producing and
(continued...)

CRS-32
analysis produced in May 2007 by a Chinese metals industry organization
emphasized that China has no intention of creating an export-oriented steel industry.
It acknowledged a temporary situation of domestic overcapacity, as government
measures took effect to close old capacity, and to rationalize and modernize the
industry. It further noted measures (summarized in this CRS report below) that the
government was taking to curtail disruptive exports. But the report also noted that
the growth in Chinese demand for and production of steel has coincided with a
resurgence of the industry worldwide, so it argued that the net effect has not been to
harm other countries’ producers.102
Figure 3, based on data presented by industry analyst Charles Bradford to the
Steel Manufacturers Association in May 2007, shows that the Chinese steel industry,
along with that of the United States, is actually one of the two major national
producers least dependent on exports. In the case of China, 2006 exports were only
11% of output, in Bradford’s calculations, while the U.S. figure was just less than
10%. Three leading Asian producers outside China (Japan, Korea and Taiwan)
exported a third or more of production. Canada, Brazil and Russia exported half or
more of their output, Germany two-thirds, and Ukraine nearly 90%. But the problem
is that with China accounting for such a huge share of global output, marginal shifts
by its industry in the direction of increased exports lead to major market disruptions
for other suppliers.103

101

(...continued)
Processing (November-December 2006), pp. 15-16.

102

China Chamber of Commerce of Metals, Minerals and Chemicals Importers & Exporters
(CCCMC). China’s Steel Industry: Dealing with Growth, Consolidation and Rationalization
(May 2007).

103

Leading representatives of the U.S. steel industry are skeptical as to whether a Chinese
promise to limit exports to 10% of production can resolve this issue, or will ever be
implemented; AMM, “US Industry Doubtful of China Pledge on Steel Export Limits” (June
25, 2007), p. 4.

CRS-33
Figure 3. Steel Exports by Country
As a Percent of Total Output 2006
100%
86.7%

Percent

80%
60%

67.9%
54.2%
53.6% 49.6%
40.5% 35.6%

40%

33.1%

20%

11.1% 9.7%

0%
Ukraine Germany Russia

Brazil Canada China
So.
(Taiw an) Korea

Japan

China

U.S.

Source: Bradford Research Inc. and International Iron and Steel Institute.

The concern of U.S. producers is that whenever domestic Chinese demand falls
short of expectations, the U.S. market will see a sharp increase in steel imports from
China. For example, by 2000, China was exporting more than one million MT of
steel annually to the United States. These exports fell off to 582,000 MT in 2003, as
U.S. demand declined and trade safeguards were implemented. But Chinese imports
in the United States almost tripled to more than 1.4 million MT in 2004, increased
again by a third to 1.9 million MT in 2005, and more than doubled again in 2006, as
discussed above. Data for 2006 seem to indicate that, while steel demand in China
is continuing to increase, it is not keeping pace with the building of new, modern
steelmaking capacity, and Chinese exports are likely to grow.104 While the Chinese
central government may be committed to eliminating old capacity, consolidated,
internationally competitive Chinese producers may be even more of a problem for the
U.S. industry in an open market environment.
China’s Proposed Steel Industry Restructuring. In July 2005, the
Chinese government released the China Iron and Steel Industry Development Policy,
prepared by the National Development and Reform Commission (NDRC).
According to official sources, this policy is to consolidate and modernize the
industry, with a specific goal of “strategic reorganization” to create by 2010 two 30million-ton annual capacity producers and several “internationally competitive”
companies at the 10-million-ton level. In a joint statement to the WTO Transitional
Review Mechanism on China’s accession, the United States, Canada and Mexico in
October 2005, “agreed with the goal of an efficient, rationalized steel industry” in
China, but seriously questioned the methods envisioned in the proposed new policy.

104

Ibid. “China Is Awash in Steel and Racing to Exploit a Price Advantage” (June 19, 2006
print ed.), pp. 6-7.

CRS-34
!

First, they questioned how a state policy with an explicit goal to
shape a specific market outcome would work without “government
making decisions that should be made by the marketplace.”
Specifically they questioned the role that state-owned banks would
have in restructuring the steel industry, the roles of administrative
agencies, and how conflicts between central, provincial and local
governments would be resolved.

!

Second, they noted that two articles on the state’s role in
implementing policy were questionable under WTO anti-subsidy
rules. Article 16 of the Chinese policy provided for various types of
state support in developing and modernizing the industry. Article 18
“encouraged” the Chinese steel industry to use domestically
produced equipment, and to import equipment only if domestically
made equipment were insufficiently advanced, unavailable or in
short supply.105

The U.S. government included these concerns in direct bilateral discussions with
China on steel policy. In December 2005, the Bush Administration declined to
provide safeguard relief for the domestic steel pipe industry against Chinese imports
(see below). But at that time it did propose to the Chinese a dialogue on steel policy,
within the context of the U.S.-China Joint Commission on Commerce and Trade. In
2006, the U.S. side noted “serious concerns” with the proposed Chinese Steel Policy,
including preferences for domestically produced equipment and technologies, import
and export controls, controls on foreign investment, and “de facto” technology
transfer requirements. “More generally,” U.S. representatives expressed concern
with the entire approach of the policy, in substituting government decision making
for market forces, in direct contrast to Chinese commitments at the time when they
joined the WTO.106
The American steel industry similarly expressed concern with government
interference in the Chinese steel industry. A July 2006 report sponsored by all the
major U.S. steel producer organizations claimed that Chinese steelmakers are
unfairly aided by a wide range of government measures. Entitled The China
Syndrome, the report stated that the Chinese approach includes high levels of
continued government ownership (80% of Shanghai Baosteel, for example),
subsidization through loans from state-owned banks at less than commercial rates,
debt writeoffs, assistance with raw material input costs, and maintenance of an
artificially low currency exchange rate. Some of this effective subsidization results

105

World Trade Organization. Committee on Subsidies and Countervailing Measures.
“Transitional Review Mechanism Pursuant to Section 18 of the Protocol on the accession
of the People’s Republic of China: Questions from Canada, Mexico and the United States
Concerning Subsidies” (G/SCM/Q2/CHN/15, October 13, 2005).

106

Assistant USTR for China Affairs Timothy Stratford. “Statement at Congressional Steel
Caucus Hearing” (June 14, 2006), esp. p. 3. A report on this hearing, which includes
congressional rejoinders to the USTR policy statement is in AMM, “China Fuels Fire of
Caucus Trade Grilling” (June 19, 2006 print ed.), p. 2.

CRS-35
from active national government policy, it was alleged, and some results from the
central government’s failure to control provincial and local government entities.107
In 2007, a more detailed report sponsored by the U.S. steel industry provided a
partial tabulation of the documented subsidies it said were received by the Chinese
steel industry. Limited to publicly reported data by the 20 largest Chinese steel
producers, the report, entitled Money for Metal, calculated that subsidies received by
the Chinese industry totaled U.S.$52 billion (393 billion renminbi, in Chinese
currency). It summarized its analysis of the principal subsidies as follows:
!

!

!

!

!

$17.3 billion in preferential loans and directed credit from
government-controlled banks, accounting for the “majority of all
loans in China.”
$18.6 billion in “equity infusions and/or debt-to-equity swaps ... At
least 37 different Chinese steel companies have benefitted, including
all of the major producers.”
$5.1 billion in land-use discounts, necessitated because private land
ownership by industrial enterprises is “nearly impossible in China.”
The report alleges that steel companies are charged only a pittance
for the land-use rights they acquire.
$1.3 billion in “government-mandated mergers.” As part of the
policy of industry consolidation, favored companies, such as
Shanghai Baosteel, have been transferred controlling equity stakes
in smaller competitors at little or no cost.
$258.6 million in direct cash grants, sometimes linked to specific
construction contracts, reported by steel companies.108

The system of subsidization, the report alleges, is linked to government control
of the industry, which it details in a tabular presentation on the 20 largest steel
companies. Of these companies, all except one (number 17 by output) are wholly or
majority-owned by governments. However, in calculating government ownership,
the table essentially lumps together central, provincial, and local levels of
ownership.109 The conflict between the policy goals of these levels of government
is explicitly stated in the report:
All three levels of government maintain separate, and sometimes distinct,
policies that impact the steel industry. While these policies are often in concert
with one another ... the numerous policy directives from the various levels of
government underscore the often competing interests between the central,
provincial and local governments ... Notably, ... many provincial and local

107

Alan H. Price, et al., The China Syndrome: How Subsidies and Government Intervention
Created the World’s Largest Steel Industry (July 2006). For a summary, see AMM, “Steel
Groups say China in Violation of WTO Rules” (July 14, 2006).

108

This summary is abridged from the executive summary in the same authors’ Money for
Metal: A Detailed Examination of Chinese Government Subsidies to Its Steel Industry (July
2007), pp. ii-iii. The detailed analysis of these subsidies is in pp. 25-42, with other types of
subsidies discussed in pp. 52ff.

109

Ibid., Table 1, pp. 8-9.

CRS-36
governments are encouraging the expansion of the local steel industry at the
same time that the central government purports to be eliminating obsolete
capacity and limiting overall capacity.110

The central Chinese government itself recognizes a problem, which it ascribes
to obsolete excessive productive capacity. It indicated plans to shut 100 million MT
of excess capacity, particularly among more than 200 smaller mills in two northern
interior provinces.111 In 2007, after many months of delay, the NDRC drew up an
expanded list of 682 steel facilities, located at 334 sites, which were to be closed by
2010 at the latest. Although the operations affected number in the hundreds, the total
steelmaking capacity would be about 35-40 million MT, or less than 5% of China’s
capacity, according to independent analysis. NDRC is quoted as saying that there
will be further announcements of closures. “However,” the analysis notes, “the
government cannot stop mills developing larger, more efficient facilities that comply
with NDRC guidelines while increasing capacity.”112
Money for Metal does not maintain that there is a monolithic Chinese steel
policy controlled by a single government entity, but rather that industry ownership
and control is in the hands of different government entities with different agendas.
The Chinese industry it describes is not really controlled by “government” as much
as it is controlled by “governments,” in a Communist state that is in a process of
transitioning itself to a more market-oriented economy. The report seems to project
a future in which the U.S. steel industry may confront either a more consolidated and
efficient Chinese industry, able to export whenever it has excess capacity for
domestic demand, or a rampantly expanding industry, which can always cut price to
export excess output — or both existing simultaneously, and subsidized by all levels
of government in China.113
CISA has rejected this analysis of a highly subsidized domestic industry. It
reportedly stated, in a response to the report, that dominance of the industry by a
group of leading, government-controlled companies was a false image, and the
calculation of $52 billion in subsidies “in the past decade lacks proofs and is full of
false accusations.” It maintained that the domestic industry is both more broadly
based and privately held than the U.S. industry report would indicate. In any case,
CISA noted, “It is a common practice for each country, including the U.S., to
subsidize its steel industry as it develops.”114

110

Ibid., pp. 12-13, 19; the intervening pages cite many examples of conflicts between
central government five-year plans, and the implementation in local plans.

111

AMM, “China Reiterates Plan to Cut Excess Iron, Steel Capacity” (July 5, 2006).

112

Steel Business Briefing. SBB Analytics: China, “The NDRC on the War Path” (May 7,
2007), quote from p. 3.

113

Similar points were made by the domestic steel industry in an October 2007 ITC hearing
on China’s steel industry that was requested by Congress. See AMM, “Steelmakers Mount
Attacks Against China on Two Fronts” (October 31, 2007).

114

Ibid., “CISA Lambastes US’ China Steel Subsidy Report” (August 8, 2007).

CRS-37
The CISA position reflected the official reaction of the Chinese government to
the U.S. industry report, as expressed in the session of the U.S.-China Steel Dialogue,
held in early August 2007. The Chinese delegation reportedly attacked the paper as
“propaganda” and replete with “misconceptions.” They claimed that the U.S.
industry abused U.S. trade remedy laws and was itself the beneficiary of subsidies.
One allegation was that PBGC’s takeover of steel industry pensions (see above)
represented a U.S. government bailout of the steel industry. This itself is a common
misconception; though chartered by Congress as a government corporation, PBGC
receives no federal appropriations and is funded by premiums paid by covered private
industry pension plans.115 The meeting apparently ended with no substantive
agreement on policy issues.116
The U.S. WTO Case Against Chinese Subsidies. The Bush
Administration found responses by China regarding U.S. complaints about state
subsidies to be insufficient. On February 2, 2007, the Office of the USTR announced
that it was seeking consultations with China at the WTO on a range of policies that
effectively subsidized Chinese producers, explicitly including the steel industry.
Consultation is the first step in bringing a case under WTO rules against a trading
partner. The USTR statement noted that, “Several of the subsidy programs at issue
appear to grant export subsidies, which provide incentives for foreign investors in
China and their Chinese partners to export to the United States and other markets.”
The statement did note progress in China “to open its market and reform its trade
practices since becoming a Member of the WTO,” and that China made “express
commitments in its accession protocol to abide by WTO prohibitions on the granting
of export and import substitution subsidies. However, the Chinese government has
continued to use a number of industrial policy tools — including these kinds of
subsidies — to support Chinese industry.”117
In specific response to the Administration action, China eliminated one type of
alleged subsidy and announced a new tax program to address other subsidy issues.
This necessitated a re-filing of the U.S. case at the WTO in May 2007. The United
States was joined by Mexico as an original complainant, with Canada, the EU, Japan,
and Australia as third parties to the case.118
Furthermore, other nations have also taken, or are reported to be considering,
trade remedy measures aimed at restrianing steel imports from China. The Canadian
International Trade Tribunal ruled that a type of OCTG product imported from China
injured a Canadian producer, setting the stage for AD/CVD tariffs to be set by the

115

See CRS Report RS22650, “The Pension Benefit Guaranty Corporation and the Federal
Budget,” by William J. Klunk.
116

AMM, “Chinese Fight Back at US-China Steel Dialogue” (August 6, 2007).

117

Office of USTR. “United States Files WTO Case Against China over Prohibited
Subsidies,” press release (February 2, 2007); FT.com, “US-China Tensions Rise over
Subsidies” (February 2, 2007); Washington Post, “U.S. Takes China to WTO over
Subsidies” (February 3, 2007), p. D3; AMM, “US Files Case Against China on Subsidies”
(February 5, 2007).
118

CRS interview with Jean Kemp, Office of USTR (June 22, 2007).

CRS-38
Canadian Border Services Agency.119 European and Mexican steel producers have
initiated or are reportedly planning requests to their authorities for broad trade
restriction measures on Chinese steel imports.120
Chinese Measures to Restrain Steel Exports. The Chinese government
has also taken specific actions to curtail or eliminate policy measures, which,
although they may be legal under U.S. trade law or WTO rules, have the effect of
encouraging steel exports as opposed to domestic sales. These measures included
reduction or elimination of China’s general value-added tax (VAT) rebate of as much
as 17% on exported steel products and adding an export duty on some steel items.
As expressed in the May 2007 Chinese industry paper, “The reduction and
elimination of the VAT tax rebate is designed as a ‘bridge’ measure to rein in exports
while other elements of China’s steel policy take effect and bring supply and demand
into balance domestically.”121 Moreover, in May 2007 China announced
establishment of a steel export licensing system that would apply to “a significant
portion of China’s steel exports.”122
The U.S. government has stated its preference for market-based policy reforms,
includin

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/crs%3ARL32333. Public record. Not legal advice.