U.S. Slams China With Massive Final Duties On Steel Imports

The U.S. Department of Commerce ("DOC") made its final determinations on anti-dumping investigations on imports of cold-rolled steel from China and Japan yesterday and concluded that both countries are selling these products in the American market below their fair values and therefore, are subject to anti-dumping duties.

The DOC, on Tuesday, imposed a hefty final anti-dumping duty rate of 265.79% on imports of cold-rolled steel from China. Chinese companies did not respond to the DOC’s request for information and thus, got punished with big tariffs. Japanese exporters including JFE Steel Corporation and Nippon Steel & Sumitomo Metal Corporation received a final duty of 71.35%.

The commerce department, yesterday, also issued its final rulings on countervailing duty investigations on imports of cold-rolled steel from China. The DOC levied a massive final countervailing duty rate of 256.44% on Chinese imports, higher than the preliminary duty rate of 227.29% imposed in Dec 2015.

This will badly hit Chinese exporters such as Angang Group Hong Kong Co., Ltd., Benxi Iron and Steel (Group) Special Steel Co., Ltd. and Qian'an Golden Point Trading Co., Ltd. who failed to respond to the DOC’s requests for information. Beijing has reportedly criticized these punitive trade actions, calling them “excessive.”

Combined exports of cold-rolled steel from China and Japan to the U.S. market were valued at an estimated $410.9 million in 2015.

Yesterday’s final rulings mark another victory for crisis-hit U.S. steel companies in their ongoing battle against unfairly-traded, cheap imports that continue to make inroads into the American market.

The biggest U.S. steel producers – U.S. Steel (NYSE:X) , AK Steel (NYSE:AKS) , Nucor (NYSE:NUE) , Steel Dynamics (NASDAQ:STLD) and ArcelorMittal USA, a part of ArcelorMittal (NYSE:MT) – filed anti-dumping petitions in Jul 2015 with the U.S. International Trade Commission (“USITC”) and the DOC against eight countries (Brazil, China, India, Japan, the Netherlands, Russia, South Korea and the UK) alleged for illegally dumping cold-rolled steel that is used to make automotive products and appliances, among others.

The petitions charge that an influx of subsidized imports of cold-rolled steel from these foreign producers is causing significant injury to the country’s steel industry. These imports have captured an increasing share of the U.S. market, thereby hurting production, shipments, selling prices and margins of U.S. steel makers.

The USITC terminated the investigation on imports from the Netherlands in Sep 2015 after concluding that the quantity of imports of cold-rolled steel from the country was negligible and hence did not cause or threatened to cause injury to the U.S. industry.

The DOC will now instruct U.S. Customs and Border Protection (“CBP”) to start requiring cash deposits based on the final anti-dumping duty rates for cold-rolled steel imports from China and Japan. The commerce department will also order the CBP to require cash deposits (based on the final countervailing duty rate) should the USITC issues an affirmative injury determination.

The commerce department is now expected to issue its final rulings on imports of cold-rolled steel from Brazil, India, Korea, Russia, and the UK on July 13. The USITC is also expected to make its final injury ruling on China and Japan on June 30.

U.S. steel companies have been hammered by a tide of cheap imports over the past few years that largely contributed to a slump in steel prices. These producers are struggling to cope with lower steel prices as a result of the combined impact of imports and overcapacity in the industry. Low costs of production have enabled foreign producers (especially China) to sell their products at cheaper rates, leading to an industry-wide price decline.

China has been repeatedly slammed by the U.S. and the European Union for dumping its excess steel capacity (backed by unfair government subsidies) in the overseas markets at low prices amid weakening domestic demand.

China, which accounts for around half of global steel output, continues to pose a threat to the global steel industry. The Chinese steel industry continues to reel under massive excess capacity and worsening gap between supply and demand with barely any signs of recovery.

China’s total steel exports clocked 112.4 million tons in 2015 (per data released by the General Administration of Customs), topping 100 million tons for the first time. Notwithstanding a recovery in domestic steel prices, the country’s steel exports jumped 7.6% year over year in the first four months of 2016 (per customs data), signalling continued demand weakness at home.

In April, U.S. Steel lodged a complaint with the USITC, asking the regulator to start an investigation against biggest Chinese steel makers and their distributors. The company has accused these producers and distributors for unfair competition and is seeking the exclusion of all unfairly traded Chinese steel products from the U.S. market.

Nevertheless, steel market conditions in the U.S. have somewhat improved of late, driven by favorable rulings (that led to levy of tariffs on imports) on steel trade cases in the recent past.

The DOC, in Dec 2015, slapped preliminary anti-dumping duties on imports of corrosion-resistant steel from China, India, Italy and South Korea including a staggering anti-dumping duty rate of 255.80% on imports of these products from China. Final determinations on this trade case is expected in Jul 2016.

The DOC, in Mar 2016, also imposed preliminary anti-dumping duties on imports of certain hot-rolled steel flat products by seven countries. A final ruling by the DOC on this case is expected in August.

Positive final rulings in these trade cases will ensure a fairer and more competitive market for U.S. steel makers and workers and also help in restoring fair trade conditions for steel products made in America.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>

AK STEEL HLDG (AKS): Free Stock Analysis Report

STEEL DYNAMICS (STLD): Free Stock Analysis Report

ARCELOR MITTAL (MT): Free Stock Analysis Report

UTD STATES STL (X): Free Stock Analysis Report

NUCOR CORP (NUE): Free Stock Analysis Report

Original post

Zacks Investment Research