New Report from MEMA Finds Government Support for Steel Damages Automotive Suppliers

WASHINGTON, Feb. 16, 2005 -- Distortions in the steel market, including the record high price of steel, are being fostered by the U.S. government and are causing a crisis that has impacted automotive and heavy duty suppliers across the country, triggering unprecedented bankruptcies and job losses. These findings are from a new report by the Motor & Equipment Manufacturers Association (MEMA), the largest trade group representing automotive suppliers.

The study, written by economist Brian Becker and Kevin Hassett and released today by MEMA, found that the steel crisis has triggered distortions in the steel market that have contributed to decreased availability, poorer quality and delayed deliveries of steel.

The study's central focus was a comparison of the domestic steel industry and the U.S. steel consuming industry. Key findings include:

* Profitability: In 2004, U.S. steel manufacturing firms enjoyed their highest profits in years. The domestic steel industry noted record earnings in 2004 leading to market value increases of 60 percent or more for the largest of these companies. Meanwhile, automotive suppliers continue to face bankruptcies and worker lay-offs.

* Forecasts: Not only are current profits trending upward for steel manufacturers and downward for automotive suppliers, projections point toward continued disparity. Both market participants and analysts are predicting a strong 2005 for the steel manufacturing industry -- similar to the best-in- recent-memory results seen in 2004.

* Market Power: With its increased market concentration since 2001, the U.S. steel manufacturing industry enjoys more leverage to charge higher steel prices and pass on increased raw material costs to steel consumers including automotive and heavy duty suppliers. Automotive suppliers do not have the market power to pass their higher steel costs onto their customers, particularly in view of the competition that suppliers face from imports of automotive parts.

* Utilization: With the surge in demand, industry consolidation and price spikes, capacity utilization rates have spiked to 10-year highs for U.S. steel manufacturers. The steel manufacturing industry's capacity utilization rate rose dramatically in 2004 to 94 percent rising from a recent low of 79 percent in 2001. Utilization rates are forecast to be near 100 percent globally by 2005. Automotive suppliers by contrast are seeing their utilization decline due in part to decreased availability, reduced quality and delayed deliveries of steel.

* Import Levels: Steel import shares have stayed essentially at or below their 10-year average levels since 2000.

* Prices: Steel prices climbed as a result of the 201 safeguards, but have increased even more significantly since the 201 safeguards were repealed. U.S. prices still remain at a premium to the rest of the world. For example, the January 2005 price of hot-rolled steel in the U.S. was $695/ton, on the world spot market $575/ton, and in China $510/ton.

In December 2003, President Bush repealed the 201 safeguards for the U.S. steel industry 16 months prior to the program's expiration citing the growing financial health and stability of the domestic steel industry. Since that time, the profitability and market power of the steel industry climbed to record peaks in 2004 to the detriment of U.S. steel consumers. At the same time, U.S. automotive suppliers are witnessing unprecedented bankruptcies.

The study also addresses the role of China in the world market for steel. China recently became the world's largest consumer and producer of steel, as it supplies its fast growing economy. The growth in demand is forecast to outstrip the growth in supply keeping China as a net importer of steel, according to industry analysts and the U.S. steel manufacturing industry's recent SEC filings.

In March, MEMA will be urging the International Trade Commission (ITC) to sunset anti-dumping and countervailing duty orders on specific steel commodities as a first step in providing a level playing field for American business. Domestic steel consumers are suffering from a distorted market for steel. Revoking specific anti-dumping and countervailing duty orders that are no longer necessary will remove some distortion from the market.

ITC hearings will be held in March and April to review duties on imported hot-rolled flat-rolled and stainless steel strip and coil previously found to be unfairly priced, "dumped" into the U.S. market, or subsidized. The procedures, which are held five years after the duties are put in place, are called "sunset reviews" because the order will be revoked if the ITC determines that revocation of the order would not be likely to lead to continuation or recurrence of material injury to the domestic steel producing industry within a reasonably foreseeable time.

MEMA also called for support of House Resolution 84 to provide for fundamental fairness in the anti-dumping and countervailing duty proceedings of the ITC and the Department of Commerce by taking into account the impact of anti-dumping or countervailing duties on steel-consuming manufacturers and the overall economy in their 5-year sunset reviews of these duties.

MEMA (http://www.mema.org/ ) represents more than 700 motor vehicle product manufacturers with nearly 12,000 U.S. plant locations and 830,000 workers. Together, these companies keep the U.S. automotive and truck industry supplied with the components that enable it to produce some 17 million vehicles annually and keep the 214 million vehicles on the road with replacement products and services.

NOTE TO EDITORS: A copy of the study is available on the home page of the MEMA Web site, http://www.mema.org/ .