In a surprising announcement, the Department of Commerce (DOC) recently announced a negative preliminary decision on alleged dumping of oil country tubular goods (OCTG) imports by Korea and other countries. The DOC issued preliminary duties in the OCTG trade case that were significantly below what were applied to OCTG trade case against Chinese imports in 2009. The biggest setback was 0 percent duty on the largest exporter, Korea, which accounts for 30 percent of all OCTG import volumes. The second and third largest exporters, India and Vietnam, received duties of 28 percent and 61 percent, respectively.
We consider this announcement to be modest setback for domestic OCTG producer. The preliminary decision is particularly negative for United States steel (X), the largest domestic OCTG producer. The final decision on the case is expected on July 7, 2014. Before the ruling was announced, it was widely expected that Korean OCTG imports would be subject to duties; however, the preliminary ruling came as a disappointment to filers of the trade case, including U.S. steel. Following the announcement, the threat now to the domestic OCTG industry is that the import levels will remain relatively high and with considerable new capacity additions coming online over the next several years, margins and volumes will come under pressure.
In theory, the DOC ruling should have been the first step toward reversing the growing market share of OCTG imports. However, given that no duties are proposed against Korean imports (the biggest importer) and the duties proposed against other nations are fairly modest, the decision will not have a meaningful impact on conditions in the domestic OCTG market.
What Does This Ruling Mean for Other Cases?
Almost 60 percent of the OCTG market share is controlled by imports, which is exactly why OCTG case seemed to have the strongest argument, out of all the trades cases filed in the United States. However, this disappointing ruling does not augur well for other trade cases, especially against rebar imports (ruling is expected in April 2014). As compared to 60 percent market share by OCTG imports, rebar imports only account for 14 percent of the U.S. rebar market.
Could Final Determination Be Different?
The DOC will make its final dumping determination on July 7, 2014 and the International Trade Commission will make its final material injury determination on August 21, 2014. It is worth mentioning here that there is precedent for large changes in duties between the preliminary and final determinations. A recent example would be the 2009 OCTG trade case against Chinese OCTG imports. The initial ruling against the second largest Chinese OCTG exporter to the U.S., Tianjin Pipe, proposed a 0 percent duty; however, during the appeal process, the U.S. producers were able to prove dumping arguments against Tianjin Pipe, and in the final determination, the duty was raised to 99 percent. Although, we are not saying the final determination in this case would be different too, but if history is any guide there could be significant changes between the preliminary and final determinations.
The preliminary OCTG anti-dumping ruling has disappointed U.S. producers particularly X, the largest domestic OCTG producer. X’s product offering is oriented towards the mid- and lower-end of the OCTG market relative to peers Tenaris and Vallourec. This is unfortunate for X, because it is generally at the lower end of the market where imported products are most competitive and margins are also lowest.