Davis Index: Market Intelligence for the Global Metals and Recycled Materials Markets

Philip K. Bell, president, Steel Manufacturers Association

In an interview with Davis Index, Philip K. Bell, president of the Steel Manufacturers Association (SMA), shared his organization’s priorities in advancing the interests of the US domestic steel industry. During the discussion, Bell highlighted the dedication of all SMA members to safely and sustainably produce steel products to serve their customers while supporting local communities. 


A presentation made by you in Las Vegas last year centered around maintaining Section 232 tariffs along with the long-term benefits to the US mill industry to consistently operate at 80-85pc capacity utilization. How have SMA’s priorities evolved after the COVID-19 pandemic impacted the economy?

The SMA is now focusing on the following three priorities at the public policy level: 

1. Acknowledgment by government leaders and environmental groups that the US steel industry has the lowest carbon footprint globally, a clear fact that should recognize domestic steel mills as an example for the world.

2. The continuation of Section 232.

3. Ensure the regulatory certainty with sensible and reasonable regulations.

4. Federal support and action towards Infrastructure Investment


How important is the infrastructure bill endorsed by SMA and other organizations? 

It is very important, but infrastructure investment is number four on our list due to the low probability that anything will happen prior to the elections. An infrastructure bill would increase capacity utilization and have a huge, positive impact on Americans. Not only is infrastructure a responsible way to spend tax dollars, it also contributes to the expected growth in employment. Knowing infrastructure improvements are taking place to help serve communities and business growth in the long term. 

Congress has done a few things on infrastructure with the passing of surface transportation, water resources, and national parks bills. However, post-election, whichever administration assumes office, needs to focus on a $1 trillion package with a 4-5-year investment outlook. 


What are your views on the upcoming US elections?

Sometimes people forget that steel has survived and thrived through just about every type of economic and political climate. The industry is resilient.


SMA has a 30-plus-year history as a non-partisan organization. Our goal is to advance the interests of domestic steelmakers by working with all political parties and administrations. 


The Trump administration’s policies have been a net positive for US steel producers. It is important that we continue Section 232 tariffs as they meet the necessary goals to protect the domestic steel industry from unfairly and illegally traded imports. Despite the demand being disrupted by the pandemic, these tariffs must continue. The landscape has changed from January, when US mills were trending above 80pc capacity utilization, to now, where on average, US mills are trending in the low-to-mid-60pc range. 


Lower utilization rates mean the tariffs must remain in place. Weaker demand makes the industry more vulnerable to import surges.


Do you agree that the exemption process for steel imports is taking a lot of resources?

The US Government spends substantial resources on the exemptions process as each exemption must be addressed individually. Frivolous exemption requests are a frequent practice, ensuing parties believe that submitting the same request repetitively will allow one of those to accidentally get approved. Moreover, companies seeking exemption are not required to give sufficient documentation to defend their position for not sourcing steel domestically. 


SMA has recommended that exclusions should not be granted for products that are available from a country already subject to an exemption, such as those in the USMCA. SMA also recently recommended that the Department of Commerce prohibit exclusion requests exceeding actual consumption and require consumption data for the past three years.


To put in perspective, steel imports subject to tariffs are estimated to be less than 20pc percent of total US steel imports. Steel is excluded from Brazil, Argentina, and South Korea due to the quota agreements, while much of the remaining volumes are covered by the USMCA and accepted exclusions. SMA is seeking a level playing field for domestic mills.


What are the current priorities of US mills?

The health and safety of its workforce remains the number one priority for steel mills in the US. Resources have been actively mobilized throughout the pandemic towards this end. The next priority is to keep previously announced moving forward. It is important that they come to fruition to ensure the modernization and electrification of the domestic steel industry.


Some examples include Nucor’s plate and two rebar mills, Steel Dynamics’ Texas flat mill, Big River Steel’s expanding capacity in Arkansas and potential Brownsville, Texas mill, EVRAZ’s investment in Colorado, and CMC’s micro rebar mill in Arizona. 


Do you agree with the forecast that 85pc of US steel will be manufactured through EAF by 2025?

Presently, about 70pc of total US steel is already manufactured through the electric arc furnace (EAF) process. This process is more efficient, cleaner, and fully relies on recycled scrap and industrial electrification. Apart from EAF mills, integrated producers such as US Steel and ArcelorMittal are also working on EAF projects. The investment signifies an understanding that EAF producers can manufacture high-quality steel, including exposed sheet for the automotive industry, which has been traditionally produced by integrated mills. 


When it comes to emissions, EAFs produce 25-33pc less CO2 than integrated steel producers according to EPA data. The move towards EAF technology also supports environmental stewardship goals and a lower carbon footprint for our industry. 


What is the outlook on the US becoming a net exporter of steel?

Domestic steel producers have the potential to expand their markets due to the amount of new capacity. Domestic steel producers’ largest overseas markets are from neighbors to the south and north, with Mexico and Canada being our largest steel export destinations. Many producers see a potential opportunity for expansion into Mexico.


What about the argument that the US is building excess capacity?

The issue of excess capacity is global. An argument made by some is that with Section 232 and AD/CVD duties, Chinese imports are not entering the US, and therefore, are no longer distorting the local market. The fact remains that with China continuing a pattern of excess steel production, even through the pandemic, Chinese steel finds its way to our shores and markets. If not through raw steel, then through finished goods.


I am not concerned about excess capacity claims because that is not an issue in the US. It is an oversimplification that views the investment by mills as an addition equation versus an algebraic equation involving addition, subtraction, and variables. 


New capacity and new technology that uses advanced equipment, including artificial intelligence, is necessary for the evolution of the industry. As the economy recovers, these factors are important in establishing competitive advantages. Additionally, new capacity will replace old and inefficient processes. In some cases, mills may shut or idle capacity, while in other situations, they may change products to align with market demands. 


Right now, many mills are flush with cash and interest rates remain low, offering a ripe landscape to proceed with investments that ensure the modernization of the domestic steel industry.


What are your insights on Big River Steel not yet having financing for its Brownsville project?

Big projects take time and financing can be achieved in a variety of ways. The timetable does not surprise me. Mills must consider logistics, energy and power availability, and incentive packages in their complete assessments prior to fully scaling financing. It can take some time. 


Is it a good time for mills to invest given the ability to obtain incentive packages?

Incentive packages are considered in the overall analysis for building a new site. With present jobless rates, mills may see good opportunities to grow in states and municipalities wishing to assist their communities through economic investments. American steel jobs were part of building the American middle class and continue to provide good wages and benefits. You will never hear about our industry not providing living wages.


Is the ongoing labor shortage a concern for the steel industry?

Labor shortage in the steel industry was not as much of a concern as in other industries even before the pandemic. Some specialty jobs involving electrical/instrumentation work or other specialized training may create a lag in fulfillment, but steel companies are addressing gaps with in-house education, training, and certifications. A problem the industry does face is an aging workforce. We are working to attract younger employees to steelmaking through innovative programs. 


Do you see much risk in regards to steelmaking raw materials in the supply chain with China?

We will monitor the situation regarding rare earth minerals and other raw materials. Currently, there are no major concerns for domestic steelmakers. 


What is your outlook on the steel industry considering that the US energy sector, a key consumer, has been hit hard?

The energy sector has been hit the hardest this year because of reduced activity, which lowered fuel consumption. Imports have also had an inordinate amount of market share in the tube and pipe industry. We expect the energy sector to recover slower than other sectors.


The industry is cautiously optimistic about the US’ post-pandemic recovery. Progress will be contingent on government policies, vaccine development, and solid infrastructure investment. If the momentum aligns, the economy can begin to work its way out of the present situation in 2021. 


Through the pandemic, mills continued providing employment, along with helping their communities with needed resources. American steel mills are resilient and efficient and will do all they can to support economic growth. 

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