Must-know: Why dumping has hit US Steel hard

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Jul. 22 2014, Published 12:46 p.m. ET

What are anti-dumping regulations?

Let’s start by analyzing what dumping actually means. Dumping, in simple terms, is the selling of products at less than their production costs. When done by a foreign trading partner, it puts the basic survival of the domestic industry at risk. To protect the domestic companies, governments impose a harsh duty on imported products to make them equal to the domestic price. This duty is also referred as an anti-dumping duty. The U.S. has seen its steel imports surge over the past few years. Today, it’s the global largest steel importer. Steel manufacturers have been urging the government agencies to put an end to this menace by having anti-dumping duties levied on such imports.

Why anti-dumping regulations remain a key driver for U.S. Steel Corp.

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We saw earlier that U.S. Steel Corp. operates under three segments. If you look at the previous chart, the tubular segment has been the most profitable segment for the company. The demand is growing—led by the resurgent oil and natural gas sectors. The income generated per ton exceeds the other segments. This lucrative segment has caught the attention of other steel makers globally. This segment has been hit hard by the imports with 49% of domestic demand being met with imports.

Impact of imports on U.S. Steel Corp.

With imports fueling almost half of domestic demand for tubular steel, U.S. Steel Corp. faces a key challenge. The other operating segments still haven’t fully recovered from the impact of the recession. Because of the increased imports, the average selling prices for tubular steel have been falling, which has led to decreased margins. The company also had to close down some plants that produced tubular steel.

Dumping remains a key challenge not only for U.S. Steel Corp. (X), but also other U.S. Steel makers like ArcelorMittal (MT), Nucor Corporation (NUE), and Reliance Steel & Aluminum (RS). It also affects exchange-traded funds (or ETFs) like the SPDR S&P Metals and Mining ETF (XME).

In the next section we’ll look at the recent move by the U.S. Department of Commerce (or DOC) and how it has impacted U.S. Steel Corp.

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