ArcelorMittal testifies at U.S. International Trade Commission preliminary staff conference on cold-drawn mechanical tubing

05.10.2017

Edward (Ed) Vore, CEO of ArcelorMittal Tubular Products North America testified this morning at the U.S. International Trade Committee's preliminary staff conference on cold-drawn mechanical tubing from China, Germany, India, Italy, Korea and Switzerland. Read the full testimony below.

Good morning. My name is Ed Vore, and I am the Chief Executive Officer of ArcelorMittal Tubular Products North America. I have been in the tubular products industry since 1983, beginning at one of the legacy companies that eventually became ArcelorMittal Tubular. I have held a wide variety of technical and commercial positions within the company before assuming my current position in mid-2013.

ArcelorMittal Tubular Products is the largest producer of cold-drawn mechanical tubing in the United States and we are a union facility. Our cold drawing facility in Shelby, Ohio, has the largest size range of any domestic producer, with the ability to cold-draw mechanical tubing from less than 1 inch in outside diameter up to 12 1/4 inches in outside diameter at a wide variety of wall thicknesses. We make a full range of carbon and alloy steel cold-drawn mechanical tubing for automotive applications, hydraulic and pneumatic tubing and many other applications in the energy, mining and heavy equipment industries among others.

All cold-drawn mechanical tubing is produced using the same process on the same drawing equipment. The feedstock for cold-drawn mechanical tubing is a mother tube or redraw hollow, which is an unfinished carbon or alloy steel hollow profile. That hollow profile can be an as-welded tube or it can be a hot-finished seamless tube. In order to get the essential physical and mechanical characteristics that the customers require, the tubing must be cold-drawn.   

The cold-drawing process itself is the same regardless of the type of tube hollow we feed into it. We start with a hollow that has a larger outside diameter than the finished tubing we want to produce. The hollow is pulled through a die to reduce the outside diameter of the tubing. The tubing is simultaneously being pulled or drawn over a mandrel, rod or plug to control the inside diameter and wall thickness. You will frequently hear the term “drawn over mandrel” or “DOM” to describe this process. The tubing may have to be drawn more than once to get the necessary reduction in outside diameter and the desired wall thickness and mechanical characteristics. The tubing may also be heat-treated after drawing.

Cold-drawing imparts to the tubing the essential physical and mechanical characteristics that our customers require. It allows for the production of an infinite number of wall thickness and diameter combinations to meet the customers’ specific needs. Cold-drawing provides very precise dimensional tolerances on the outside diameter, inside diameter and wall thickness. It also provides enhanced mechanical properties such as higher yield strengths and tensile strengths, elongation, greater hardness and an enhanced strength to weight ratio. Cold-drawing also imparts a superior surface finish, machinability and shape.  

Both producers and customers view cold-drawn mechanical tubing as a distinct product from non-drawn tubing products. Our customers specify cold-drawn tubing for the mechanical properties, precise dimensions and shape and surface finish they provide. Non-drawn tubing is not interchangeable with cold-drawn mechanical tubing. Cold-drawn mechanical tubing that is drawn from welded or seamless feedstock is largely interchangeable when made to the same wall thickness and diameters.  

All cold-drawn mechanical tubing is sold through similar channels of distribution to OEMs and service centers. The prices for cold-drawn mechanical tubing fall along a continuum based on the diameter and wall thickness combinations, chemistries, required number of drawing passes and the heat treatment.

As I said, ArcelorMittal Tubular can make the full complement of cold-drawn mechanical tube products and we are recognized in the industry for our product range, quality and service. What we have not been able to do is to compete with the extremely low, dumped and subsidized prices of imported cold-drawn mechanical tubing from China, India, Italy, Korea, Germany and Switzerland.  

Over the last several years, imports from the subject countries have made significant inroads into our volumes and market share, using extremely low prices. Our lost volume has nothing to do with an inability of ArcelorMittal to supply the quality or product range our customers require – we do that well. As you can see from our questionnaire response, it also has nothing to do with adequate capacity to supply the market. We have had significant excess capacity throughout the period and our capacity utilization rate has been falling. What has prevented us from selling adequate volumes has been the extremely low prices of the subject merchandise.

As a result, ArcelorMittal Tubular competes head-to-head on a price basis for volume in the market with the unfairly traded imports. We have had to lower our prices consistently across the period of investigation as the import volumes increased and their prices decreased. Our customers are very sophisticated buyers who are very aware of the low import pricing being offered. Those customers buy the lower priced imports and use those low prices to leverage down ArcelorMittal’s prices.  

With demand for cold-drawn mechanical tubing down, maintaining as much volume as we can with our customer base is critical. When we lose volume, our unit fixed cost goes up for each ton we produce, cutting into our margins. Importantly, we have found that once we lose volume to lower priced imports, it becomes extremely difficult to get it back. For example, if the customer gets offered a much lower price than ours this quarter, it may simply order from the same source the next quarter without even contacting ArcelorMittal. Or the customer may decide to place an order for the lower priced dumped and subsidized imports for six months or longer rather than for just a quarter. The point is that we can lose multiple opportunities for business with the loss of that initial order, due to low import prices. That puts intense pressure on us to try to match the subject import pricing.

The prices we see from the countries that are the subject of this case have been incredibly low, often at levels that are below our cost of manufacture. That means to make that sale, we would have to sell the product at a price that does not even cover all of our variable costs. We are seeing this sort of low, aggressive pricing across the board -- not just with Chinese and Indian producers. For example, last year we were bidding on a sale for a cold-drawn mechanical tubing product, but lost the sale to a lower-priced German competitor. What was surprising to us was that the German supplier actually won the sale by offering a seamless cold-drawn product of the same dimensions that would have been more expensive to produce than a welded product of the same size. Yet they still managed to significantly underbid ArcelorMittal.

The results of this sort of unfair competition have been predictably bad for our bottom line. Over the period, ArcelorMittal has seen a deterioration in production, capacity utilization, shipments, prices, net sales and profitability. We had a series of temporary lay-offs in 2015 and 2016 due to the falling orders. We have been unable to get any return on a capital project we initiated in 2014 and completed in 2016, as low-priced subject imports took increasing market share in a shrinking market.  

Unless we receive relief from this trade case, we expect additional erosion of our market share and a further decline in prices and profits that will not be sustainable as a business. Thank you.

About ArcelorMittal

ArcelorMittal is the world's leading steel and mining company, with a presence in 60 countries and an industrial footprint in 19 countries. Guided by a philosophy to produce safe, sustainable steel, we are the leading supplier of quality steel in the major global steel markets including automotive, construction, household appliances and packaging, with world-class research and development and outstanding distribution networks. 

Through our core values of sustainability, quality and leadership, we operate responsibly with respect to the health, safety and well-being of our employees, contractors and the communities in which we operate.

For us, steel is the fabric of life, as it is at the heart of the modern world from railways to cars and washing machines. We are actively researching and producing steel-based technologies and solutions that make many of the products and components people use in their everyday lives more energy efficient. 

We are one of the world’s five largest producers of iron ore and metallurgical coal. With a geographically diversified portfolio of iron ore and coal assets, we are strategically positioned to serve our network of steel plants and the external global market. While our steel operations are important customers, our supply to the external market is increasing as we grow. 

In 2016, ArcelorMittal had revenues of $56.8 billion and crude steel production of 90.8 million metric tons, while own iron ore production reached 55.2 million metric tons. ArcelorMittal is listed on the stock exchanges of New York (MT), Amsterdam (MT), Paris (MT), Luxembourg (MT) and on the Spanish stock exchanges of Barcelona, Bilbao, Madrid and Valencia (MTS).

For more information about ArcelorMittal please visit corporate.arcelormittal.com or usa.arcelormittal.com.

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