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NZ Steel's Pacific Steel restructuring hurt margins

NZ Steel's Pacific Steel restructuring hurt margins, says MBIE report on dumping complaint

By Paul McBeth

March 20 (BusinessDesk) - Restructuring at Pacific Steel and weak global demand rather than the behaviour of Chinese rivals squeezed the company's margins, says an officials' report that recommended the government reject its dumping complaints for the second time.

Cheap imports did undercut prices at Pacific Steel, but the New Zealand manufacturer's margins were hurt largely by weaker demand and a change in ownership when ASX-listed BlueScope Steel's New Zealand Steel division bought the business from Fletcher Building, the Ministry of Business, Innovation and Employment said. Pacific Steel argued restructuring initiatives to cut costs limited the adverse impacts of what it called unfair trade practices.

Commerce and Consumer Affairs Minister Kris Faafoi this month rejected two applications by the NZ Steel unit that steel reinforcing bar (rebar) and coil from China and Malaysia was being dumped on the local market and that Chinese subsidies put the local firm at an unfair disadvantage. He based his decision on the MBIE investigation, which found no evidence imported rebar from those nations was being dumped locally, and separately deemed Chinese government support was at such a low level as to have a negligible effect on steel prices.

MBIE found there had been an increase in the volume of steel imports from China and Malaysia in 2015 and 2016 in absolute terms, but not in relation to domestic production and consumption, and while Pacific Steel did suffer depressed prices, it wasn't because of China's subsidies or either Asian nation dumping product in New Zealand.

"The change of ownership, the changes in sources of raw materials, and the cost reduction programme have clearly affected Pacific Steel’s economics, to the extent that they impinge on the factors and indices of injury, and are not related to the level of any subsidisation or dumping," the report said. "MBIE concludes that the change in ownership and consequent changes in its economics were factors that impact Pacific Steel’s position, but considers that it does not mean that injury cannot also be attributed to the effect of any unfairly traded imports (or imports per se)."

NZ Steel bought Pacific Steel in 2014 for $120 million in a deal that shuttered the old Fletcher steel mill in Otahuhu at the end of 2015 once a new billet caster was up and running at NZ Steel's Glenbrook mill south of Auckland.

The deal cleared the Commerce Commission's competition test in part from the constraint provided by imports, which both steel companies used as a reference in setting domestic prices.

In BlueScope's application to the antitrust regulator seeking permission for the acquisition, the Australian steelmaker said import dumping can be "especially disruptive for domestic producers", and when those situations arose NZ Steel "actively" considered its options.

"There is no reason to expect that the acquisition will impact on the appetite for either NZS or PSG (Pacific Steel) respectively in the counterfactual to pursue anti-dumping remedies in particular circumstances," the steelmaker said at the time.

The application was NZ Steel’s second, having last year sought to have duties imposed on Chinese imports of galvanised steel. Former Commerce Minister Jacqui Dean, on advice from MBIE, turned down that application, which NZ Steel is appealing via a judicial review in the High Court.

NZ Steel provided a statement saying it was "very disappointed with the investigation and minister’s decision" which were "out of line with those of other similar jurisdictions" such as Canada, Australia, Europe and the US.



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