Oil Prices Become a Problem for U.S. Steelmakers

U.S. steelmakers battered by plunging prices have been quick to blame a flood of cheap Chinese shipments. But with imports nearing four-year lows, another culprit is emerging: the energy collapse.

Foreign steel coming into the U.S. dropped 36 percent in November from a year ago, according to U.S. Census Bureau data. That’s with domestic prices at the weakest in at least nine years and new taxes on products from six countries deemed to be unfairly priced. Yet U.S. mills have idled the most capacity since the financial crisis, operating at just 61 percent in the week ending Dec. 21.

Helping explain the capacity decline is a drop in demand for steel pipes and drill bits used in the energy industry after the price of oil plunged 66 percent in the past 18 months. Previously, sales of high-margin products to oil and gas companies had helped shield U.S. mills from sluggish growth in construction and other industries.

“I don’t think imports are the only problem,” domestic mills face, Timna Tanners, a New York-based analyst at Bank of America Corp., said in an interview Tuesday. “Nobody really expected oil to stay as low as it did as long as it has.”

An important result of the energy collapse for steel consumption is that inventories held by steel and energy companies take longer to deplete as demand falls, exacerbating the decline in consumption, Tanners said.

“Domestic mills in 2014 charged a price that was much higher than the rest of the world and that drew imports,” she said. “The domestic mills can complain that it’s unfairly traded, but there are factors outside of that that have nothing to do with fairness."

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http://www.bloomberg.com/news/articles/2015-12-29/oil-shown-as-culprit-for-u-s-steel-woes-as-import-threat-eases