Tariffs no cure for steel industry

Limits on imports help but won't renew sector, analysts say

March 08, 2002|By Kristine Henry | Kristine Henry,SUN STAFF

The tariffs that President Bush imposed on imported steel this week will help keep domestic mills operating but won't by themselves restore the industry's financial health, analysts said yesterday.

"It will help them stay in business," said John Anton, a steel analyst for consulting firm DRI-WEFA in Washington. "It will not help them flourish."

President Bush this week imposed tariffs of up to 30 percent on a large number of steel imports - including 30 percent levies on hot-rolled and cold-rolled steel, two of the main products made at Bethlehem Steel Corp.'s Sparrows Point plant.

His decision came after the U.S. International Trade Commission, a quasi-judicial federal agency, determined that imports had harmed the domestic industry and in December recommended various remedies, including tariffs of up to 40 percent.

Anton said imports of hot-rolled steel made up only about 11 percent of the steel used in the United States last year - the lowest level since at least 1984 and down considerably from the all-time high level of 24 percent in 1998. Because imports of that product are such a small part of the market, he said, they do not have a huge impact on domestic producers' profits.

Anton does expect prices to rise in the next year - but that will be a result, he said, of a strengthening economy and greater demand, not tariffs.

He expects hot-rolled prices - the benchmark - to reach about $300 a ton by the middle of next year. That would be nearly 45 percent more than the going rate for the product at the start of this year. Still, prices were about $360 a ton in 1997 - the year before overall steel imports hit their all-time high of 41.5 million tons.

Rise without tariffs

"Prices for most steel products are just coming off a 22-year low and were set to rise across 2002 and into 2003 without tariffs," Anton said. The tariffs simply mean that domestic producers will be able to capture more sales, he said.

Steel analyst Aldo Mazzaferro of Goldman Sachs & Co. in New York said he thinks tariffs will have a direct and significant impact on prices as demand increases.

That's in part because the economy appears to be on the upswing, but largely because U.S. producers have the capacity to make only about 80 percent of the steel used domestically. With some mills - such as bankrupt LTV Corp. - dropping out of production, the supply of steel in the United States will fall, driving prices up.

"I'm not only encouraged about prices going up," he said, "I'm encouraged on the demand side."

He said prices yesterday had already reached about $280 a ton - a one-third increase since the start of the year.

Bethlehem lost $866 million from operations last year on sales of $3.3 billion. Including a special charge, the loss was $1.9 billion. It has the capacity to make 11 million tons of steel a year but only produced 8.8 million - or 80 percent of its capacity - in 2001. Selling an additional 2.2 million tons at $300 a ton would bring it about an extra $660 million in revenue.

Bethlehem, which employs about 3,500 in Baltimore, filed for Chapter 11 protection Oct. 15, listing $4.2 billion in assets and $6.75 billion in liabilities, including an unfunded health care obligation of nearly $3 billion and a pension fund that is short $1.85 billion.

The company said it has enough cash to continue operations through the end of this year.

Bethlehem is in talks with the Brazilian steel maker, Companhia Siderurgica Nacionale (CSN), over a possible joint venture.

`Breathing space'

Peter Morici, a professor of international business at the University of Maryland and former director of the Office of Economics at the U.S. International Trade Commission, said the tariffs give steel makers "some breathing space" in order to consolidate.

"Things would be much worse if there wasn't a tariff," Morici said. "It makes [consolidation] easier and that makes sense because there will be more domestic demand."

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.