SCHN 2017 Annual Report

SCHNITZER STEEL INDUSTRIES, INC. 10 / Schnitzer Steel Industries, Inc. Form 10-K 2017 Competition The primary domestic competitors of CSS for the sale of finished steel products include Nucor Corporation’s manufacturing facilities in Arizona, Utah and Washington; Gerdau Long Steel North America’s facility in California; and Commercial Metals Company’s manufacturing facility in Arizona. In addition to domestic competition, CSS competes with foreign steel producers, principally located in Asia, Canada, Mexico and Central and South America, primarily in shorter length rebar and certain wire rod grades. In recent years, a trend of increasing volumes of imported steel products has occurred in CSS's primary domestic markets, driven by global overcapacity in steel-making production and by the relative strength of the U.S. dollar which increases the competitiveness of imports. The principal competitive factors in CSS’s market are price, quality, service, product availability and the relative value of the U.S. dollar. Large volumes of low-priced imports have negatively impacted, and have the potential to continue to negatively impact, the ability of CSS to compete. For more than a decade, CSS's steel manufacturing operations, as part of a U.S. industry coalition, has petitioned the U.S. Government under our international trade laws for relief in the form of antidumping and countervailing duties against wire rod and rebar products from a number of foreign countries. Many of those cases have been successful and as of the start of fiscal 2017, antidumping duty orders were in effect related to imports of rebar from Belarus, China, Indonesia, Latvia, Mexico, Moldova, Poland and Ukraine; a countervailing duty order was in effect related to imports of rebar from Turkey; antidumping duty orders were in effect related to imports of wire rod fromBrazil, China, Indonesia, Mexico, Moldova and Trinidad and Tobago; and a countervailing duty order was in effect related to imports of wire rod from Brazil. During 2017, following a petition by the U.S. domestic industry and successful resolution, new antidumping duty orders were imposed against rebar from Japan, Taiwan and Turkey. The duties imposed as part of these orders are periodically reassessed through the administrative review process. In addition, every five years the U.S. government conducts sunset reviews to determine whether revocation of the orders would likely lead to resumption of dumping and subsidization and negatively impact the U.S. domestic industry. Affirmative decisions allow the orders to continue for an additional five years. The next sunset reviews for rebar fromBelarus, China, Indonesia, Latvia, Moldova, Poland and Ukraine will be in 2018, and for Mexico and Turkey (from the 2014 investigation) will be in 2019. The administrative reviews for rebar from the newest order covering imports from Japan, Taiwan and Turkey will be in 2022. The next sunset reviews for wire rod from all countries will be in 2019. During fiscal 2017, the antidumping margin on one large Mexican wire rod manufacturer was increased significantly in the administrative review process. In May 2017, following successful resolution of a petition from the Canadian domestic industry, the Canada Border Services Agency issued antidumping duty orders covering rebar from Belarus, Chinese Taipei, Hong Kong, Japan, Portugal and Spain. Along with the current orders against rebar fromChina, Korea and Turkey, these orders are expected to generally lead to a reduction in the volume of imports into Canada from these countries. In March 2017, the U.S. domestic steel manufacturing industry filed a new petition targeting wire rod from Belarus, Italy, Korea, Russia, South Africa, Spain, Turkey, Ukraine, the United Arab Emirates and the United Kingdom. The petition alleges dumping of wire rod from all countries, and additional unfair subsidization of wire rod from Italy and Turkey. The U.S. International Trade Commission made an affirmative preliminary injury determination in May and the case is currently with the Department of Commerce for determination of dumping and subsidization margins. The long-term effectiveness of existing antidumping and countervailing duty orders related to imports of wire rod and rebar products is largely uncertain and is impacted by the U.S. Government's ability to efficiently identify and respond to violations of U.S. international trade laws affecting CSS's steel manufacturing operations. In addition to antidumping and countervailing duty activity, in April 2017, the U.S. Department of Commerce self-initiated a national security investigation under Section 232(B) of the Trade Expansion Act of 1962. The purpose of this law is to provide an exemption from normal international trade rules if imports of a product, or products, are harming national security. The Secretary of Commerce has 270 days (or until January 2018) to present the U.S. President with a report and recommendations. If remedies are imposed on steel imports (such as additional tariffs, quotas or a combination of the two), this could result in a decrease in imports and higher prices for those imports which are sold into the U.S.