Prepared by:Martin Associates941 Wheatland Ave., Suite 203Lancaster, PA 17603 April 18, 2018

www.martinassoc.net

RELATIONSHIP BETWEEN STEEL IMPORTS AND U.S. STEEL INDUSTRY CAPACITY UTILIZATION

Justification of Recommended Action Under Section 232 on Steel Imports

Current quantities of imported steel weaken internal economy Potential impact on limiting capacity of U.S. steel industry in a national emergency

due to additional plant closures “Secretary has determined that the only effective means of removing the

impairment is to reduce import levels that should, in combination with good management, enable U.S. steel mills to operate at 80% or more of their rated production capacity”

“Due to the threat as defined in Section 232, to national security from steel imports, the Secretary recommends that the President take immediate action by adjusting the level of these imports through quotas or tariffs. The quotas or tariffs imposed should be sufficient, even after any exceptions (if granted), to enable U.S. steel producers to operate at an 80% or better average capacity utilization rate based on available capacity in 2017.”

Source: The Effect of Imports of Steel on the National Security, An Investigation Conducted Under Section 232 of the Trade Expansion Act of 1962, As Amended, U.S. Department of Commerce, Bureau of Industry and Security, Office of Technology Evaluation, January 11, 2018

2

Steel Industry Capacity Utilization Has Remained Below Post Recession Levels

0%

20%

40%

60%

80%

100%

120%20

00Q

120

00Q

320

01Q

120

01Q

320

02Q

120

02Q

320

03Q

120

03Q

320

04Q

120

04Q

320

05Q

120

05Q

320

06Q

120

06Q

320

07Q

120

07Q

320

08Q

120

08Q

320

09Q

120

09Q

320

10Q

120

10Q

320

11Q

120

11Q

320

12Q

120

12Q

320

13Q

120

13Q

320

14Q

120

14Q

320

15Q

120

15Q

320

16Q

120

16Q

3

Perc

ent C

apac

ity U

tiliza

tion

3Source: American Iron and Steel Institute (AISI)

Total Steel Mill Products - Imports

0.0

10.0

20.0

30.0

40.0

50.0

60.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Mill

ion

Tons

4Source: American Iron and Steel Institute (AISI)

U.S. Steel Industry Capacity Utilization and U.S. Steel Mill Products Imports –Capacity Utilization Tends to Increase as Imports Increase, and Decrease When Imports Decrease

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 20160.0

10.0

20.0

30.0

40.0

50.0

60.0

% C

apac

ity U

tiliza

tion

Mill

ion

Tons

Imports Capacity

5Source: American Iron and Steel Institute (AISI)

U.S. Durable Goods Manufacturing Output and Steel Mill Products - Imports

0.0

10.0

20.0

30.0

40.0

50.0

60.0

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Mill

ion

Tons

Billi

ons o

f Cur

rent

$

Durable Goods Manufacturing and U.S. Steel Mill Products Imports

Durable Goods MFR Imports

Steel mill products imports move with the value of output of U.S. Durable Goods Manufacturing

6Source U.S. Bureau of Economic Analysis and AISI

U.S. Durable Goods Manufacturing Output and Steel Industry Capacity Utilization

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

% C

apac

ity U

tiliza

tion

Billi

ons o

f Cur

rent

$

Durable Goods Manufacturing and US Steel Capacity Utilization

Durable Goods MFR Capacity

7

U.S. steel industry capacity utilization is positively correlated with the value of output of U.S Durable Goods Manufacturing

Source U.S. Bureau of Economic Analysis and AISI

U.S. Steel Price Relative to China Steel Price and Steel Industry Capacity Utilization

0%

20%

40%

60%

80%

100%

120%

0

0.5

1

1.5

2

2.520

00Q

120

00Q

320

01Q

120

01Q

320

02Q

120

02Q

320

03Q

120

03Q

320

04Q

120

04Q

320

05Q

120

05Q

320

06Q

120

06Q

320

07Q

120

07Q

320

08Q

120

08Q

320

09Q

120

09Q

320

10Q

120

10Q

320

11Q

120

11Q

320

12Q

120

12Q

320

13Q

120

13Q

320

14Q

120

14Q

320

15Q

120

15Q

320

16Q

120

16Q

3

% C

apac

ity U

tiliza

tion

US

Stee

l Pric

e/Ch

ina

Stee

l Pric

e

US Price Relative to China Capacity

U.S. steel industry capacity utilization declines as the U.S. price of steel falls relative to China price of steel, and increases with an increase in US steel prices relative to China price of steel

8Source: Steel Benchmarker Data and AISI

U.S. Steel Price Relative to World Steel Price and Steel Industry Capacity Utilization

0%

20%

40%

60%

80%

100%

120%

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

220

00Q

120

00Q

320

01Q

120

01Q

320

02Q

120

02Q

320

03Q

120

03Q

320

04Q

120

04Q

320

05Q

120

05Q

320

06Q

120

06Q

320

07Q

120

07Q

320

08Q

120

08Q

320

09Q

120

09Q

320

10Q

120

10Q

320

11Q

120

11Q

320

12Q

120

12Q

320

13Q

120

13Q

320

14Q

120

14Q

320

15Q

120

15Q

320

16Q

120

16Q

3

% C

apac

ity U

tiliza

tion

US

Stee

l Pric

e/W

orld

Ste

el P

rice

US Price Relative to World Price Capacity

U.S. steel industry capacity utilization declines as the U.S. price of steel falls relative to World price of steel, and increases with an increase in US steel prices relative to World price of steel

9Source: Steel Benchmarker Data and AISI

Steel Industry Capacity Utilization During Section 201 of the Trade Act of 1974 – March 2002 Through December 2003

0%

20%

40%

60%

80%

100%

120%20

00Q

120

00Q

320

01Q

120

01Q

320

02Q

120

02Q

320

03Q

120

03Q

320

04Q

120

04Q

320

05Q

120

05Q

320

06Q

120

06Q

320

07Q

120

07Q

320

08Q

120

08Q

320

09Q

120

09Q

320

10Q

120

10Q

320

11Q

120

11Q

320

12Q

120

12Q

320

13Q

120

13Q

320

14Q

120

14Q

320

15Q

120

15Q

320

16Q

120

16Q

3

Capacity Utilzation

U.S. steel industry capacity utilization actually declined during imposition of Section 201 from 90.7% in second quarter 2002 to 79.2% in fourth quarter 2003, and then increased after the tariffs were lifted

Imposition of Section 201

10Source: AISI

Steel Industry Capacity Utilization During Section 201 of the Trade Act of 1974 – March 2002 Through December 2003

60%

65%

70%

75%

80%

85%

90%

95%

100%

2002Q1

2002Q2

2002Q3

2002Q4

2003Q1

2003Q2

2003Q3

2003Q4

2004Q1

2004Q2

Capacity Utilzation

U.S. steel industry capacity utilization actually declined during imposition of Section 201 from 90.7% in second quarter 2002 to 79.2% in fourth quarter 2003, and then increased after the tariffs were lifted

Imposition of Section 201, March 2002

Removal of Section 201, December 2003

11Source: AISI

Conclusions

There does not appear to be a relationship between steel imports and U.S. steel industry capacity utilization During the imposition of Section 201 import tariffs, the capacity

utilization of the U.S. steel industry actually declined (March 2002 to December 2003) The imposition of the Section 201 steel import restrictions cost the

U.S. Marine Transportation System 22 million person hours, $77.3 million of Federal Taxes and $391 million of output to the U.S. Economy (The Economic Impact of the Section 201 Import Restrictions on the Marine Transportation System, 2006 by Martin Associates for the American Institute for International Steel) The proposed 25% tariffs on Steel Imports are projected to cost the

U.S. Economy a loss of 146,000 jobs (The Trade Partnership - Laura Baughman)

12

Steel Imports by Mode 2003-2017 - Water Transportation Accounts for More than 75% of Steel Imports

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%20

03

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Land ValueAir ValueVessel Value

Source: USA Trade OnLine

Steel Imports by Water and Source Country

- 5,000

10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000

All Others

Canada

Thailand

Italy

Netherlands

Vietnam

India

Mexico

Germany

Japan

Taiwan

Turkey

Russia

South Korea

Brazil

China

Source: USA Trade OnLine

Steel Imports by Water by Country of Export –Brazil is Growing, while China’s Share Has Fallen

0%10%20%30%40%50%60%70%80%90%

100%All Others

Canada

Thailand

Italy

Netherlands

Vietnam

India

Mexico

Germany

Japan

Taiwan

Turkey

Russia

South Korea

Brazil

China

Source: USA Trade OnLine

The 34.4 Million Tons of Imported Iron and Steel Handled at the Nation’s Seaports in 2016 Supported the following:

16

Economic Activity at Risk Due to Steel Import Restrictions

84,000 direct, induced and indirect jobs in the Marine Transportation System handling the imported iron and steel products An additional 1.2 million jobs with users of the imported iron

and steel products Potential impact on 47 million tons of grain exported via Lower

Mississippi River ports in 2016- Empty steel ships provide backhaul for grain exported via the Lower

Mississippi River- 10,830 direct, induced and indirect jobs created by these grain exports on

the Marine Transportation System- An additional 39,000 jobs are supported in U.S. agricultural sector

17

About Martin Associates

Founded in 1986 More than 1,000 economic, planning, feasibility and logistics studies

for ports, ocean carriers, terminal operators throughout the U.S., Canada, Europe, South America, Caribbean and Asia Key economic impact studies of national importance:

- Economic Impact of the Section 201 Steel Import Quotas- Economic Impact of the 2002 West Coast Shutdown used in enactment of

Taft Hartley- Economic Impact of the U.S. Port System for the American Association of

Port Authorities, 2015- Economic Impact of the West Coast Port Slowdown in 2014-2015 during

labor/management contract negotiations

18