The United States government has announced duties on imports of tubular steel from Malaysia, Thailand, and Vietnam. The levies are as high as 160% in the case of Malaysia. Although tubular steel is a relatively small piece of the steel market, this is a big win for U.S. steel manufacturers like U.S. Steel (NYSE:X) and AK Steel (NYSE:AKS).
One battle at a time
In 2010, U.S. steel manufacturers won a big battle over tubular steel being imported from China when the U.S. government imposed tariffs of up to 99% on such imports. The problem was that Chinese tubular steel was being sold in the U.S. market at what manufacturers like U.S. Steel and AK Steel claimed was less than the cost of making it. That's called dumping, and affected countries can impose duties if dumping can be proven.
Clearly, the case was made with regard to China. But China isn't the only tubular pipe maker. For example, after three years of growth, U.S. Steel saw its tubular sales fall over 15% in 2013. AK Steel sold over 7% less tubular steel last year than it did in 2012. This at a time when tubular steel is in relatively high demand. The problem? Imports again...
The big market for tubular steel lately has been in the oil and gas sector. Drilling and pipelines need these products to get the fuels out of the ground and from the well to end markets. In fact, the drilling boom in this country has been hailed as a renaissance with the potential to make the United States energy independent. While that may be hyperbole, you can see why foreign tubular steel players would be eyeing the United States.
A tough industry
Still, tubular is just one part of the larger steel industry, virtually all of which is suffering through overcapacity. For example, U.S. Steel and AK Steel have both lost money in each of the last five years. It's an understatement to call that a rough patch—U.S. Steel has lost more than $25 a share over that span.
So it's no surprise that this pair would be happy to see duties on competitors that are undercutting on price. But pushing Chinese tubular steel into other markets obviously didn't solve the problem. U.S. steel manufacturers contend that Chinese tubular either found its way to the U.S. after brief stops in other nations or pushed production from other nations into the U.S. market. Thus the most recent trade win.
The newest round of duties shows that winning the war is about more than just one battle. And its about more than one market—AK Steel, for example, is fighting dumping in the electrical steel market, too. In the end, no battle is too small. U.S. Steel got about 15% of its sales from tubular steel last year. At AK Steel, meanwhile, tubular only accounted for 2% of the steel it produced. Stainless and electrical steel, meanwhile, was over 15% of AK Steel's production.
More battles to come
The two tubular steel wins are nice to see, particularly for troubled steel makers like U.S. Steel and AK Steel that can use any help they can get. However, this tiny sliver of the steel market isn't going to make or break either company. And slapping huge tariffs on tubular steel from China, Malaysia, Thailand, and Vietnam won't end the age-old practice of dumping.
What it does provide, however, is a foothold for U.S. steel makers in the larger war. Indeed, it's easy for U.S. Steel and AK Steel to cry dumping. The claim alone can be used as leverage. However winning a few key cases shows that this pair isn't crying wolf. That said, with continued overcapacity issues throughout the industry, money-losing steel companies like U.S. Steel and AK Steel are probably best avoided right now. There are other companies in the space that are actually making money despite the problems caused by dumping.
Tubular steel isn't the only Chinese market under pressure...
"Made in China" -- an all too familiar phrase. But not for much longer: There's a radical new technology out there, one that's already being employed by the U.S. Air Force, BMW and even Nike. Respected publications like The Economist have compared this disruptive invention to the steam engine and the printing press; Business Insider calls it "the next trillion dollar industry." Watch The Motley Fool's shocking video presentation to learn about the next great wave of technological innovation, one that will bring an end to "Made In China" for good. Click here!
Reuben Brewer has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.