Another Wee Poke at China Over Steel Exports

Posted on by

A $200 million market is so small as to be beneath most readers’ notice, except when its has the potential to escalate frictions between the US and China. The US has been selectively investigating markets where the Chinese are purported to be engaging in anti-competitive practices and taking action. The first salvo occurred last September, the US imposed tariffs on Chinese tires, a $1.3 billion market. China reacted quickly and badly, launching investigations into US auto parts and chickens ($1.2 billion). In the last six months, the US found that China has dumped $2.8 billion of tubular steel, as well as stainless steel pipe. Geither was under pressure from Congress to brand China a currency manipulator in April, and the Chinese made it abundantly clear they would retaliate in some fashion. Geithner managed to put off taking action till the next certification date, in October. For now, the tit for tat seems measured, even if both sides are increasingly agitated.

The latest contretemps is over steel drill pipe. From the Wall Street Journal:

In a move that could escalate trade tensions between the U.S. and China, the Department of Commerce found that Chinese drill-pipe makers were selling roughly $200 million of pipes in the U.S. for less than their market value.

The ruling, while preliminary, places a 15.7% subsidy on finished and unfinished drill pipe, mainly used for oil and natural gas extraction, coming into U.S. ports beginning Wednesday. The subsidy is applied to the selling price of the pipe, not including ocean freight or insurance….

The drill pipes in the latest case are used on both offshore and onshore rigs drilling for oil and natural gas. Drilling contractors such as Transocean Ltd., Helmerich & Payne Inc. and Patterson-UTI, as opposed to oil and natural gas companies, purchase this type of pipe. The pipes, depending on their uses, can sell for $3,000 to $6,000 a short ton, making them one of the most expensive pipes steelmakers can sell.

The U.S. is one of the largest markets for drill pipe. Even though there are other countries that produce more oil than the U.S., many of them need far fewer operating drill rigs, because each rig produces much more oil.

Print Friendly, PDF & Email


  1. Diego Méndez

    Is a trade-war threat from the US such a bad strategy as sometimes purported?

    In game theory, you can prove mathematically that a credible threat (be it a general strike from trade unions, or the nuclear deterrent in a cold war) can improve the status quo for the threatening player.

    This happens when both players follow the optimal playing strategy and even when both players have something to lose where the respective threats to materialize.

    Following that argumentation, China has far more to lose than the US if a trade war erupts. Politically, it would produce social unrest and a huge destabilization for China’s political regime.

    Hence, if China was perceiving a real threat of trade war, it would back off. But China, as everyone here, knows the US does not really mean it. US administrations seem to care for US corporations producing in China rather than for the US people.

    1. David R

      Whats wrong with the Chinese holding a Presidents Day Sale on steel pipes? Its a free market, is it not, they can do whatever they want. How is that an “anti-competitive” practice? It is very competitive.

      1. alex

        “Its a free market, is it not, they can do whatever they want. How is that an “anti-competitive” practice? It is very competitive.”

        Sure it’s competitive, just like it was competitive for Standard Oil to sell below cost where it was trying to destroy a regional competitor.

        1. David R

          So then you have a problem with free markets, or the provincialism of the USA, or Chinese comptetiveness that is similiar to standard oil and walmart, or what?

          1. alex

            “So then you have a problem with free markets …”

            “Free markets”, gotta love that term. For the purposes of our discussion though, give me your precise definition of a “free market”. Does it include government currency intervention, government export subsidies or government ownership of industrial enterprises? Because if it doesn’t, it’s got nothing to do with Chinese trade.

    2. Burt

      Chinese will win,

      They control the shipping industry. (for same reason japan won the car industry war. controlling shipping lane obfuscate and give huge price advantage.)

      Move the ultra cheap stuff between several port and shell companies, nobody will know what happens.

  2. Abhishek

    With the whole world economy in a fragile state I don’t think China and the USA will risk a major trade dispute.Both sides have a huge amount to lose in such a situation.China may have more to lose in a Trade War but its both will be loses akin to a Nuclear War in which one side loses 1 city while the other loses 5 cities

    1. Diego Méndez

      So imagine you are financing widespread terrorism in a foreign nuclear power that can destroy 5 of your cities.

      If that enemy power threatens you credibly with a nuclear armaggedon, would you sit back quietly and keep on financing terror, sure that your only nuclear weapon, able to destroy only one of the enemy cities, will protect you from catastrophe?

      Or would you rather appease the nuclear power and scale back your terrorist activities?

  3. attempter

    In a move that could escalate trade tensions between the U.S. and China, the Department of Commerce found that Chinese drill-pipe makers were selling roughly $200 million of pipes in the U.S. for less than their market value.

    I love the “logic” of globalism which says in principle that destroying domestic production and jobs, and importing cheaply, are desired values, but then at arbitrary points (dictated by what’s nothing more than pork politics) says “here we’ve gone too far in domestic liquidation, and here the import price is too low!”

    How is Walmartization as such not “dumping”, on every American community?

    The U.S. is one of the largest markets for drill pipe. Even though there are other countries that produce more oil than the U.S., many of them need far fewer operating drill rigs, because each rig produces much more oil.

    The US needs more rigs to produce less oil? Yeah, that’s what happens post-Peak (for the US, 1970). It’s textbook, and unlike with mere “economic” theories, here fact has followed theory.

    The same fact has commenced worldwide since we reached the global production plateau starting c. 2005.

    1. O.ot

      Huge steel lobby.

      It’s all politics.

      Had china control US steel lobby first, they wouldn’t have this problem.

      1. alex

        “Huge steel lobby. It’s all politics.”

        Sure, everything is politics. Debate over.

        It’s also politics that the US doesn’t do squat about the undervalued yuan and most manufacturing in this country just gets screwed. Apparently steel is one of the few industries that has the political clout to fight that. I wish all our manufacturing had that clout.

    1. Diego Méndez

      Am I allowed to suggest that the dumping-prone country stops its dumping activities or faces economic isolation?

      1. Down with Stupidity

        As my parents always said when my sister and I fought like cat and dog growing up – TWO WRONGS DON’T MAKE A RIGHT – neither side is innocent, neither side has right on their side. There are rights and wrongs to both sides and if everyone would just stop fighting like 2 yr old kids in a sandpit and find a way to work together to resolve the problems …..

        Oh gosh but that would mean they would have to abandon their ‘tit-for-tat’ stance and acknowledge the other side’s point of view – in other words GROW UP!

  4. charcad

    Our steel industry is in very sorry condition.

    According to that summary, 2009 US domestic steel production was 56 million tons. This was under 50% of estimated total capacity of 113 m/t. When I call for steel intensive projects like electrifying the railroads or starting 10 nuclear power plants per year, I have that very low capacity utilization in view.

    On a positive note someone is doing something truly progressive to reduce the trade deficit:

    Steel Dynamics and Kobe Steel Ltd. have partnered to construct and operate at Hoyt Lakes, Minnesota, the world’s first full-scale demonstration plant using the pioneering ITmk3® process developed by Kobe Steel. This process promises to be both environmentally friendly and energy efficient, reducing emissions by more than 40 percent compared to current processes and using 30 percent less energy than integrated steelmaking. This plant is expected to produce high volumes of 97-percent-pure iron nuggets very cost-effectively.

    Trials at SDI’s Butler, Indiana, Flat Roll mill using iron nuggets produced at a pilot plant have demonstrated the nuggets are very well suited for mini-mill steelmaking, exhibiting numerous operating benefits compared to the imported pig iron ingots traditionally used in EAF flat-roll steelmaking. In addition, the Mesabi nuggets are expected to be produced and delivered to the Steel Dynamics steel mills at very favorable cost.

    This process entirely bypasses the traditional coke fueled blast furnace, uses softer bituminous coal rather than coke and leaves all slag at the minehead. The resulting 99.5% iron nugget is suitable for direct introduction into electric arc furnaces of all sizes.

    These are the kinds of projects needed for genuine and sustainable “recovery”.

    1. O.ot

      You can’t man.

      Because it’s really about lobbyist and union. Those new steel line is a threat to lobbyist and union, because they are fully automated.

      This has nothing to do with steel. Everything to do with politics.

      1. alex

        “fully automated”

        Automation in steel production? I never heard of such a thing.

        BTW, any evidence that the Chinese can actually produce the stuff that cheaply and aren’t just dumping?

          1. alex

            My bad – I thought you were talking about the Chinese drill pipe production rather than the steel process charcad mentioned.

            Nevertheless, what lobbyists would be opposed to it (ok, maybe Chinese lobbyists).

            As for the unions, I doubt they’re blocking any attempt to build steel capacity in this country. Their opposition to greater automation was back in the 70s. Even then the biggest reason that US steel production became obsolete was the US producers weren’t interested in investing in upgrades.

            Things have changed. Most steel production is highly automated. The unions aren’t that unrealistic.

          2. alex

            Interesting, but what about your claim that lobbyists and unions would prevent that plant from opening. You didn’t address that at all.

          3. O.ot

            It’s puny. Only 50K tons output. It’s borderline experimental. An integrated mill to be profitable can easily churn out 2 million tons. Mini mills produce around 2-300K.

            I guess we have to wait what will happen if they propose full size mill using technology above (not that anybody can afford investing that kind of money in the US these days. It’s a guarantee belly up.)

    2. alex

      What is this, the 19th century? Nothing important has changed in steel making since Andrew Carnegie’s day and nobody uses the stuff anymore anyway. Where we need real innovation is in our financial products so we can get the derivatives market going again.

    3. Augurelli

      The ITmk3 plant at Hoyt Lakes, Minn. has a capacity of 500K tons per year, not 50K.

      More importantly, the plant, almost seven months into a startup following 10+ years of pilot and demo plant testing, is still only about 10% capacity. A widely proclaimed slam dunk has become a trip and full-face fall. Likely the technology has a fatal flaw, especially with some of the secondary ores (tailings) planned as feed, and will not be able to make design even when they get fully operational.

      If they ever do. The plant has had many many problems with poorly selected and designed equipment, mostly apparently by the steel company itself. This plant is a mess and likely to remain so. Just like its earlier brother, Iron Dynamics, built 12 years ago and still only about 50% capacity. Now over $200 million in the hole.

      People spend too much time worrying about energy efficiency and “green technology”, and not enough about real science, good engineering, effective design, professional construction and workable operations. Further, they seem to feel that good intentions are enough. That the process will just have to work as planned (hoped), and, parading on with hearts full of that warm and fuzzy of doing so much good, developing and designing a process that meets economic and operational objectives surely follows automatically.


      So relief to foreign competition from this plant is just not coming. The good news is that the Vietnam steel industry is planning to build two of these plants.


  5. charles

    Just to add that the Chinese are, I believe, under investigation by now from the UE Trade commissioner for dumping on the European markets for photo-voltaic panels,
    a complaint brought forward by Dutch / German producers

  6. Mickey Marzick in Akron, Ohio

    C’mon now! Connect the dots… Cheap “defective” Chinese steel pipe… purchased by Transocean Ltd… for use on the Deep Water Horizon Drilling Platform … leased/hired by BP to drill a well in the Gulf of Mexico where no well had ever been drilled before. And… after a thorough internal investigation by BP in cooperation with Transocean Ltd. the party responsible for the environmental disaster in the Gulf of Mexico is the CHINESE steel maker of the defective pipe. Sue them for damages…

    Yellow journalism of the worst kind, you say… Just wait to the story breaks… if it hasn’t already.

  7. ChrisPacific

    “Below market value” is such a wonderfully vague term. Who defines market value? Does it mean they are selling below the loaded cost of production? Whose cost of production – the US firms? What if the cost of production is lower for the Chinese firm? And is it always wrong to sell below cost? US firms do it sometimes – loss leaders, establishing demand in an emerging market sector, enablers for related sect etc.

    It would be interesting to find out whether the Department of Commerce considered these questions, or at least tried to give the appearance of having done so. Their Web site is silent on the subject.

  8. Scott

    I’m only a wee man, but in all my pedantic existence, I still cannot figure out who the actual Chinese and Americans are that are fighting over this. Go American Steel Pipe!!! I’m more confused over why my alma mater joined the Pac-10 today.

  9. video promo

    Seriously, fabulous post! Thanks for sharing with us. I do have a couple inquiries for you, so I’ll look for your email and email them directly if that’s okay.

Comments are closed.