HardAssetsInvestor

Written by Julian Murdoch  |

January 07, 2010

Steel: China Vs. U.S.

Details

Will Chinese–U.S. tensions derail steel's stellar run?

• Tariffs and duties on pipes, grates and more
• 2009: steel's crazy year
• The outlook for 2010

 

Tariffs, Duties and Fees—Oh My!

In 2009, regulators launched a number of investigations into the importation of Chinese products, including steel products. Many are still ongoing, but one in particular made big news last week.

On Dec. 30, the U.S. International Trade Commission, the semi-governmental agency that advises all branches of the government on trade issues, issued a determination that the domestic steel pipe industry had been "materially injured" by the importation of certain subsidized steel products from China.

It all began back in April, when the United Steelworkers Union and eight U.S. steel producers—including U.S. Steel (NYSEArca: X)—joined forces to file their case. Their claim? The Chinese government was unfairly subsidizing production costs for the huge pipes used to line oil and natural gas wells, the ones that transport raw materials from well to consumer.

Why would these two sometime-opponents band together and go on the warpath? Well, it could have something to do with the fact that between 2006 and 2008, U.S. imports of said steel pipes rose from $681 million to $2.8 billion. And even though the Shanghai Customs Office reported that exports of steel oil well pipes dropped 85 percent during the first 11 months of 2009, U.S. companies say the Chinese continue to gain market share.

All of this translates, of course, into domestic job losses; 2,400 domestic steelworkers lost their jobs during the first nine months of 2009, something of prime interest to the U.S. Steelworkers union.

In November, the U.S. Commerce Department responded to the situation by imposing duties on these steel pipes ranging from 10.4 to 15.8 percent. The ruling last week means that those duties can now be finalized.

Of course, the Chinese are not pleased, claiming instead that the demand drop for U.S.=made pipes is tied to the oil price collapse in early 2009, not less expensive Chinese pipes.

In addition, the Commerce Department recently imposed preliminary anti-dumping duties of up to 145.18 percent on Chinese steel grate products. "Steel grate products" are things like drainage covers, industrial floors and ramps—exciting and sexy they may not be, but the U.S. imported $91 million of the stuff in 2008.

It doesn't stop there. Even those industrial wire shelving units you eyed at Home Depot last weekend may now become a bit more expensive. On Monday, the U.S. Commerce Department made another preliminary determination that certain Chinese companies were selling their wire decking products at unfair prices. The consequences are steep. Chinese companies are being hit with levies from 42 percent all the way up a whopping 289 percent.

Since this is just a preliminary determination, the U.S. won't be collecting the money immediately; companies will have to deposit the duties until the final ruling about six months from now, and there's always the chance of an appeal. This case isn't as high profile as the $2.8 billion steel oil pipe controversy, given that imports of Chinese wire decking equaled only around $317 million in 2008, up from $213 million in 2006. Still, it is yet another shot at the Chinese steel industry.