MEMA Reports Steel Cost Crisis
A new research report by the Motor & Equipment Manufacturers Association (MEMA) suggests that government intervention in the US steel market has caused a cost crisis that is hurting automotive and heavy-duty suppliers across the country, reports Tire Review. The MEMA report says that the result has been “unprecedented bankruptcies and job losses.”
The MEMA study, available online at www.mema.org, was written by economists Brian Becker and Kevin Hassett. The pair found that the steel crisis “triggered distortions in the steel market that have contributed to decreased availability, poorer quality and delayed deliveries of steel,” according to MEMA.
In comparing the domestic steel industry and the US steel consuming industry, Becker and Hassett found:
• In 2004, US steel manufacturers enjoyed their highest profits in years. The domestic steel industry noted record earnings in 2004 leading to market value increases of 60 per cent or more for the largest of these companies. Meanwhile, automotive suppliers continue to face bankruptcies and worker lay-offs.
• Not only are current profits trending upward for steel manufacturers and downward for automotive suppliers, projections point toward continued disparity. Both market participants and analysts are predicting a strong 2005 for the steel manufacturing industry.
• With its increased market concentration since 2001, the US steel manufacturing industry enjoys more leverage to charge higher steel prices and pass on increased raw material costs to steel consumers including tyre, automotive and heavy duty suppliers. MEMA claims that automotive suppliers do not have the market power to pass their higher steel costs onto their customers, particularly in view of the competition that suppliers face from imports of automotive parts.
• With the surge in demand, industry consolidation and price spikes, capacity utilisation rates have spiked to 10-year highs for US steel manufacturers, hitting 94 per cent last year, up from a low of 79 per cent in 2001.
• Steel import shares have stayed essentially at or below their 10-year average levels since 2000.
• Steel prices have increased significantly since the 201 safeguards were repealed. US prices still remain at a premium to the rest of the world. For example, the January 2005 price of hot-rolled steel in the US was $695/ton, on the world spot market $575/ton, and in China $510/ton.
In December 2003, President Bush repealed the 201 safeguards for the US steel industry 16 months prior to the program’s expiration citing the growing financial health and stability of the domestic steel industry. Since that time, MEMA said, the profitability and market power of the steel industry climbed to record peaks in 2004 to the detriment of US steel consumers. At the same time, U.S. automotive suppliers are witnessing unprecedented bankruptcies.
The study also addresses the role of China in the world market for steel. China is the world’s largest consumer and producer of steel, and its fast-growing economy will cause demand to outstrip supply, said MEMA, keeping China as a net importer of steel.
MEMA said it will urge International Trade Commission (ITC) to sunset anti-dumping and countervailing duty orders on specific steel commodities as a first step in providing a level playing field for American business. Domestic steel consumers are suffering from a distorted market for steel, the association claims, and revoking specific anti-dumping and countervailing duty order that are no longer necessary will remove some distortion from the market.
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