Timothy J. Dillon
Sr. Vice President, Commercial
Georgetown Steel Company LLC
China’s Impact on Georgetown Steel and the Steel Wire Rod Industry
Presented before the U.S.-China
Economic and Security Review Commission
July 30, 2004
Hello. My name is Tim Dillon and I represent Georgetown Steel Company LLC. I would like to thank-you for allowing me the opportunity to participate in your investigation of China’s impact on the American manufacturing base.
First, let me tell you about our company. The Georgetown steel mill was established in 1969 in Georgetown, South Carolina and operates in the wire rod sector of the steel industry. US shipments of wire rod are about 6 million tons per year and accounts for 5% of the total US steel market. We sell primarily to domestic wire drawers that process wire rod into products for diverse end use applications, including the automotive, construction, industrial and consumer industries.
In the automotive industry, our wire rod is used in many applications, including tire cord and tire bead for steel belted radial tires; hose wire, springs, shock absorbers, brake pads and fasteners. We supply the construction industry with product for end uses such as pre-stressed concrete strand and galvanized guy strand, for use in constructing office buildings, parking garages, and cable-stay bridges such as the Cooper River bridge now under construction in Charleston; metal building cross members, cable TV and telephone support wires, and highway barrier strand among many other applications. Our consumer end uses include upholstery springs, steel wool, coat hangers, and fish hooks. General industrial uses for our product include screws and bolts, ball bearings, cutting wire, bailing wire and wire rope.
Our steel mill is the only one in the United States with a (DRI) direct iron reduction plant which produces a high quality raw material. Other US mini mills rely solely on buying scrap or scrap substitutes for their raw material feed, which are mostly lower quality and now much higher cost. We also operate an 80 ton electric furnace and caster, and a wire rod rolling mill. The entire operation is located on approximately 65 acres and operates in a 500,000 square foot manufacturing facility located on a deep-water seaport on the Sampit River.
The mill’s capacity is about 900,000 tons per year and up until a few months ago, we employed more than 600 workers, and we were shipping near capacity levels. Today, we are in bankruptcy, the mill has ceased operations, and most of our workforce is without jobs.
The Georgetown steel facility has been a profitable company on an EBITDA basis during each of the last 10 years, leading up to 2003. Though escalating wire rod imports have made business conditions difficult in previous years, the combination of dumped and subsidized imports depressing the price for our products, and the rising costs for scrap, natural gas, and electricity were overwhelming this past year and did not allow us to continue operations after October 21, 2003.
As I mentioned, wire rod imports have been a problem for our industry for several years. Though wire rod was not part of the highly publicized and now terminated section 201 steel tariff program, wire rod producers have spent several millions of dollars pursuing remedies for trade distorting practices. Finally in April 2002, after several months of litigation, and affirmative rulings by the International Trade Commission and the U.S. Commerce Department, anti-dumping (ADD) and countervailing duty (CVD) orders were implemented calling for some of these unfairly traded imports to pay a duty upon entry into the U.S. Seven countries were found to be guilty and are either paying or not shipping to the U.S. Also, ADD/CVD suits continue against four other countries on appeal.
These unfair trade cases leveled the playing field with the countries investigated and found guilty. However, China was not included in these cases which began in early 2001, and they since have emerged as a new dominant importer of wire rod into the United States. After shipping less than 25,000 tons to the US for all of 2001, China’s 2002 imports increased to 414,000 tons, or more than a 1500% jump from the previous year. Last year in 2003, China wire rod imports were about 252,000 tons and although less than their extraordinary 2002 year, their recently established share of overall US imports remained about the same. We estimate China’s wire rod production capacity is about 7 to 8 times larger than that in the US. Our concern is when inventories need to be balanced in China or normal business adjustments occur, shipments from China surge into the United States.
Our customers have similar stories on how China is affecting their business. The garment hanger industry for example has also seen an explosion of Chinese imports. Imported hangers from China account for 95% of all imported hangers today as their sales to the US have grown more than 800% during the last 5 years. The “under selling” margins for these imports average 30% and many times exceeded 50%. The ITC actually ruled 5-0 that significant injury had occurred to this industry in a recent section 421 investigation, but the President decided against any relief. Last year one the largest US hanger manufacturers, and one of our customers, went out of business.
Our pre-stressed concrete strand customers are also feeling the effect of imports from China, which was less than 100 tons total in 2001 and 2002. Latest import figures tell us more than 17,000 PC strand tons from China have hit the US through the first 11 months of 2003. Strandtech-Martin is a 5-year old business located in Summerville, SC and is one of our largest customers in this market. I am sure they can tell you the negative effect these surging Chinese imports have had on their business. Strandtech and this entire industry is extremely concerned imports from China will only continue to grow.
Drawn wire imports from China have also grown, particularly galvanized- coated wire which is more conducive for ocean transportation to the US. Leggett and Platt recently closed their wire galvanizing in Andrews, at least in part due to these increasing imports. Other finished steel products from China such as nuts and bolts, break pads, wire shelving, and wire rope are also gaining an increasing share of our customers’ markets. These markets are being even further eroded when you consider products ranging from steel handled pails to sophisticated automotive assemblies that are now coming from China, and no longer requiring parts made in the US.
All of this is occurring as the Chinese economy is growing at a rate in excess of 8%. As part of that amazing growth, China is also consuming more. However, that consumption seems to be mainly raw materials, which for our industry is primarily scrap, and at a historically high rate, and that rate is growing. Much of the scrap China is consuming is being exported from the US resulting in some shortages of raw materials here and costs that have more than doubled for US steel makers in the past year. So in addition to depressing our prices, China also seems to be driving up our costs.
Obviously, manufacturers in the US today face the reality of survival. That is, competing in a global economy is not simply a choice. We hope that competition will be fair. At Georgetown Steel, we are not operating today partly because our costs were too high and partly because our prices could not be adjusted to cover these costs. I am optimistic today a buyer will emerge for the mill in Georgetown who will see what we believe is an opportunity to restart the lowest cost, high quality wire rod mill in the US. On a level playing field, we believe our mill will be able compete against anyone in the world, including Chinese companies,.... fairly trading.