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If we listen we can hear the Europeans screaming foul on a playing field that has no referees. Throughout the European Union (EU) – (Bruce Stokes refers to stir-fried Europe) especially in Hamburg, Germany where Chinese shipping fleets carry 20-foot long steel boxes that contain textiles, electronics and machinery, all destined for the European market. These same ships will return to the shipping ports of China with German made luxury items, machinery, etc. However, it is important to keep in mind Bao Steel plays an intricate part in the European operation out of Hamburg.
China has made a huge step into the European market. China has recently become the European Union’s largest trading partner. Unfortunately for the Europeans, many containers returning to China are empty, adding to a huge trade deficit that has doubled over the past five years for the European Union.
The economic relationship between China and Europe is at this time much greater than the present fear Americans have toward China’s economy. China, without question, has become the greatest economic challenge for Europe since the 18th century. The European Union has in excess of $140 billion trade deficit with China.
The year-end finds China the world’s second largest exporter of manufactured products exceeding the United States and closing in on the European Union.
The year 2001 started a trend of devaluation of the Chinese Yuan. Today it is a third lower in value than the Euro. Therefore, all Chinese products can be sold at a much lower price in Europe (weak Yuan) and in return, makes European products more expensive to be sold in China.
When Washington, D.C. confronts Beijing about letting the Yuan appreciate further against the American dollar, China will offset their losses with the United States by using the European Euro to set the value of a weak Yuan. China further protects the lucrative trade system by charging unreasonable duty fees rather than just agreed-to tariffs for parts.
Europeans have legitimate economic fears and facts regarding their future in relationship to China imports. However, Europe should not feel like the Lone Ranger in their dilemma. The global economy is threatened by this imbalance of trade. The pain that must be shared can carry long-term consequences for Europe and our nation if China chooses to divert exports to third world markets.
Remember – it is all about money – if Chinese manufacturers fail to sell products in the European market, they will certainly sell them in the American market.
It is my opinion, based on research and development history of both the United States and Europe that China has a greater interest towards befriending the European in the area of science and technology. I wonder how long it will be before “Mercedes Benz is built in China?”
WHERE IS OUR DESTINY?
The problem with globalization is not about which nation holds the bread basket; but who holds control of all the bread.
In fact, it is not any one nation simply because there seems to no longer be honor in a sovereign nation. If you have control of a nation’s economy, you have control of its ability to make decisions – especially those that pertain to economics.
The size of multinational corporations has grown to be mammoth in all industrialized segments of the world. It no longer matters where they are headquartered, their operation, be it a free nation or communist controlled. As Mike Locker has stated, “The power to control our economy has clearly shifted to multinational companies…not “foreigners.”
FDR once said, “Things don’t just happen – they are planned.” If we reflect back into our nation’s history we would find the unregulated companies of the 1920s were allowed to wreck our economy. Imagine this same system applied in a global sense. “A sound Government must have a means of controlling the value of currency to keep an even flow of money.” The Federal Reserve must adjust interest rates to reflect the stability of the banking industry. There are many economic factors that provide this stability. If multinationals are allowed to control the money globally, while having the strength (politically) to set its values measured against other currencies of the world, we will find ourselves governed by multinationals rather than a government by the people, for the people of the people. Sound crazy? I wonder where the idea of a world bank was first heard? It’s all about money…and who has the most influence.
“LOCKER” SAYS
The Mike Locker Report clearly indicates that by the end of this year, the amount American’s pay for imported goods and services will exceed our Governments total annual federal revenues. Our federal revenues are currently $2.4 trillion and imports (foreign goods) cost us $2.2 trillion. This is not monies that foreign governments receive – this is money the multinationals take that you and I would have paid our Government.
Our destiny, to a large degree, can no longer be predetermined since we have lost control of our economy. Our national debt is out of control, and the major players controlling our debt no longer have any degree of loyalty to any single nation – including the U.S.
No one knows how long this will continue until the financial crisis occurs. One thing is for sure…it will not be held here at home, it will be felt globally unless some drastic measures are undertaken to correct this imbalance of world trade.
STEEL FOR 2007!
Consolidation will continue at a much slower pace regarding acquired volume. However, certain products such as plate steel will be challenged here in the U.S. by the recent buyout of Oregon Steel by the Russian company, Evray Group for $2.3 billion. This will create 17 million metric tons raw steel capacity in the North American market. This steel is produced for plate and pipe used in gas and oil transmissions. Oregon will receive a steady stream of Russian slabs with this partnership. Oregon at present receives one million tons of slabs from Mittal Steel operations in Layaro Cardenas, Mexico.
Steelton, Pennsylvania will also feel new competition in the future by Rocky Mountain Steel, Rail Mill presently under study will replace the old 80 foot capacity rail with a new 480 foot rail. Rocky Mountain is now a subsidiary of Oregon Steel.
A RACE TO THE BOTTOM
Mexican steel manufacturers are beginning to feel the pain we experienced five years ago. They are preparing their case to combat the Chinese steelmakers who are dumping Hot Rolled steel into their country.
Large quantities of Chinese Hot Rolled steel is entering Mexico at prices lower than the production cost in Mexico – imagine that!
Steel shipments from China to Mexico are expected to go over a million metric tons in 2006 – four times higher than 2005. Mittal Steel has operations in Mexico.
IRON ORE
The iron ore business is booming. The demand for high grade iron ore is off the charts. China and India are pushing the envelope. If China remains strong in growth, the level of iron ore trade will continue to rise. It is expected to continue to increase through 2008 (American Metals Market, December 6, 2006).
WILL GLOBAL STEEL OVERCAPACITY BECOME A PROBLEM?
At present a billion tons of steel is produced in the world each year. The biggest producer is China with 400 million tons of capacity. Expect an increase (260 million over the next two years). China already has overcapacity of 100 million tons and must find a market for this steel. The facts are – China must close some of its operations (150 to 200 million tons) to prevent a surge of exports by China to other nations. If China refuses to correct this overcapacity, they will reach 520 million tons of crude steel production by the year 2010. World demand will only grow by 300 million tons by 2010. (American Metals Market, December 6, 2006)
NEW CAPACITY EXPECTED THIS YEAR
- Thyssen Krupp – plans for largest new steel mill in North America – Alabama or Arkansas?
- Timken – additional capacity in China
- POSCO – build steel plant in Vietnam
- Nucor – purchase foreign owned steel mills with labor union contracts
- Oregon Steel –
(American Metals Market, December 6, 2006)
WHERE DOES BURNS HARBOR STAND?
No doubt this decade will find Burns Harbor no longer holding the title, “The newest fully integrated steel plant in North America.” However, it remains the lowest cost producer of high grade steel. Unfortunately, Burns Harbor is limited by its aging primary steelmaking up to and including some of its finishing end and plate operations.
The future of Burns Harbor continues to be listed as a premier steel facility is yet to be decided. Burns Harbor has plans to modernize some of its key operations. Capital investments needed are huge. The jury is still out on capital improvements of high value.
A NEW ASIAN CRISIS ON THE HORIZON
The most recent data regarding imports of steel for the month of November 2006 finds China by far the largest. Key products are pipe, rails, bars and hot rolled steel for tubing. The increases of imported steel from China have set a new all-time record of 46%.
Several Asian countries have a history of unfair trading – Taiwan, Thailand and China – and let’s not forget Korea who has a 60% increase. However, the single largest and most threatening to our economy is China. In one month they shipped 520,000 net tons of steel. Using this data, China will ship more steel to the U.S. than Burns Harbor (Mittal Steel) will produce in 2007. Overall, imports are increasing at a rapid pace and could surpass 46% by the years end.
All in all, China has utilized every competitive advantage from changing currency value (Yuan) while providing government subsidies (selling steel below fair market value) export penalties to counter any competition.
The facts are clear – “Unfair Trade” has never been fully addressed. Our Government has made attempts in the late 90’s by applying a two-year band-aid. However, let’s not forget the price paid for delaying any necessary fix.
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