With tariffs on foreign steel, sheet metal price on a roll

Stronger economy and weaker dollar also aid comeback

July 03, 2002|By Kristine Henry | Kristine Henry,SUN STAFF

It has been a little more than three months since President Bush slapped tariffs on much of the foreign steel sold in the United States, and since then domestic spot prices have soared while imports have fallen. But the correlation between the two is not as strong as one might think, say domestic producers and analysts.

Spot-market prices for hot-rolled sheet, the industry benchmark and the main product of Bethlehem Steel Corp.'s Sparrows Point plant, were at $340 a ton last month, up 42 percent from year-ago levels. Overall steel imports were down 25 percent in May, the latest figures available, compared with a year ago.

But those changes didn't take place in a vacuum. The combination of a stronger economy - bringing greater demand for steel - and a weaker dollar that makes imports more expensive has been a boon to the industry. Also, a loss of domestic producers means there is less supply to meet that increasing demand, also driving up prices.

"The tariffs are one of a number of big changes in the marketplace since last December, and it's very hard to isolate tariffs vs. anything else going on," said Robert S. "Steve" Miller, Bethlehem's chairman and chief executive. He also noted that about half of Bethlehem's sales are locked up in contracts, so the company is not able to completely take advantage of rising spot-market prices.

The U.S. economy has been picking up; the gross domestic product grew at a 6.1 percent rate in the first quarter. Analysts expect that it grew about 2.5 percent in the second quarter.

The dollar has fallen about 9 percent since February, reversing an upward trend that began in 1995. That, in effect, has made imported goods 9 percent more expensive than they were before the shift. In addition, the troubles sweeping the domestic industry, which have brought more than 30 bankruptcies since 1998, brought the closing of many mills, the largest of which was LTV Corp. whose 6 million tons of capacity were shut down in December. (The plant has since been sold, and the new owners hope to get back to full production levels.)

But not all of the changes in the marketplace have been good for domestic producers. In addition to the decline of overall steel imports in May, imports of the hot-rolled sheet - the most common product in the industry - were down 13 percent. However, hot-rolled sheet imports rose 22 percent in May over April. With prices so much higher than last year's, analysts say even the 30 percent tariffs on hot-rolled sheet might not be a strong deterrent against imports.

The Bush administration has granted numerous exclusions to the tariffs, aside from those in the original blueprint; Canada, Mexico and most developing nations were never included in the plan. Domestic producers say they don't mind if the White House allows imports of products they don't or can't make to come in without the tariffs, but they fear that the administration might cave in to other countries' complaints - and threats of retaliatory tariffs - and grant exclusions even on products made in the U.S.

`Over our objection'

"There were some products that were approved [for exemptions] over our objection that will cause some lessening of effectiveness of the relief," said Alan Wolff, chairman of the international trade practice at the Washington law firm Dewey Ballantine, which represents major domestic producers, including Bethlehem. "It is not to the point where we would say the program is not working."

While the strengthening economy has been good news for domestic producers, steel analyst Richard Henderson of Pershing, a division of Donaldson Lufkin Jenrette, said that if the economy had been much stronger, the outcry over tariffs and rising steel prices might have been much greater, and President Bush might have felt more pressure to backtrack on the tariff relief.

"If we did have the economy growing rapidly ... and we had these tariffs, there would be [steel] shortages and screaming and a lot of discomfort," Henderson said. "Fortunately, we didn't have that."

`Run at full capacity'

Miller said that even with the brightening picture for domestic producers, Bethlehem will continue to lose money the rest of the year. It has lost $157 million from operations during the first five months of the year, according to filings with the Securities and Exchange Commission.

"The big effect [of tariffs] on us, which was the intention of the tariff law, was to divert market share from imports to domestic producers where it belongs," Miller said. "We have been able to pretty much run at full capacity."

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