Steel manufacturers in better mood as earnings improved in Q2. (USA Update).

The `protectionist umbrella', as critics describe the tariffs imposed by the Bush administration on imports of foreign steel, has apparently helped the country's leading steelmakers to bounce back and improve their earnings during the second quarter of the ongoing year. Indeed, the outlook for

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The picture has changed drastically for the better for the country's biggest steel manufacturer, US Steel Corp, which is headquartered in Pittsburgh, Pennsylvania. After recording a loss of $30M during the second quarter of 2001, the company could post a profit of $17M--a result that far surpassed the expectations of even the most optimistic among the analysts, many of whom had predicted a reduced loss for US Steel Corp.

Indeed, a bullish-sounding Thomas J Usher, the chairman/CEO of US Steel Corp, was telling journalists in July that he was confident that the company would make profits on an overall basis in the current year. The company has not made any profits since 2000. US Steel Corp's results have been buoyed by the rise in steel prices in the second quarter to average $402 a ton, a surge of $25 a ton over the first quarter of 2002. Usher acknowledged that the company's second quarter results had improved because of improved shipments, increased productivity in operations and increased prices for the company's production in local plants and in Slovakia.

However, another key player in the US steel industry, Bethlehem Steel Corp was not as lucky as US Steel Corp to post profits, although its results had improved during the second quarter. Pennsylvania based Bethlehem, which has filed bankruptcy proceedings under Chapter 11, could significantly reduce its losses to $119M in the second quarter, down from $1.13 billion in the corresponding period of the previous year. Despite the improved result, analysts say, Bethlehem still has an uphill task ahead to surmount.

Steel manufacturers such as US Steel Corp and Bethlehem have been recovering from the downturn in the steel industry which blamed `foreign steel dumping' for the malaise in the local steel industry. Under pressure from the industry and the trade unions, President George W Bush Jr announced last March tariffs ranging from 8 to 30% on foreign steel--a move that helped the local steel industry stage a growing recovery from its declining fortunes until then.

`Minimill', Nucor Corp, the largest steel producer in USA, reported a 3% rise in consolidated sales to $2.169bn in the first six months of the year, compared with $2.106bn in the year-earlier period. The company is also expanding. Commissioning continues at Nucor's new facility using the Castrip[R] technology in Crawfordsville, Indiana. Dan DiMicco, Nucor's vice chairman, president and CEO, has been saying that the company has been routinely casting carbon steel coils on a daily basis in full heats, and has shipped out prime product to a Vulcraft division where it was successfully converted to decking. In May, Nucor signed an agreement to purchase chunks of assets of Birmingham Steel Corporation which filed for Chapter 11 bankruptcy, but their attempt to buy the closed Qualitech special bar maker, met last minute opposition in the form of a counter bid from rival company, Steel Dynamics Inc. The matter is now before the courts.

Many US steel manufacturers have been lately sounding confident about their results for the current year after their performance improved in the second quarter. Indeed, in the final quarter of last year, many steel-producing plants were running at only 60 to 70% capacity which meant they were posting losses. According to analysts, a company must maintain an 80% capacity operation if it is to make a profit.

CONSUMERS HIT

The move to introduce tariffs has, naturally, angered domestic consumers and foreign suppliers who have threatened to take the case to the World Trade Organization (WTO). The US consumer industries, galvanised under the Consuming Industries Trade Action Coalition (CITAC), have been lobbying strongly against the presidential order and have been highlighting to congressional members the harm caused to US steel consuming companies by the so-called 201 steel tariff. The CITAC stated during a House Small Business Committee on July 23 that the 30% steel tariffs had resulted in steel shortages and massive price increases.

Representatives of small businesses which depend on foreign steel imports for their competitive prices, were venting their anger to the committee chairman Don Manzullo and other members, explaining the frustrating, time-consuming and often fruitless process of finding a steady supply of steel. The committee organised a `Hearing on Unintended Consequences of Increased Steel Tariffs on American Manufacturers'. Laura Baugham, the president of Trade Partnership Worldwide, went on record as saying that steel-consuming companies in the US had created 1.2 million jobs in the country during the past six years and the nearly 13 million workers they employ, `outnumber steel industry workers by 59 to one'.

Baugham took up cudgels for the small steel consumers who, she said, had to compete with manufacturers all over the globe, and are therefore directly affected by price and supply changes. She pleaded for steady and reliable sources of steel so that the small steel users can compete globally. Steel consumers cannot operate profitably in a market where steel suppliers cannot tell them what the steel they order will cost, Baugham added.

STAINLESS EXCEMPT

Meanwhile, just as imports of stainless steel products covered by the Bush administration's so-called `steel initiative,--the euphemism for Section 201 steel import tariff programme--declined in the January-April 2002 period, there was an upsurge during the same period in imports of stainless steel sheet/strip and stainless steel plate, products not included in this programme, say the Specialty Steel Industry of North America (SSINA), a Washington DC-based trade association which claims to be representing all continental specialty steel producers.

The SSINA released data in August suggesting that imports of stainless steel plate had posted a 10% rise to 21630 tons in the January-May 2002 period, compared to the year-earlier period. Imports of stainless steel sheet/strip, the industry's largest product category, rose by 3% to 118284 tons during the first five months of the current year. These products are not covered by the Bush administration's Section 201.

SSINA's chairman HL Kephart has been saying that US producers have not succeeded in stopping rising imports although there had been an increase in domestic demand for stainless flat-rolled products. This development, according to Kephart, was particularly disconcerting because of the US dollar's declining rate of exchange with major currencies, making imports into the US more expensive.

On the other hand, imports of stainless steel bar, rod and wire, all included in Section 201, did not produce any clear trend.

The January-May 2002 imports of stainless steel bars declined by 36% to 34 363 tons, down from last year's 53 741 tons. These imports, however, still represent a 41% share of the US market which, according to the SSINA, is still huge. But stainless steel rod imports increased 7% and imports of stainless steel wire decreased 8%. Total stainless steel imports accounted for 25% of the US market share of imports.

MANIK HEHTA, NEW YORK