UNITED STATES INTERNATIONAL TRADE COMMISSION In the Matter of: OIL COUNTRY TUBULAR GOODS FROM ARGENTINA, ITALY, JAPAN, KOREA, AND MEXICO Pages: 1 through 398 Place: Washington, D.C. Date: April 12, 2007 1 ) ) ) ) Investigation Nos.: 731-TA-711 and 713-716 (Second Review) HERITAGE REPORTING CORPORATION OjJicial Reporters 1220 L Street, N.W., Suite 600 Washington, D.C. 20005 (202) 628-4888 APR 1 3 2007 1 THE UNITED STATES INTERNATIONAL TRADE COMMISSION In the Matter of: 1 OIL COUNTRY TUBULAR GOODS FROM ARGENTINA, ITALY, JAPAN, KOREA, AND MEXICO ) ) ) ) Investigation Nos.: 731-TA-711 and 713-716 (Second Review) Thursday, April 1 2 , 2007 Room No. 101 U.S. International Trade Commission 500 E Street, S.W. Washington, D.C. The hearing commenced, pursuant to notice, at 9:30 a.m. before the Commissioners of the United States International Trade Commission, the Honorable DANIEL R. PEARSON, Chairman, presiding. APPEARANCES : On behalf of the International Trade Commission: Commissioners: DANIEL R. PEARSON, CHAIRMAN SHARA L. ARANOFF, VICE CHAIRMAN DEANNA TANNER OKUN, COMMISSIONER CHARLOTTE R. LANE, COMMISSIONER IRVING A. WILLIAMSON, COMMISSIONER DEAN A. PINKERT, COMMISSIONER Heritage Reporting Corporation (202) 628-4888 2 APPEARANCES : (Cont’d.) Staff : MARILYN R. ABBOTT, SECRETARY TO THE COMMISSION WILLIAM R. BISHOP, HEARINGS AND MEETINGS COORDINATOR SHARON D. BELLAMY, HEARINGS AND MEETINGS ASSISTANT FRED RUGGLES, INVESTIGATOR ERIC LAND, INVESTIGATOR NORMAN VAN TOAI, INDUSTRY ANALYST JAMES FETZER, ECONOMIST MARY KLIR, ACCOUNTANT/AUDITOR MARC BERNSTEIN, ATTORNEY DOUGLAS CORKRAN, SUPERVISORY INVESTIGATOR Consressional Appearances: THE HONORABLE ROBERT P. CASEY, JR., United States Senator, Commonwealth of Pennsylvania THE HONORABLE SHERROD BROWN, United States Senator, State of Ohio State Government Appearances: MARK BARBASH, Chief Economic Development Official, Ohio Office of Development, Office of Governor Ted Strickland, State of Ohio THE HONORABLE JAY WILLIAMS, Mayor of Youngstown, Ohio Heritage Reporting Corporation (202) 628-4888 3 APPEARANCES : (Cont'd.) In Support of the Continuation of Antidumpinq Duty Orders : On behalf of IPSCO Tubulars, Inc., Lone Star Steel Company, Tubular Corporation of America, IPSCO Koppel Tubulars Corp., IPSCO Tubulars (Kentucky), Inc. and V&M Star LP: DAVID SUTHERLAND, President and CEO, IPSCO Steel, Inc . SCOTT BARNES, Vice President, Commercial, IPSCO Tubular DAN MIHALIK, Tubular Product Manager, IPSCO Koppel Division BYRON DUNN, President and CEO, Lone Star Steel Company STEVE FOWLER, Vice President, Sales and Marketing, Lone Star Steel Company DIDIER HORNET, Chairman, V&M Star ROGER LINDGREN, President and CEO, V&M Star RONNY CLARK, Vice President, Sales and Marketing, V&M Star RON CURTICE, General Manager, Sales TCA, Tubular Corporation of America JIM BREIHAN, President, Tubular Technology and Services Division, Tubular Corporation of America DAVID TRUE, President, Tool Pushers Supply JOHN CAUSEY, President, Cinco Pipe and Supply RALPH BELL, CEO, Cinco Pipe and Supply CLAY HUNT, President and CEO, Atropos Production Company ROBERT B. SCHAGRIN, Esquire Schagrin Associates Washington, D.C. Heritage Reporting Corporation (202) 628-4888 4 APPEARANCES : (Cont’d.) In Support of the Continuation of Antidumpins Duty Orders : On behalf of United States Steel Corporation (U.S. Steel): JOHN P. SURMA, Chairman and Chief Executive Officer, U.S. Steel LESLIE J. BROGLIE, General Manager, Tubular Products, U.S. Steel THOMAS VERELLEN, Manager, Tubular Products, U.S. Steel MARTIN LELAND, National Sales Manager, U.S. Steel SCOTT DORN, Director, Commercial Tubular Products, U.S. Steel WILLIAM BUONO, Marketing Director, Tubular Products, U.S. Steel JAMES MASSIMINO, Manager, Metallurgy and Quality Assurance, Tubular Products, U.S. Steel JOE ZGONC, Consultant, U.S. Steel JOHN SHOAFF, President, Sooner Pipe, LP JIM DIONISIO, Manager, OCTG Products, Red Man Pipe and Supply Company DICK STEWART, Vice President and General Manager, J.D. Rush Corporation JAMES JOHNSON, Executive Director, Hunting Energy Services THOMAS CONWAY, International Vice President (Administration), United Steel Workers SETH T. KAPLAN, Economist, The Brattle Group ROBERT E. LIGHTHIZER, Esquire JAMES C. HECHT, Esquire STEPHEN P. VAUGHN, Esquire STEPHEN J. NARKIN, Esquire Skadden, Arps, Slate, Meagher Washington, D.C. & Flom, LLP Heritage Reporting Corporation (202) 628-4888 5 APPEARANCES : (Cont'd.) In Support of the Continuation of Antidumping Duty Orders : On behalf of Maverick Tube Corporation: JEFFREY K. SHORTER, Vice President and General Manager, Maverick PAUL VIVIAN, Former Marketing Manager, Maverick GERMAN CURA, Commercial Director, Tenaris Global Services JAMES R. CANNON, JR., Esquire William Mullen Washington, D.C. In Opposition to the Continuation of AnticJmpinq Duty Orders : On behalf of Husteel Co., Ltd. and SeAH Steel Corporation: GENE LEE, Vice President and General Manager, Pan Meridian Tubular DONALD B. CAMERON, Esquire BRADY W. MILLS, Esquire Troutman Sanders, LLP Washington, D.C. On behalf of Siderca, S.A.I.C, Dalmines, S.D.A., NKK Tubes and Tubos de Acero de Mexico, S.A. (TAMSA): GUILLERMO VOGEL, Vice President, Finance, Tenaris, S.A. ROLAND BALKENENDE, President and General Manager, Tenaris Global Services (USA) Corporation (TGS USA) and Commercial Director, Tenaris S.A. DUKE ALTSCHULER, Managing Partner, Colorado Tubulars GREGORY J. SPAK, Esquire KRISTINA ZISSIS, Esquire White & Case, LLP Washington, D.C. Heritage Reporting Corporation (202) 628-4888 6 APPEARANCES : (Cont'd.) In Opposition to the Continuation of Antidumpins Duty Orders : On behalf of Sumitomo Metal Industries, Ltd., JFE Steel Corporation and Nippon Steel Corporation: HIROFUMI YAMAMOTO, President, Sumitomo Metal USA ROBERT C. CASSIDY, JR., Esquire JOHN D. GREENWALD, Esquire Wilmer Cutler Pickering Hale & Dorr, LLP Washington, D.C. On behalf of Shell Exploration (SEPCO): & Production Companv LILLIAN SKOGSBERG, Ph.D., FNACE, Consultant in Metallurgy and Corrosion for Shell Global Solutions MARK D. BRANNAN, Category Manager, EP Americas, SEPCO RANDALL McGILL, Quality Engineer, Shell International E&P MARC C. HEBERT, Esquire Jones, Walker, Waechter, Poitevent, Carrsre & Densgre, LLP New Orleans, Louisiana Heritage Reporting Corporation (202) 628-4888 7 I N D E X PAGE OPENING STATEMENT OF ROGER B. SCHAGRIN, ESQUIRE, SCHAGRIN ASSOCIATES 36 OPENING STATEMENT OF JOHN D. GREENWALD, ESQUIRE, WILMER CUTLER PICKERING HALE & DORR, LLP 40 TESTIMONY OF THE HONORABLE ROBERT P. CASEY, JR., UNITED STATES SENATOR, COMMONWEALTH OF PENNSYLVANIA 14 TESTIMONY OF THE HONORABLE SHERROD BROWN, UNITED STATES SENATOR, STATE OF OHIO 20 TESTIMONY OF MARK BARBASH, CHIEF ECONOMIC DEVELOPMENT OFFICIAL, OHIO OFFICE OF DEVELOPMENT, OFFICE OF GOVERNOR TED STRICKLAND, STATE OF OHIO 26 TESTIMONY OF THE HONORABLE JAY WILLIAMS, MAYOR OF YOUNGSTOWN, OHIO 30 TESTIMONY OF ROBERT E. LIGHTHIZER, ESQUIRE, SKADDEN, ARPS, SLATE, MEAGHER & FLOM, LLP 43 TESTIMONY OF DAVID SUTHERLAND, PRESIDENT AND CEO, IPSCO STEEL, INC. 49 TESTIMONY OF JOHN P. SURMA, CHAIRMAN AND CHIEF EXECUTIVE OFFICER, U.S. STEEL 52 TESTIMONY OF ROGER LINDGREN, PRESIDENT AND CEO, V&M STAR 58 TESTIMONY OF BYRON DUNN, PRESIDENT AND CEO, LONE STAR STEEL COMPANY 62 TESTIMONY OF THOMAS CONWAY, INTERNATIONAL VICE PRESIDENT (ADMINISTRATION), UNITED STEEL WORKERS 66 TESTIMONY OF LESLIE J. BROGLIE, GENERAL MANAGER, TUBULAR PRODUCTS, U.S. STEEL 68 TESTIMONY OF JIM BREIHAN, PRESIDENT, TUBULAR TECHNOLOGY AND SERVICES DIVISION, TUBULAR CORPORATION OF AMERICA 70 Heritage Reporting Corporation (202) 628-4888 8 I N D E X PAGE TESTIMONY OF JOHN SHOAFF, PRESIDENT, SOONER PIPE, LP 72 TESTIMONY OF JIM DIONISIO, MANAGER, OCTG PRODUCTS, RED MAN PIPE AND SUPPLY COMPANY 74 TESTIMONY OF DAVID TRUE, PRESIDENT, TOOL PUSHERS SUPPLY 75 TESTIMONY OF DICK STEWART, VICE PRESIDENT AND GENERAL MANAGER, J.D. RUSH CORPORATION 78 TESTIMONY OF JOHN CAUSEY, PRESIDENT, CINCO PIPE AND SUPPLY 80 TESTIMONY OF JAMES JOHNSON, EXECUTIVE DIRECTOR, HUNTING ENERGY SERVICES 82 TESTIMONY OF JAMES R. CANNON, JR., ESQUIRE, WILLIAM MULLEN 83 TESTIMONY OF JEFFREY K. SHORTER, VICE PRESIDENT AND GENERAL MANAGER, MAVERICK 83 TESTIMONY OF GERMAN CURA, COMMERCIAL DIRECTOR, TENARIS GLOBAL SERVICES 88 TESTIMONY OF SETH T. KAPLAN, ECONOMIST, THE BRATTLE GROUP 96 TESTIMONY OF DIDIER HORNET, CHAIRMAN, V&M STAR Heritage Reporting Corporation (202) 628-4888 107 9 PAGE TESTIMONY OF CLAY HUNT, PRESIDENT AND CEO, ATROPOS PRODUCTION COMPANY 103 TESTIMONY OF ROBERT B. SCHAGRIN, ESQUIRE, SCHAGRIN ASSOCIATES 111 TESTIMONY OF THOMAS VERELLEN, MANAGER, TUBULAR PRODUCTS, U.S. STEEL 119 TESTIMONY OF STEPHEN P. VAUGHN, ESQUIRE, SKADDEN, ARPS, SLATE, MEAGHER & FLOM, LLP 133 TESTIMONY OF JAMES C. HECHT, ESQUIRE, SKADDEN, ARPS, SLATE, MEAGHER & FLOM, LLP 145 TESTIMONY OF MARTIN LELAND, NATIONAL SALES MANAGER, U.S. STEEL 14 9 TESTIMONY OF PAUL VIVIAN, FORMER MARKETING MANAGER, MAVERICK 151 TESTIMONY OF STEPHEN J. NARKIN, ESQUIRE, SKADDEN, ARPS, SLATE, MEAGHER & FLOM, LLP 160 Heritage Reporting Corporation (202) 628-4888 10 PAGE TESTIMONY OF DONALD B. CAMERON, ESQUIRE, TROUTMAN SANDERS, LLP 234 TESTIMONY OF GENE LEE, VICE PRESIDENT AND GENERAL MANAGER, PAN MERIDIAN TUBULAR 238 TESTIMONY OF GUILLERMO VOGEL, VICE PRESIDENT, FINANCE, TENARIS, S .A. 245 TESTIMONY OF GREGORY J. SPAK, ESQUIRE, WHITE & CASE, LLP 245 TESTIMONY OF DUKE ALTSCHULER, MANAGING PARTNER, COLORADO TUBULARS 256 TESTIMONY OF ROBERT C. CASSIDY, JR., ESQUIRE, WILMER CUTLER PICKERING HALE & DORR, LLP 259 TESTIMONY OF HIROFUMI YAMAMOTO, PRESIDENT, SUMITOMO METAL USA 260 TESTIMONY OF JOHN D. GREENWALD, ESQUIRE, WILMER CUTLER PICKERING HALE & DORR, LLP 264 TESTIMONY OF MARK D. BRANNAN, CATEGORY MANAGER, EP AMERICAS, SEPCO 270 TESTIMONY OF LILLIAN SKOGSBERG, PH.D., FNACE, CONSULTANT IN METALLURGY AND CORROSION FOR SHELL GLOBAL SOLUTIONS 271 TESTIMONY OF ROLAND BALKENENDE, PRESIDENT AND GENERAL MANAGER, TENARIS GLOBAL SERVICES (USA) CORPORATION (TGS USA) AND COMMERCIAL DIRECTOR, TENARIS S.A. 284 TESTIMONY OF MARC C. HEBERT, ESQUIRE, JONES, WALKER, WAECHTER, POITEVENT, CARR~RE& DEN~GRE,LLP 324 Heritage Reporting Corporation (202) 628-4888 11 PAGE CLOSING STATEMENT OF STEPHEN P. VAUGHN, ESQUIRE, SKADDEN, ARPS, SLATE, MEAGHER & FLOM, LLP 386 CLOSING STATEMENT OF DONALD B. CAMERON, ESQUIRE, TROUTMAN SANDERS, LLP 391 Heritage Reporting Corporation (202) 628-4888 12 1 P R O C E E D I N G S (9:30 a.m.) 2 CHAIRMAN PEARSON: 3 Good morning. On behalf 4 of the U.S. International Trade Commission I welcome 5 you to this hearing on Investigation Nos. 731-TA-711 6 and 7 Tubular Goods From Argentina, Italy, Japan, Korea, and 8 Mexico. 713-716 (Second Review) involving Oil Country The purpose of these five-year review 9 10 investigations is to determine whether the revocation 11 of the antidumping duty orders covering oil country 12 tubular goods from Argentina, Italy, Japan, Korea, and 13 Mexico would be likely to lead to continuation or 14 recurrence of material injury to an industry in the 15 United States within a reasonably foreseeable time. I would note for the record that following a 16 negative determination in its five-year review, the 18 Department of Commerce published its revocation of the 19 countervailing duty order on OCTG from Italy on 20 December 26, 2006. Accordingly, effective December 22 26, 2006, the Commission terminated its review of the countervailing duty order on OCTG From Italy, (Second Review) , so if 24 Investigation No. 25 you came here hoping for a countervailing duty 701-TA-364 Heritage Reporting Corporation (202) 628-4888 13 1 hearing, you're in the wrong place. The list of witnesses, notice of 2 3 investigation and transcript order forms are available 4 at the public distribution table. 5 testimony should be given directly to the Secretary. 6 Please do not place testimony directly on the public 7 distribution table. All witnesses must be sworn in by the 8 9 All prepared Secretary before presenting testimony. I understand Any 10 that parties are aware of the time allocations. 11 questions regarding the time allocations should be 12 directed to the Secretary. Finally, if you will be submitting 13 14 information you wish classified as business 15 confidential your requests should comply with 16 Commission Rule 201.6. Madam Secretary, are there any preliminary 17 18 19 matters? MS. ABBOTT: Yes, Mr. Chairman. With your 20 permission we will add Randall McGill from Shell 21 International to the second panel on page 6 of the 22 calendar, and also all witnesses for today's hearing 23 have been sworn. 24 (Witnesses sworn.) 25 CHAIRMAN PEARSON: Okay. Without objection, Heritage Reporting Corporation (202) 628-4888 14 Mr. McGill will be added. Will you please announce our first congressional visitor? MS. ABBOTT: Our first speaker will be the 5 Honorable Robert P. Casey, Jr., United States Senator, 6 Commonwealth of Pennsylvania. CHAIRMAN PEARSON: 7 8 Casey. Good morning, Senator Welcome to the International Trade Commission. MR. CASEY: 9 Good morning. 10 Chairman. 11 Commission for this opportunity. 12 Good morning, Mr. I want to thank you and the members of the I appreciate this opportunity to appear 13 before the ITC and also to speak directly to the 14 important issues you're considering today, in 15 particular regarding the second sunset review of 16 antidumping and countervailing duty orders on oil 17 country tubular goods and the important issues that 18 will arise from that. 19 The work that you do here, as you all know, 20 gives life to the laws that Congress has enacted to 21 address and redress the effects of unfair trade. 22 critical that the enforcement of those laws be done 23 thoughtfully and strictly as we look to the Commission 24 to put these laws to work for all Americans, 25 especially the manufacturing sector. American workers Heritage Reporting Corporation (202) 628-4888 It's 15 and American enterprises deserve nothing less. 2 I represent the people of the Commonwealth 3 of Pennsylvania, which, as all of the members of this 4 body know, have seen a stunning decline in 5 manufacturing jobs and the manufacturing base over the 6 past several decades. 7 The particular cases under review here today 8 affect plants in Pennsylvania such as the Koppel and 9 Ambridge plants owned by IPSCO and other producers 10 with operations in Pennsylvania such as U . S . 11 The Koppel and Ambridge plants in Pennsylvania 12 directly employ a combined 670 workers. 13 a multiplier effect in their communities, and the 14 threats to the 670 IPSCO jobs also put those ancillary 15 jobs at risk. Steel. The jobs have 16 IPSCO is also involved in capital 17 improvement projects at these plants and is investing 18 a combined 19 exactly the type of jobs we should be working to save. 20 $54 million in the two plants. These are The investments being made in the plants in 21 Pennsylvania and other plants are investments in our 22 communities and in the productivity of our workforce. 23 They also demonstrate that this industry remains 24 highly competitive and that the participants are doing 25 what they need to do in order to continue to compete Heritage Reporting Corporation (202) 628-4888 16 1 2 in a global marketplace. As you know, this case focuses on one class 3 of products, oil country tubular goods, which are 4 piping and tubing products made to the very exacting 5 standards so that they can withstand the requirements 6 of the oil and gas industry. 7 In the past few years, domestic producers 8 have done well in this industry, and that is a 9 testament to the ingenuity of American producers and 10 the productivity of American workers. 11 demonstrates that with a level playing field U.S. 12 workers will not only compete, but will thrive, will 13 thrive in the global economy. 14 This case Now, some may argue here today that the 15 recent improvements in domestic producer results 16 demonstrates that the current antidumping orders are 17 not necessary. 18 reject - - this logic for a number of reasons, the most 19 important being that the underlying justification for 20 these antidumping and CVD orders remain. I urge the Commission to reject - - to 21 Unfair and illegal practices continue, and 22 foreign producers remain poised to sell artificially 23 cheap products in the U.S. market. 24 imports have risen dramatically over the past few 25 years from some 500,000 tons in 2002 In fact, OCTG to over two Heritage Reporting Corporation (202) 628-4888 17 million tons in 2006. At the same time, U.S. producers are losing domestic market share and have fallen from percent 4 of the U.S. market in 5 percent to 6 Removing the antidumping and 7 here today will open the floodgates for foreign 8 producers using unfair practices and advantages. 9 59 2002 to 79 59 percent last year, 79 percent in just that short time period. CVD orders under review Additionally, this case is emblematic of the 10 challenges faced by domestic producers. 11 squeezed at the high and low end of markets by various 12 forms of unfair competition. 13 They're being The United States has some of the lowest 14 trade barriers in the world, and our workforce can and 15 does compete at world class levels, but what our 16 companies and our workers cannot do and should not be 17 forced to do is compete with unfair and illegal trade 18 practices on the part of foreign governments or 19 multinational companies. 20 The countries involved in the cases before 21 the Commission today are attempting to unfairly 22 compete at the higher end of the market where American 23 companies have been successful at defending their 24 market share. At the same time, China is making a 25 tremendous push into the low end of this market with Heritage Reporting Corporation (202) 628-4888 18 the aid of both direct subsidies and currency manipulation. Statistics show that China is becoming 4 increasingly successful in penetrating the market, and 5 its imports to this country have risen dramatically, 6 including a 60 percent increase from 7 Without the continuation of these antidumping and CVD 8 orders, the recent success of American producers will 9 quickly give way to a torrent of artificially cheap 10 2005 to 2006. imports. The squeeze that American producers face at 11 12 the high and low ends of the market threaten jobs in 13 places like the Koppel plant in Pennsylvania, as well 14 as all the ancillary jobs that this industry creates. 15 If these plants are forced to cut back production or 16 close, the communities will lose the jobs at the 17 plants, as well as the multiplier jobs. 18 from these companies and these industries will flow 19 overseas, and investment in our communities will 20 decline. 21 The profits Mr. Chairman, the people of Pennsylvania and 22 especially the families affected by these injustices 23 know very well that once jobs like these are lost they 24 are likely gone forever. Our manufacturing base in 25 Pennsylvania and across America has been devastated Heritage Reporting Corporation (202) 628-4888 19 1 over the past few decades, and working families have 2 felt the sledgehammer of that loss. 3 As a Senator from Pennsylvania, part of my 4 job is to work every day to support policies that will 5 level the trade playing field and remove the economic 6 insecurity which is now so pervasive in the lives of 7 American workers and their families. 8 9 What this Commission can do is enforce the laws we have given you thoughtfully and strictly to 10 prevent the specific harm to a specific industry 11 because of documented unfair practices on the part of 12 foreign producers. 13 I’d like to conclude this morning by saying 14 that our domestic industries need the mechanisms that 15 are in place like the ITC to work so that they can see 16 that fair trade conducted on a level playing field 17 does in fact work. 18 19 If we turn away from fair trade we risk turning away from all trade, which will harm us just as surely as unfair and noncompetitive practices on 21 22 the part of foreign producers will. I’m honored to appear before you today on 23 this important case, and I want to express and 24 reiterate my strong support of continuation of these 25 OCTG orders. I want to thank the Commission for this Heritage Reporting Corporation (202) 628-4888 20 1 opportunity, and I thank you for your time. 2 CHAIRMAN PEARSON: Thank you, Senator. 3 Are there any questions for Senator Casey? 4 (No response.) 5 CHAIRMAN PEARSON: Okay. 6 much. 7 MR. CASEY: 8 MS. ABBOTT: 9 Thank you very Thank you. Our next witness is the Honorable Sherrod Brown, United States Senator, State of Ohio. CHAIRMAN PEARSON: Good morning, Senator. MR. BROWN: CHAIRMAN PEARSON: 13 14 Welcome to the International Trade Commission. MR. BROWN: 15 16 Good morning. Glad to be back. Thank you. Appreciate that. Chairman Pearson, members of the Commission, 17 18 thanks for the opportunity to testify this morning 19 regarding the imports of steel casing, tubing and drill pipe from Argentina, Korea, Italy, Japan, and Mexico. 22 I had the opportunity to appear before this 23 Commission five or six years ago in connection with 24 the first reviews of the unfair trade orders at issue 25 and am here to explain why I think maintenance of Heritage Reporting Corporation (202) 628-4888 21 1 these orders is just as important today as it was 2 then. 3 It‘s no secret that our country is facing an 4 increasingly troubling situation with regard to its 5 manufacturing sector. 6 trading system is at an extraordinary low point among 7 people all over our country. We‘re not getting a fair 8 shake when it comes to trade, and our workers, our 9 families, our communities are not seeing the benefits Confidence in the global 10 that we supposedly bargained for in setting up the 11 current system. 12 In a macro sense of a sort, when I first ran 13 for Congress in 1992 we had a trade deficit in this 14 country of $38 billion. 15 whether you count services or not, it exceeded 16 billion, as you know. 17 deeper than the issues being considered today, and 18 it’s something that I and all members of Congress need 19 to place as a first priority in our legislative work. Last year, depending on $700 That’s a problem that lies In my mind, the work you do in many ways, the foundation, the necessary basic condition is for a 22 successful trade policy. While there’s much to be 23 done, nothing we do in an effort to reestablish faith 24 in the international system and to reestablish the 25 health of our nation’s manufacturers will have any Heritage Reporting Corporation (202) 628-4888 22 chance of success if we cannot guarantee fair trade for our products and for our workers. It's the bare minimum our companies and unions should expect. It's certainly not too much to ask for us as public servants to ensure that they are not disappointed in that expectation. In Ohio I've seen the devastating impact of 8 dumped and subsidized imports, as has my colleagues 9 from Pennsylvania. The layoffs, the plant closings, 10 the bankruptcies that result from unfair competition 11 have catastrophic economic and social effects. 12 I appreciate the role of this Commission in 13 addressing anticompetitive behavior and ensuring a 14 level playing field for U.S. products. 15 particularly concerned about these orders because 16 they've been vital to the success of U.S. Steel's 17 tubular mills in Lorain, Ohio. 18 I'm I represented Lorain in the House for many 19 years before my election to the Senate. I have lived 20 in Lorain County for 14 years and was always proud to 21 speak for the men and women of that community. 22 very familiar with the tubular mills in Lorain and the 23 workers who are employed there and have watched their 24 ongoing and aggressive efforts to remain on the 25 cutting edge of the global pipe business. Heritage Reporting Corporation (202) 628-4888 I'm 23 Just a few years ago, U.S. Steel invested 1 2 some 3 the Lorain No. 4 stronger position to compete on the high end of the 5 OCTG market. $85 million in a new quench and temper line at 3 mill, putting that mill in a much This type of investment gives workers hope 6 7 for the future and is precisely the type of commitment 8 that we ought to encourage. You’re going to hear a 9 lot of evidence today. 10 I very much want to address just a few critical points. First, I understand there is some suggestion 11 12 that an industry that is profitable should not have 13 the benefit of our trade laws and that this is somehow 14 a license for unfair trade in the market. I can tell you that’s not what our trade law 15 16 says, not what it means, not what it was ever 17 intended. 18 relief has been imposed. 19 workers and companies have put themselves in a footing 20 to compete and succeed is just what they should be 21 doing. Companies are supposed to do better after The fact that our OCTG 22 The job of this Commission is, as you know, 23 simply to determine whether unfair imports would make 24 an industry materially worse off. 25 industry is profitable does not and in your analysis The fact that our Heritage Reporting Corporation (202) 628-4888 24 1 should not in any way mean that it is incapable of 2 being harmed by unfair trade. Second, I ask you to remember that the 3 4 domestic companies in this industry, like many other 5 domestic companies these days, are facing an 6 extraordinary challenge in the form of exploding 7 imports from China. 8 unfair Chinese trading practice, including currency 9 manipulation, subsidies and others. Such imports clearly benefit from Just a few years ago, Chinese OCTG was a 10 11 relatively small part of this market. Last year they 12 shipped over three-quarters of a million tons. 13 is having a profound impact on this market and has in 14 large part taken over the commodity and lower end 15 uses. That 16 Not surprisingly, U.S. producers are quickly 17 losing market share. As compared to a market share of 18 around 19 domestic producers now account for only 20 the market. 21 foothold and profitability by focusing on high value 22 uses and customers. 23 90 percent when these orders were put in place, 59 percent of The domestic industry has maintained its Unfortunately, it’s precisely these high end 24 users that the subject producers would go after. 25 too are facing pressures from China and their other Heritage Reporting Corporation (202) 628-4888 They 25 1 export markets. They too know that premium products 2 and uses are essential for their success and that the 3 U.S. market is the biggest and the most attractive in 4 the world. If the subject producers are allowed to 5 6 bring unfair competition to the very portion of the 7 market that is so critical to domestic producers, the 8 results will be quick and predictable: 9 lower profits, declining employment and very, very Fewer sales, clear material injury. I urge the Commission not to allow this 11 12 outcome. U.S. workers and businesses are doing the 13 right things. 14 They’re playing by the rules. They’re increasingly 15 productive, and they’re succeeding. They’re investing in their business. They should not face another flood of dumped 16 17 and subsidized imports. These important orders are 18 crucial and should be maintained. Thank you for having me here today. 19 CHAIRMAN PEARSON: Does anyone have a question for Senator 21 22 Thank you, Senator. Brown? 23 (No response.) 24 CHAIRMAN PEARSON: No? 25 MR. BROWN: Thank you very much. Thank you, Mr. Chairman. Heritage Reporting Corporation (202) 628-4888 Thank 26 you, Chairman Pearson. MS. ABBOTT: Our next appearance is Mark Barbash, Chief Economic Development Official, Ohio 4 Office of Development, Office of Governor Ted 5 Strickland, State of Ohio. 6 CHAIRMAN PEARSON: Welcome, Mr. Barbash. 7 MR. BARBASH: Welcome. Let me just say I‘ve 8 appreciated very much the warm welcome that I’ve been 9 given this morning to the point where we’ve discovered 10 a number of Buckeyes in among your staff, and we’re 11 going to be working very hard to bring them back to 12 the State of Ohio. 13 You also have a copy of my testimony, so I‘m 14 not going to read it. 15 of points. 16 Let me just talk about a couple The first thing is let me tell you it‘s a 17 great honor to be preempted by Senator Sherrod Brown. 18 He is standing up for the critical issues in Ohio‘s 19 economy, and we appreciate his work. 20 I also understand you’re going to hear from 21 Mayor Jay Williams of Youngstown, and I think he’s got 22 an important perspective to hear. 23 I’m Mark Barbash. I’m what‘s called the 24 Chief Economic Development Officer for the Ohio 25 Department of Development. I work for the Governor, Heritage Reporting Corporation (202) 628-4888 27 1 Ted Strickland. 2 Lee Fisher, who is the director of the department. 3 I work for the Lieutenant Governor, Our department works with communities on the 4 ground and at 30,000 feet to help try to both bring 5 jobs, retain jobs and keep Ohio’s economy healthy. 6 That’s the reason that I’m here today. 7 because Ohio has been going through a wringing out 8 process over the last several years. I’m here today 9 Value-added steel is a very important part 10 of this, but historically the State of Ohio has gone 11 through all sorts of issues in the last several years. 12 We‘ve lost over 13 be our major industry, and because of a whole range of 14 issues the state is starting to turn around, but the 15 last several years we feel like we’ve gotten wrung 16 out, and we feel like we’re in a position to be able 17 to make some substantial changes. 18 200,000 jobs. Manufacturing used to The consideration that you are giving today 19 is an important part of this because from Ohio’s 20 perspective, from the perspective of the people who 21 live and work in the State of Ohio, each one of these 22 opportunities is an opportunity to make sure that fair 23 trade occurs and that our companies are able to 24 compete and our folks are able to work. 25 This is not an issue of foreign versus Heritage Reporting Corporation (202) 628-4888 28 1 domestic. The State of Ohio is home to more than 2 1,000 foreign owned firms, including several in the 3 steel industry. We are in fact the eighth largest 4 exporting state and the only state whose exports have 5 grown every year since 6 because we've lost more than 7 activity as it relates to fair trade in the steel 8 industry compounds that staggering loss. The challenge is that 1998. 200,000 jobs, any 9 A local research organization in Cleveland 10 called Policy Matters looked at what happens when we 11 get into layoffs in the steel industry, and what they 12 found is that more than half of the manufacturing job 13 loss in the State of Ohio in 14 foreign imports or by the relocation of Ohio 15 manufacturing operations to other countries. 16 2006 was caused by It's equally important to know that while 17 it's easy to say that we're going through a change in 18 the manufacturing economy and that the harm to workers 19 will eventually be ameliorated because the people who 20 lose their jobs will eventually find more productive 21 employment, the same group, Policy Matters, found that 22 in fact that is not the case. 23 They found that workers who have lost 24 manufacturing jobs have found it difficult to find a 25 new job, particularly one with comparable pay. Heritage Reporting Corporation (202) 628-4888 In 29 1 fact, they found that only 35 percent of such workers 2 in the U.S. who lost their jobs were reemployed as of 3 January 4 percent below their previous job. 2006, and one-third had jobs with wages 20 I would invite you to come out to Ohio. 5 I 6 would invite you to come out to Lorain to look at the 7 U.S. Steel facility and to Youngstown to look at the 8 V&M Star facility. These are two of the brightest 9 spots that we have. So that’s the perspective that Ohio is 10 11 coming from. We’re coming from the perspective that 12 we‘re used to hearing that international trade causes 13 winners and losers, and our task at this critical 14 point in time is to make sure that we have more 15 winners than losers. You are in an important position to be able 16 17 to evaluate and research this issue and make a 18 decision that will make it possible for companies in 19 Ohio and in the United States to compete fairly. Thank you very much for the opportunity to 20 21 be here. 22 CHAIRMAN PEARSON: 23 Are there any questions? 24 25 Thank you, Mr. Barbash. (No response.) MR. BARBASH: Thanks. Heritage Reporting Corporation (202) 628-4888 30 1 CHAIRMAN PEARSON: 2 MS. ABBOTT: 3 Thank you. Our next appearance is the Honorable Jay Williams, Mayor Youngstown, Ohio. 4 CHAIRMAN PEARSON: 5 MR. WILLIAMS: Welcome, Mr. Williams. Thank you very much. Good 6 morning, Chairman Pearson and commissioners. It is an 7 honor to be here before you today to speak on this 8 very important manner. My name is Jay Williams and I’m 9 the Mayor of the city of Youngstown, Ohio. Youngstown 10 is home to V&M star, one of the largest prominent 11 employers in the city. 12 has also been the single largest tax contributor to 13 the City of Youngstown. 14 their Youngstown plant and in 2006 had a payroll of 15 $42.6 million. For the past two years, V&M They employ 450 workers at 16 They have also made significant improvements 17 and investments in the plant, which has led to greater 18 efficiency and production. They’re an outstanding 19 corporate citizen, one that the City of Youngstown would like for now and to keep also for future 21 22 generations. Please allow me to give you an abbreviated 23 perspective on the City of Youngstown over the past 24 few decades. Approximately 40 years ago, Youngstown 25 was at the center of one of the largest steel Heritage Reporting Corporation (202) 628-4888 31 1 producing regions in the world. The steel and related 2 products manufactured in the Youngstown region not 3 only helped to fuel the growth of local and the 4 regional and state economy, but also helped to satisfy 5 the insatiable demand for steel products across the 6 nation and the globe. The city was one of the fastest growing in 7 8 the state with a population expected to reach well 9 over 200,000 individuals. Then came 1977, the year 10 that the Youngstown region experienced a collapse of 11 its lifeblood industry. The near simultaneous closure 12 of several steel mills left the community reeling. 13 The life and soul was sucked out as tens of thousands 14 of people became unemployed in the following months 15 and years. The resulting vacuum created a shock and 16 17 paralysis that would haunt the community for many 18 decades to come. During the subsequent years, the 19 community continued to spiral into economic disarray. 20 Societal problems that were facing many urban centers 21 were compounded by the effects of organized crime and 22 other parasitic influences. The quality of life in 23 the community seemed to plummet with each passing 24 year. 25 However, it has been said that time heals Heritage Reporting Corporation (202) 628-4888 32 1 all wounds. 2 surrounding regions have begun the healing process. 3 While there still exists very visible and painful 4 scars from our yesteryears, the community has started 5 to redefine its existence. 6 With the passage of time, Youngstown and In fact, over the past two years, the City 7 of Youngstown has received significant positive 8 recognition and rewards for its award-winning 9 Youngstown 2010 comprehensive planning initiative. 10 The city’s planning and development efforts have been 11 acknowledged and rewarded by a number of notable 12 organizations, including the American Planning 13 Association, G o v e r n i n g magazine, the W a l l S t r e e t 14 J o u r n a l , the N e w York T i m e s Sunday Magazine, and USA 15 Today, to name a few. 16 As a part of this city’s planning and 17 redevelopment efforts, significant steps have been 18 taken to diversify the economy of Youngstown and the 19 region with the recognition and the need to be responsive to changing global and national markets. 21 Within the scope of the city’s diversified 22 economy, manufacturing continues to play an important 23 role and, as we know, has also been the backbone of 24 the American economy. At the center of that role in 25 northeast Ohio is V&M Star. Heritage Reporting Corporation (202) 628-4888 33 It would be impossible for me to overstate 1 2 the importance of V&M Star to the City of Youngstown’s 3 present and future conditions. 4 significant progress that has been accomplished within 5 the city during the past two years can 6 straightforwardly be associated to the presence of V&M 7 Star. In fact, the After having endured decades of the ill 8 9 effects of urban decline, the City of Youngstown has 10 been able to make substantial progress in addressing 11 issues important to improving the quality of life for 12 more than 13 over 500,000 citizens in the surrounding region. 14 82,000 citizens within the city limits and As a result of V&M Star’s contributions to 15 the City of Youngstown’s tax base the past two years, 16 the city has been able to make substantial progress in 17 many areas. 18 Just as an example, the city has been able 19 to strengthen its neighborhoods by the removal of 20 dangerous and dilapidated structures, over 400 of them 21 last year, many of them that had been rotting in 22 various neighborhoods for decades. 23 demolition as a result of V&M contributions to the 24 City of Youngstown was triple what we have been able 25 to do over the past several years. The amount of Heritage Reporting Corporation (202) 628-4888 34 Through V&M‘s presence, the city has been able to employ additional safety forces and provide them with the equipment necessary to do their jobs, to 4 keep the community safe. The City of Youngstown was 5 able to adequately fund its economic development 6 programs, which resulted in the opening of several 7 small businesses. 8 multiplier effect of having a successful large 9 business in the community that also provides ancillary 10 11 It’s a perfect example of the benefit to small entrepreneurs. Finally, Youngstown was able to avoid 12 multimillion dollar deficits of the not too distant 13 past and close its fiscal year in the black as a 14 result of V&M’s presence in the community. 15 As a business school graduate with a 16 background in finance and economics, as one who has 17 worked for several years in the private sector before 18 being elected mayor, I can understand and appreciate 19 the need to compete in the global economy. 20 I generally believe in free and, more 21 importantly, fair trade. However, I’m also keenly 22 aware that when other countries adopt trade distorting 23 practices in order to gain access to the U.S. market 24 through dumping and subsidization, which in turn 25 injures U.S. manufacturers, it becomes necessary to Heritage Reporting Corporation (202) 628-4888 35 1 2 enforce the trade laws. This has been the case in previous reviews 3 on OCTG products where orders were continued. 4 Commission will hear from industry experts at today’s 5 hearing about the trends in imports and why these 6 orders should not be revoked. 7 Commission give consideration to the industry and the 8 worker views. 9 The I ask that the However, I would also ask the Commission to give consideration to the hundreds of thousands, if 11 not millions, of Americans whose lives will be 12 negatively impacted if an order on OCTG is allowed to 13 expire. We have an opportunity with your assistance 14 to help maintain a level playing field. 15 As I conclude, it might not appear on the 16 surface that a city like Youngstown, Ohio, which I am 17 confident is representative of other communities 18 across the nation, has a vested interest in whether or 19 not duties on OCTG imports are continued. 20 However, I speak for and represent hundreds of thousands of people in the Mahoning Valley region 22 whose lives and well being will be significantly and 23 adversely impacted should V&M Star and other domestic 24 OCTG producers lose their ability to compete because 25 of unfair global competition. Heritage Reporting Corporation (202) 628-4888 36 I believe that U.S. manufacturers should be able to continue to compete, and I would agree that the continuation of these orders will provide a positive result for U . S . companies, their workers and, most importantly, their communities. Thank you for your time and consideration. CHAIRMAN PEARSON: 8 9 Thank you, Mr. Williams. Are there any questions? (No response.) 10 CHAIRMAN PEARSON: Thank you very much. 11 MS. ABBOTT: Opening remarks in support of 12 continuation of orders will be by Roger B. Schagrin, 13 Schagrin Associates. 14 15 16 CHAIRMAN PEARSON: Welcome, Mr. Schagrin. You may proceed. MR. SCHAGRIN: Thank you. Good morning, 17 Chairman Pearson, members of the Commission. A 18 special good morning to the new Commissioners, 19 Williamson and Pinkert. 20 to see a lot of you over the next nine years. 21 the feeling will be mutual. 22 The good Lord willing, I hope I hope There are several major legal issues and key 23 facts that we ask the Commission to focus on during 24 today’s hearing and in your sunset determination. 25 First, the sunset statute directs the Heritage Reporting Corporation (202) 628-4888 37 1 Commission to consider all relevant economic factors 2 that are likely to have a bearing on the fate of the 3 U.S. industry during a reasonably foreseeable 4 timeframe if the orders were to be revoked, including 5 likely declines in output, sales, market share, 6 profits, productivity, return on investments, 7 utilization of capacity and likely negative effects on 8 cashflow, inventories, employment, wages, growth and 9 ability to raise capital and investments. The statute certainly does not direct the 11 Commission to look only back at prior years’ profit 12 margins to determine the vulnerability of the 13 industry. 14 Second, the record evidence in this case 15 must lead to the conclusion that the tremendous 16 inventory overhang in OCTG cannot return to a normal 17 inventory level while roughly 100,000 tons of new 18 Chinese OCTG is arriving in the market monthly. 19 These tons are likely to increase 20 significantly as the Chinese Government just announced 21 two days ago that they are eliminating export tax 22 rebates on almost all steel product exports from 23 China, but that they are maintaining the 13 percent 24 export tax rebate on pipe and tube products, which 25 would include OCTG. Heritage Reporting Corporation (202) 628-4888 38 This factual situation is in marked contrast 1 2 to the recent plate sunset reviews before the 3 Commission in which there was a reasonable expectation 4 that the plate inventory overhang would dissipate 5 through reduced domestic production because there were 6 zero plate imports from China. 7 Third, there is really no disagreement among 8 the parties that Tenaris‘ purchase of Maverick Tube in 9 no way will influence Tenaris’ exports of high value 10 seamless OCTG, much of it with Hydril threads. The 11 only area of debate is how high the volume will be of 12 Tenaris’ and Japanese seamless shipments to the U.S. We submit that they will be quite high 13 14 because Tenaris, like everyone in this room, is a 15 profit maximizing company and will shift export volume 16 from lower priced Mid East and African markets to the 17 higher priced U.S. market. Fourth, there can be no question about the 18 19 likely increased volume of Korean OCTG to the U.S. 20 market. 21 the world for welded OCTG. 22 The U.S. and Canada are the only markets in Demand in Canada, like demand in Mexico, is 23 falling, and in addition to the present Korean and 24 Japanese welded tube producers a new welded pipe and 25 tube producer, Netsteel, will have 13,000 tons a month Heritage Reporting Corporation (202) 628-4888 39 1 of welded OCTG capacity that can be exported to the 2 U.S. by the end of this year. 3 difference between a 4 no order with respect to the volume of those exports. 5 12.29 There is a big percent dumping margin and Fifth, any mention of oil prices during 6 today‘s hearing is basically a waste of time. 7 Drilling in the U . S . 8 natural gas. 9 country tubular goods. 10 is now 85 to 90 percent for We ought to rename this product gas While there is demand among forecasters as 11 to U.S. demand for OCTG in the reasonably foreseeable 12 timeframe, there can be no doubt that at least the 13 rate of growth of demand is slowing, that gas prices 14 are as unpredictable as next year’s weather and that 15 major companies in the drilling services areas have 16 recently warned of slowing and weakening demand, which 17 will make this industry more vulnerable. 18 Finally, there is one thing I can assure you 19 of in today’s new business paradigm. If you sunset 20 these orders and a large increase in subject imports 21 are added to the massive volumes of Chinese supply, 22 the U.S. industry’s market share is going to plummet. 23 It’s already gone from 24 the period of the sunset review. 25 than 50 percent in the first quarter of 79 to 59 percent over It is probably less 2007. Heritage Reporting Corporation (202) 628-4888 Long 40 before this import surge has an impact on these companies’ bottom lines, Mr. Conway’s members will find themselves on the bread lines. 4 I submit to you that in implementing the 5 intent of the statute and the SAA if you find there 6 will be a significant increase in imports that will 7 have a likely major negative impact on production, 8 shipments, market share, employment and wages, as well 9 as an impact on pricing and profit levels, you must 10 11 find that there will be a recurrence of injury. Therefore, I urge you to make an affirmative 12 determination as to all five countries in today’s 13 proceeding. Thank you very much. 14 MS. ABBOTT: Opening remarks in support of 15 revocation of orders will be by John D. Greenwald, 16 Wilmer Cutler Pickering Hale 17 18 19 CHAIRMAN PEARSON: & Dorr. Welcome, Mr. Greenwald. Please proceed. MR. GREENWALD: Thank you. I am John 20 Greenwald of Wilmer Cutler Pickering Hale 21 are representing the Japanese producers in this 22 hearing, but this opening statement will be on behalf 23 of all Respondents. 24 25 & Dorr. We You would not know it from the briefs that the domestic industry has supplied, nor frankly would Heritage Reporting Corporation (202) 628-4888 41 1 you know it from the mass of domestic industry 2 representatives that are here today, but there has in 3 fact been a radical transformation of both the OCTG 4 industry and the OCTG market since the last sunset 5 review of these orders. 6 On the demand side, the rise in energy 7 prices has led to a structural shift away from the 8 shorter boom/bust cycles of the past. 9 period and will remain in a period of strong sustained 10 11 We are in a demand for the foreseeable future. On the supply side there has been a radical 12 restructuring and consolidation of OCT production both 13 in the United States and internationally. The 14 consequence of that has been to give producers much 15 more control over pricing than ever before. 16 The combination of a structural increase in 17 demand and consolidatidn in supply has produced record 18 operating results in terms of production, in terms of 19 revenues, in terms of profits for the U.S. industry. 20 I do not recall ever seeing an industry doing so well 21 press so hard for continued trade protection. 22 the OCTG market in the United States robust, which was 23 the word of choice used by U.S. Steel’s chairman, is 24 in fact an understatement. 25 To call Petitioners’ response to all of this is to Heritage Reporting Corporation (202) 628-4888 42 1 portray their current good fortune as precarious. 2 That is not true. 3 being true. 4 a drop in demand at any time over the foreseeable 5 future nor of a material weakening of the U.S. 6 industry at any time over the foreseeable future. In fact, it is not even close to There are no credible forecasts of either As you listen to Petitioners testify, what I 7 8 ask you to do is to keep in mind the following 9 questions: First, isn’t it true that the U.S. rig 10 count, which drives OCTG demand, stands at over 1,700, 11 and isn’t it true that at the last sunset review the 12 domestic industry told you that the upper limit of the 13 rig count was 1,300? 14 projections are for the rig count to rise over the 15 next several years? And isn’t it equally true that Second, isn’t it true that there has been 16 17 strong growth in operating rigs outside of the United 18 States? 19 Third, isn’t it true that OCT producers in 20 Japan, in Argentina, in Italy and in Mexico are 21 producing at their practical capacity supplying 22 international markets? 23 Fourth, doesn’t the evidence show that these 24 producers are selling in international markets at 25 prices that are high enough to eliminate - - and let me Heritage Reporting Corporation (202) 628-4888 43 1 emphasis this; eliminate - - any real incentive to 2 shift their focus to the U.S. market? Fifth, in the case of Korea isn’t it true 3 4 that capacity utilization is high and that there is no 5 indication that OCTG imports from Korea have been 6 affected one way or the other by the order or in fact 7 have harmed the U.S. industry in any way? Sixth, isn’t it true that the confidence of 8 9 the U.S. industry in its future in this market is 10 reflected in U.S. Steel’s very recent decision to pay 11 a 39 percent premium to acquire the outstanding stock 12 of Lone Star? Seventh, if by any chance U.S. Steel were to 13 14 appear before you today to suggest that there is a 15 real prospect of near term material injury, doesn’t it 16 have to be true that its decision to spend 17 billion of its shareholders’ money to acquire Lone 18 Star would at the very, very least have to be 19 considered irresponsible? $2.1 The case that Petitioners will put on today 20 21 is contradicted in all material respects by the 22 evidence. At bottom, Petitioners take the position 23 that protection is their right whatever the facts may 24 be, and what we urge you to do is to focus on the 25 facts. Heritage Reporting Corporation (202) 628-4888 44 MS. ABBOTT: 1 2 Will the first panel in support of the continuation of orders please come forward? CHAIRMAN PEARSON: Who is coordinating this 3 I see so many capable counsel present. 4 panel? 5 Lighthizer? Mr. 6 MR. LIGHTHIZER: I am guilty, Mr. Chairman. 7 CHAIRMAN PEARSON: 8 The floor is yours. MR. LIGHTHIZER: Thank you, sir. Good 9 I am Bob Lighthizer representing United 10 morning. 11 States Steel Corporation. 12 Okay. I would like to start our presentation with 13 an overview of the major issues. 14 some key points. 15 side simply ignore the statutory definition of 16 material injury. 17 Let’s begin with First, arguments made by the other Second, both the chairman of Tenaris and 18 Tenaris’ U.S. subsidiary have recently conceded many 19 of the major issues in these reviews. 20 Third, because of imports from China and 21 other nonsubject countries, U.S. producers are 22 dependent on high end customers. 23 Fourth, revocation will allow subject 24 producers to attack the high end business inevitably 25 leading to material injury. Heritage Reporting Corporation (202) 628-4888 45 The evidence of cumulation is overwhelming. 1 2 For each of the subject countries, major conditions of 3 competition are identical. 4 very effective. 5 imports from Argentina, Italy, Japan and Mexico. 6 While subject producers once held a significant share 7 of the market, they cannot ship major volumes without 8 dumping. These orders have been Here you see what has happened to Here you see imports from Korea, including 9 10 nonsubject imports from Hyundai. 11 data show that the orders have severely limited dumped 12 OCTG. 13 clearer. 14 Even this public The APO numbers in the staff report are even Next I will address Tenaris, which controls 15 OCTG producers in four of the five major countries. 16 This slide gives you a sense of just how enormous this 17 company is. 18 producers controlled by Tenaris equals U.S. total 19 production of casing and tubing. 20 The overall capacity of the four subject On March 8, the top executives of Tenaris 21 gave a major presentation to their investors in which 22 they essentially conceded most of the key issues 23 before you. 24 Commission for years that it doesn’t need the U.S. 25 market, but, as you can see here, that’s not what it For example, Tenaris has told the Heritage Reporting Corporation (202) 628-4888 46 tells its investors. That is only one of the issues that Tenaris has effectively conceded. There are several more. 4 Tenaris officials admitted that they currently have 5 available capacity to increase sales. 6 active throughout the full range of the U.S. market. 7 They cannot serve high end customers from Maverick, 8 and they cannot use their Canadian subsidiary, Algoma, 9 to cover the full range of OCTG applications. 10 They will be Don’t take my word for this. At the back of 11 the hard copies of these slides we have attached 12 relevant quotes from the Tenaris March 8 presentation. 13 I urge you to read those quotes very carefully. 14 Furthermore, Tenaris/Maverick has filed its 15 own brief directly contradicting many of the arguments 16 made by the subject producers. 17 side has emphasized that strong demand will insulate 18 domestic producers from material injury, but Maverick 19 admits that even in a rising market an additional 20 supply of dumped imports will depress price and thus 21 negatively impact revenues. 22 That’s not all. For example, the other Once again here is a list 23 of key points in the Maverick brief. Taken together, 24 these points make clear that revocation of these 25 orders will result in material injury. Heritage Reporting Corporation (202) 628-4888 47 The actual quotes from the Maverick brief 1 2 are also attached to our slides. Please read these 3 quotes and ask yourself this: 4 about dumped imports from Japan and Korea, how can 5 Tenaris claim this industry is not vulnerable? If Maverick is worried When you’re assessing Tenaris’ capability, 6 7 remember this quote. It comes from 8 Commission was trying to decide whether to revoke an 9 order on OCTG from Canada. As you see here, Siderca 2000 when the 10 testified that exports of OCTG from Canada were not a 11 consideration at all in its business plan. 12 Canadian producers made similar claims. Other The Commission believed this testimony and 13 14 revoked the order. Here is the result. 15 OCTG from Canada, including imports of seamless OCTG 16 from Tenaris’ Algoma plant, have exploded. Last year 17 Algoma’s shipments of seamless OCTG to the U.S. 18 equaled about 19 capacity. 20 to serve the U.S. market from Canada. 21 previous testimony. 27 Imports of percent of its total reported Now Tenaris openly proclaims its intention So much for its We agree with Maverick that you should keep 22 23 the orders on Japan and Korea. As you can see here, 24 subject producers in these countries are export 25 oriented. They are active in the U.S. market. Heritage Reporting Corporation (202) 628-4888 They 48 1 would have an incentive to shift production from other 2 products to OCTG upon revocation, and they are both 3 facing problems with China. 4 For all of these reasons, as well as the 5 additional ones discussed in our brief, it is 6 important that these producers remain under order. 7 Before turning to a key legal issue, I want 8 to quickly cover some important factual points. 9 First, Maverick is correct when it says that U.S. 10 prices are relatively high. 11 evidence on this point in the confidential version of 12 our posthearing brief. 13 We intend to provide more Second, China has recently gone from being a 14 net importer of OCTG to a major net exporter. 15 exports are squeezing subject producers in other 16 markets around the world. 17 Those Third, Chinese producers are shipping an 18 incredible volume of OCTG to this market. Fourth, 19 those imports, along with imports from other 20 nonsubject countries, have taken much of the U.S. 21 market from the domestic producers. 22 Fifth, despite strong demand, prices for low 23 end OCTG have been weak for most of the last year. As 24 a result, domestic producers are increasingly 25 dependent on the high end of that market. Heritage Reporting Corporation (202) 628-4888 49 Unfortunately, this is precisely the part of the market likely to be attacked by the subject producers if the orders are revoked. 4 Subject producers maintain that because the 5 domestic industry is so healthy lost sales to dumped 6 imports will not constitute material injury. As a 7 matter of law, this argument is simply wrong. 8 9 First, the Commission is not supposed to decide how much money this industry should make. 10 Instead, you should focus on whether the industry's 11 performance will change as a result of revocation. 12 Second, the amount of change necessary to 13 cause material injury is very low. 14 specifically provides that material injury means "harm 15 that is not inconsequential, immaterial or 16 unimportant. 17 U.S. law It is simply nonsense to maintain that 18 revocation of these orders will have no consequence 19 for the producers sitting before you. 20 single person in this room truly believes that. 21 Accordingly, as a matter of law, we believe you must 22 keep these orders in place. 23 I don't think a MR. SUTHERLAND: Good morning, Chairman 24 Pearson and members of the Commission. 25 with IPSCO for 30 I have been years and have been president and Heritage Reporting Corporation (202) 628-4888 50 1 2 chief executive officer for the past six. I spearheaded the startup of our U.S. 3 tubular operations in the 1980s’ and last year IPSCO 4 made the largest acquisition in the company’s history 5 by purchasing NS Group for $1.46 billion. 6 acquisition was completed in December of 2006. 7 Essentially the acquisition signaled IPSCO’s entry 8 into the seamless OCTG market. 9 The In 2006, 9 3 percent of NS Group‘s sales were 10 of OCTG, and approximately two-thirds of those sales 11 were of seamless OCTG. 12 acquisition of NS Group was the reverse of Tenaris’ 13 acquisition of Maverick where Tenaris entered the U.S. 14 welded market. 15 In essence, IPSCO’s While there is still some overlap between 16 IPSCO‘s seamless and welded products, it is not 17 significant and is completely absent in product lines 18 such as seamless alloy premium threaded tubing. 19 The same would be true of the majority of 20 Tenaris‘ seamless production which will not overlap 21 with Maverick‘s production. 22 imports of seamless products from Tenaris’ plants 23 located in the named countries and from Japanese 24 companies will have a dramatic effect on IPSCO’s 25 ability to obtain a return on its investment in Therefore, increased Heritage Reporting Corporation (202) 628-4888 51 1 2 acquiring NS. Between 1998 and 2006, IPSCO invested $72 3 million in its U.S. facilities. During that same time 4 period, NS Group invested 5 alone, we will be investing 6 OCTG operations. As can be seen, our companies have 7 utilized the period of relief to make significant 8 investments. 9 $117 million. $118 In 2007 million in our U.S. The massive import surge of OCTG from China 10 has contributed to a growing inventory glut of OCTG in 11 the United States marketplace. 12 imports from China, along with moderating usage, is 13 preventing that inventory glut from subsiding. The 14 result is decreased orders, production, shipments, 15 employment and reduced profit margins for our company, 16 particularly in our welded operations. 17 Continued increased Since December, we have laid off 72 18 employees at our OCTG plants in Blyville, Arkansas, 19 and Comanche, Iowa. We reduced welding crews from 20 four crews to three crews initially. We are now 21 reducing that to two crews in April. Our seamless 22 operations have cut back from seven to five day 23 operations. 24 25 This is in marked contrast to our experience in plate where effective antidumping relief against Heritage Reporting Corporation (202) 628-4888 52 1 China allowed inventory corrections to take place in 2 the U.S. marketplace and allowed our operations to 3 return to normal operating rates after that inventory 4 correction took place. 5 suffering in the low and medium end of the product 6 range from the high import levels from China and 7 Korea. Thus, our company is currently 8 If these orders are revoked, we would expect 9 to see the flood of imports joined by imports from the 10 Tenaris companies, Korean companies and the Japanese 11 firms causing a reoccurrence of the injury suffered in 12 the 1990s to occur. 13 Thank you. 14 MR. SURMA: Good morning. I'm John Surma. 15 I'm the chairman and chief executive officer of United 16 States Steel Corporation. 17 Given our compressed timeframe this morning, 18 I'll limit my remarks to a few specific topics. 19 course, I'll be delighted to try to respond to your 20 questions. 21 Of The last several years have been good for 22 the OCTG business. We're generating solid profits, 23 which is as it should be considering that we're 24 operating in the largest market in the world and 25 demand in that market has doubled over a relatively Heritage Reporting Corporation (202) 628-4888 53 short period of time. We’ve also invested the capital and developed the human resources necessary to capitalize on these positive conditions. But this is, of course, not how things have 4 5 always been. Over the last 25 years, this industry 6 has experienced a series of shocks on both the demand 7 and the supply side that have made this a very, very 8 tough business to be in. Our fortunes depend to a 9 large degree on the level of activity in the oil and 10 gas sector, which has always been notoriously 11 volatile. 12 When demand in that sector plummets, as it 13 has on several occasions, we have not done well. 14 That’s what it means to be in a cyclical industry, and 15 I can assure you we have seen these cycles from just 16 about every angle. 17 Moreover, from time to time we‘ve also gone 18 through hard times even when demand was strong. This 19 has happened when the market was forced out of balance 20 on the supply side by unfairly traded imports. 21 It’s important to remember that the orders 22 that are at issue in this case are the direct result 23 of just such an experience. 24 history, and it is a history that is not a happy one 25 from our industry’s perspective. Thus, these orders have a Heritage Reporting Corporation (202) 628-4888 54 Given the better times we're experiencing 1 2 now, the Commission must consider the impact of 3 removing these fair trade orders. 4 believe from any rational point of view, the effect 5 would be significant. Let me focus on several 6 important facts. In my view, and I First, we're already losing significant 7 8 domestic market share because of the surge in imports 9 from China and other nonsubject countries. China has 10 gone from shipping around 65,000 tons of OCTG to this 11 market in 12 over 13 situation is only heightened by the strong evidence 14 that much of the capacity expansion in China is 15 heavily subsidized and otherwise not driven by market- 16 based considerations. 17 2002 750,000 to over tons in 750,000 2006. tons in 2006, 65,000 Our concern with this Rest assured that not only U.S. producers, 18 but all of the responding companies before you here 19 today, are very concerned about the implications of 20 China's exploding production and the resultant 21 subsidized exports to world markets. 22 to Having said that, many of the Chinese 23 producers have not yet gained acceptance for the 24 highest end uses and customers in this market. 25 focusing on precisely those uses and customers and in Heritage Reporting Corporation (202) 628-4888 By 55 1 a very good market, our domestic market has maintained 2 strong profitability. Lifting this relief would open up intense 3 4 unfair competition in precisely the high value market 5 areas of most importance to our domestic industry. 6 Almost every sale they would take would come out of 7 our domestic industry’s hide, and for every dollar 8 they would undercut price levels in this market those 9 effects would be felt throughout all the sales we 10 make. If someone is suggesting to you that such 11 12 unfair competition has no material effect in the 13 market they’re wrong. 14 Tenaris about its interest in this market and its 15 strong desire to see these orders lifted should not be 16 surprising. The recent statements by 17 The U.S. OCTG market is, as it has been for 18 a long time, the largest market for OCTG in the world 19 by a considerable margin. 20 producer of OCTG, if you‘re hoping to service key 21 customers globally, you want and need to be in this 22 market. 23 in this market and its stated interest in sourcing 24 from the subject countries makes all the sense in the 25 world from a business standpoint. If you are a significant For that reason, Tenaris’ recent acquisitions Heritage Reporting Corporation (202) 628-4888 56 As you know, U.S. Steel has recently 1 2 announced a significant acquisition in the tubular 3 segment, namely of the high end welded pipe producer, 4 Lone Star Technologies. We view this as a strategic 5 acquisition that will provide many competitive 6 benefits, direct cost savings and operating and market 7 synergies over the long run. From the outset, it will allow us to expand 8 9 our current primarily seamless business to include a 10 full range of high end seamless and welded OCTG 11 products. 12 premised on a belief that this is a robust market with 13 strong promise for the future. 14 are all of our strategic decisions, on a belief that 15 this market will be characterized by market based 16 competition and that our trade laws will be enforced. 17 Our acquisition of Lone Star is of course It is also based, as I find it ironic that the other side in this 18 case has tried to point to the Lone Star transaction 19 as a reason to lift relief. The suggestion is that an 20 industry that is doing well and investing for its 21 future, an industry that is, by the way, facing import 22 penetration of over 40 percent, does not need the 23 benefit of fair trade laws or the assurances of 24 market-based competition. This suggestion is, of 25 course, coming from producers who operate in countries Heritage Reporting Corporation (202) 628-4888 57 that allow essentially no imports into their own markets . I’m a business person and not a policymaker, 4 but I will say that if investing and succeeding in an 5 industry is grounds for penalizing U.S. producers and 6 our employees, grounds that is to allow unfair trade 7 in this market, then we have a law that does not make 8 much sense. How well this industry will do in the future 9 10 depends to a great extent on market conditions and 11 demand. We’re hopeful and optimistic about the 12 future, and that is, of course, one of the reasons we 13 decided to proceed with our pending acquisition of 14 Lone Star. Whatever happens with demand or market 15 16 conditions, a return of unfair trade would have a 17 significant impact. 18 this market, the fact is we will not be as profitable 19 as we otherwise would be. 20 and we won’t be able to invest in our workers and 21 facilities the way we would in the absence of unfair 22 trade. 23 If you allow unfair trade back in We won’t make as much OCTG, It will mean that our workers and our 24 communities won’t have the same opportunities that 25 they otherwise would. It will mean in essence that Heritage Reporting Corporation (202) 628-4888 58 1 you, the International Trade Commission, will be 2 putting a cap on how well this industry can perform. 3 You will be saying to our workers and businesses that 4 they are not entitled to earn a return dictated by 5 market forces, but only one that is artificially 6 suppressed by unfair trade. At a time when manufacturing is struggling 7 8 in this country that would be a profoundly unjust and 9 unwise policy decision. We should be celebrating the 10 successes that we’re able to achieve and making clear 11 that our trade laws are fully available and that the 12 ITC‘s doors are 100 percent open to the most 13 successful workers and companies so long as unfair 14 trade is materially impacting the results we would 15 otherwise be able to achieve. As I understand it, that is what the law 16 17 says, and that is what I respectfully encourage you to 18 do. 19 Thank you. MR. LINDGREN: Good morning, Mr. Chairman. 20 As you heard from Mayor Williams, V&M Star is very 21 important to the City of Youngstown. While we’re 22 owned by Vallourec 23 focused on the domestic market with virtually the 24 entire management structure of the previous owner, 25 North Star Steel. & Mannesmann, we are a U.S. company Heritage Reporting Corporation (202) 628-4888 59 1 I am accompanied today by our VP of Sales, 2 Ronny Clark, and our Chairman, Didier Hornet, who is 3 knowledgeable about the international OCTG markets and 4 competition. 5 expertise during the question and answer period today. 6 We are here to ask you to continue the order I suggest you take advantage of his 7 that imposes a check on countries that have practiced 8 illegal dumping behavior in the past and we have 9 reason to believe would continue this predatory 10 behavior if given the opportunity. We believe this is important to the United 11 12 States because of the strategic importance of our 13 industry and the economic health of our steelmaking 14 communities. Over the last three years, most 15 companies in the oil and gas business, including V&M 16 Star, shared in the benefits of the unusually long 17 surge in oil and gas drilling. However, you only have 18 to go back to 2003 when we lost money in this cyclical 19 industry. 20 Make no mistake about it. We are not immune 21 to the business cycle, and the downward move for U.S. 22 drilling will recur. 23 overhang that’s been outlined by others today, a 24 future increase in imports from these five countries 25 who have consistently been aggressive exporters to the Given the current inventory Heritage Reporting Corporation (202) 628-4888 60 1 U.S. market will likely lead to a collapse of the U.S. 2 market prices. In fact, our order book in the first quarter 3 4 of 2007 is down significantly compared to the same 5 time period last year even as imports continue their 6 surge. Continuation of this surge will put our 7 domestic industry at risk. Nothing points to the need for a strong 8 9 domestic industry more than the recent BP pipeline 10 incident in Alaska. 11 press reports first indicated that imports would be 12 needed to satisfy BP requirements, in fact V&M Star 13 and U . S . 14 seamless pipe in record time, minimizing the supply 15 disruption and potential of sending oil and gas prices 16 even higher. 17 While BP executives and numerous Steel supplied this vitally important To meet these types of demands, companies 18 like V&M Star must continue to earn reasonable rates 19 of return in order to continue investments into 20 maintaining and upgrading our operations. 21 to our customers' needs, V&M Star is investing over 22 $100 million to expand capacity in Ohio by 100,000 23 tons and to increase heat treating capabilities at our 24 Ohio finishing facility to improve our capability to 25 produce more sour service products, such as C-110. Heritage Reporting Corporation (202) 6 2 8 - 4 8 8 8 In response 61 This heat treating expansion that will 1 2 enable us to produce complex, high value sour service 3 products was commissioned in February of this year. 4 After the rest of these investments are completed in 5 2008, 6 sour service demands in our size range in the United 7 States and leave a portion remaining for export. we will be able to supply the entire range of We will not be exporting this product to 8 9 Mexico or Argentina. While Tenaris argues that they 10 want an open market for their dumped product in the 11 United States, their markets, for whatever reason, 12 remain closed to V&M Star. This results in much 13 higher prices in Mexico and Argentina than in the 14 United States. However, drilling has declined in Mexico. 15 16 Thus, demand for OCTG has also declined. 17 Notwithstanding this whole market decline, Tomsa has 18 increased their heat treating capacity by 70 percent 19 and their sister company, Siderca, in Argentina by 90 20 percent. 21 on the market segments served by V&M Star and similar 22 mills. This positions them to focus their imports The only outlet for this product will either 23 24 be U.S. or world markets such as Africa or the Middle 25 East. Tenaris and Sumitomo routinely sell these Heritage Reporting Corporation (202) 628-4888 62 products to these markets at prices far lower than U.S. prices. The referenced countries face increasing 4 competition in foreign markets that will be 5 exacerbated by the addition of new mills such as 6 Mittal’s announcement of a new Saudi mill. 7 Additionally, our opponents have international 8 contracts with companies like ConocoPhillips and 9 Chevron Texaco that could be leveraged into our 10 11 domestic market at dumped prices. Finally, payback on a major acquisition such 12 as Hydril by Tenaris for the announced price can, in 13 our opinion, only be realized through significant 14 revenue earned from combining Hydril thread with their 15 imported seamless pipe. 16 Bottom line, the referenced countries will 17 have significant interest in reentering the U.S.A. 18 market. No matter what you hear this afternoon, rest 19 assured that large quantities of Tenaris, as well as 20 Japanese and Korean, products are headed to the U.S. 21 market within a short period of time if you decide to 22 revoke this order. 23 This will undoubtedly cause V&M Star to fail 24 to get a return on our new investments, and it would 25 adversely affect the employment in Youngstown, Ohio, Heritage Reporting Corporation (202) 628-4888 63 1 an area of this country that cannot afford further job 2 losses. 3 Thank you. 4 MR. DUNN: Good morning, Chairman Pearson 5 and members of the Commission. I'm Byron Dunn, 6 President and CEO of Lone Star Steel Company. 7 The recurrence of injury which will be 8 caused by sunsetting these orders against the five 9 subject countries is very real to Lone Star Steel. 10 Beginning in the third and continuing into the fourth 11 quarter of 2006, we saw our order book and new order 12 entry rate decline rapidly as tubular inventories soared from massive amounts of OCTG imports entering 14 15 this country. As a result, and even though the domestic 16 OCTG demand held firm during that period, we were 17 forced to materially reduce our OCTG production 18 schedules in response to the huge inventory build 19 which was occurring in our industry which resulted in lower production rates and lower shipment levels as 21 compared to 2005. Further, we experienced a significant 23 narrowing of our margins during the second half of 2006 as we were unable to pass along the rapidly 25 rising raw material cost to our customers in part due Heritage Reporting Corporation (202) 628-4888 64 1 to the softness in the market conditions brought about 2 by the oversupply and because of injurious pricing 3 offered by the vast number of imported OCTG products 4 principally from China, which has drained substantial 5 earnings power from our industry. 6 Though notwithstanding Tenaris' recent 7 acquisition of Maverick, we have no doubt that Tenaris 8 companies intend to export large quantities of OCTG to 9 the U.S. if you were to sunset these orders. 10 I was here a few years ago for the Canadian 11 case when Tenaris said it would not increase exports 12 from Algoma in the event of revocation. 13 happened was Algoma exports to the U.S. increased over 14 tenfold since their testimony to levels we believe to 15 be in excess of 70,000 tons last year. 16 In fact, what One of our customer witnesses was shy in his 17 testimony that day. 18 concerned about the ramifications of his comments, and 19 they might leave him and his customers short of four 20 and a half and five and a half inch seamless casing 21 from Algoma as his punishment. 22 He told me it was because he was We did not ask him to come here today 23 because we understand that his company is now the 24 leading distributor for Algoma products, and I know 25 that he would not want to compromise those handsome Heritage Reporting Corporation (202) 6 2 8 - 4 8 8 8 65 1 profits he makes on low-priced imports to testify here 2 today against Tenaris, which, by the way, are sold to 3 him at pricing levels below domestic seamless and ERW 4 prices. 5 Those prices are likely to fall even further 6 in the face of the rapid decline in OCTG demand in 7 Canada as a result of the decline in drilling activity 8 which is now occurring there. Trust me. 9 sunset these orders, that distributor and more like If you 10 him will be happy to harvest the generous margins from 11 sourcing lower priced products from subject countries 12 where Tenaris has numerous manufacturing facilities. 13 Even with these orders in place, we have 14 faced increased import competition from Korean OCTG 15 mills as well. 16 building a new mill coming onstream later this year 17 that is directed at heavy-walled, premium service 18 welded products which were actually pioneered in this 19 country by my company and are certain to threaten our 20 market position here in the U.S. 21 We now understand that NetSteel is While the future of the U.S. drilling demand 22 can always be debated, everyone will have to agree 23 that OCTG exploration is a very high risk business, 24 and therefore the U.S. drilling activity will be a 25 very difficult market to predict over the next several Heritage Reporting Corporation ( 2 0 2 ) 628-4888 66 1 years because the rising drilling cost measured 2 against the volatile wellhead prices, which will 3 determine the domestic drilling rig count and 4 therefore the tubular demand in this country. 5 If you vote to sunset these orders, you will 6 unleash a flood of new imports on the already 7 percent import share and, when combined with the 8 substantial inventories already on the ground, will 9 severely compound the oversupply situation we now 40 to 50 10 face, which is certain to injure Lone Star Steel and 11 our employees. 12 13 14 For this reason, my plea is that you do not sunset these orders. Thank you. MR. CONWAY: Chairman Pearson, members of 15 the Commission, I appreciate the opportunity to appear 16 before you again. 17 of the United Steelworkers Union. 18 I’m Thomas Conway, Vice President I want to make two points about these 19 reviews from the perspective of the men and women who 20 make the OCTG in this country. First of all, I 21 understand the other side contends that the domestic 22 industry should lose this relief because it’s been 23 relatively profitable in recent years. 24 Indeed, we at the union noticed that this 25 Commission has a depressing tendency to deny relief Heritage Reporting Corporation (202) 628-4888 67 1 unless the domestic industry can show it’s in dire 2 straits. This makes no sense to us. 3 lost revenue from fair trade plainly constitutes 4 injury, even if a company makes a profit despite these 5 difficulties. Furthermore, from our perspective such a 6 7 8 9 10 Lost sales and policy is particularly bad. OS, After the crisis of the we signed a series of new agreements that many of you are familiar with. A key concept underlying those agreements was that the workers would share in the industry’s success. For example, many of the steel companies are 12 13 putting aside a significant portion of their profits 14 into voluntary employee beneficiary associations or 15 VEBAs. 16 their drug benefits, supplement their medicare for 17 both current and future retirees. 18 These VEBA funds guarantee their health care, After the restructuring, that’s largely how 19 the health care has been formed. It’s a good 20 arrangement, but it means that any l o s s in profits immediately hurt our members. 22 23 When the domestic industry’s profits fall, our benefits also decline. By the time the domestic producers are 24 losing money, we’ve already suffered massive losses in 25 those areas. In short, any decline in the Heritage Reporting Corporation (202) 628-4888 68 1 profitability of domestic producers plainly 2 constitutes material injury from the perspective of the U . S . workers. Second, I want to tell you how frustrated we are about the lost market share that domestic producers have experienced in recent years. never should have happened. This When these orders were 8 imposed we had 90 percent of the market. 9 of imports from other countries started to enter the 10 Then a flood market in 2000 and in 2001. In 2002, the domestic industry brought the 11 and CVD cases against 13 different countries, but 12 AD 13 unfortunately the Commission went negative on those 14 cases. 15 exploded. Since that time, imports of OCTG have simply The other side claims this is no big deal 16 17 because the companies are still making money. 18 disagree. 19 that won’t be made by an American worker. We Every ton lost to foreign mills is a ton These are people in towns like Lorain in Ohio who want to work for a steel company and who could have gotten good, 22 middle class jobs if domestic producers had maintained 23 the type of market share that they had when these 24 orders were originally imposed. 25 Thanks to a surge of imports, most of which Heritage Reporting Corporation (202) 628-4888 69 1 are probably traded unfairly, those people were never 2 hired. 3 these orders in place. 4 MR. BROGLIE: Do not make a similar mistake here. Keep Thank you. Good morning. I’m Les 5 Broglie, General Manager of Tubular Products for 6 United States Steel Corporation. 7 real world sense of what we would face if these orders 8 are revoked. 9 I want to give you a Tenaris has said publicly that it will 10 export to this market from Mexico to supply major oil 11 and gas producers liked Chevron if the orders are 12 revoked. This would have serious implications for us. 13 Tenaris has agreements to supply the worldwide needs 14 of Chevron and ConocoPhillips outside the United 15 States and also is a leading supplier to Shell 16 worldwide. 17 companies. We are also major suppliers to all these 18 This business is extremely important to us. 19 This business provides an important base load for our 20 operations and also contributes materially to our 21 financial performance. 22 Tenaris tells you that they will only export small 23 amounts of OCTG from the countries under order. 24 don’t believe that. 25 Please keep this in mind if We You need to know that whatever they export Heritage Reporting Corporation (202) 628-4888 70 1 to this country would be an essential component of a 2 broader range to take large amounts of business away 3 from producers like us. 4 When they go after business of a major end 5 user they want all their business, and then they try 6 to get it by selling themselves as a supplier of the 7 full range of products. 8 countries under order to do that. They need to import from the 9 We have invested heavily in our people, in 10 our facilities, and we are proud to provide pipe for 11 the most stringent applications from within the Arctic 12 Circle to the deep waters of the Gulf of Mexico. 13 make as good a product as anyone in the world. 14 they come to us for a quote, we provide it. When they 15 give us an order, we make it. 16 We When We offer all API products, premium and sour 17 service products made to demanding customer 18 specifications, including those of Shell and Exxon 19 Mobil, and our own proprietary line of premium 20 products for Arctic, high collapse and sour service 21 applications. 22 Thank you. 23 MR. BREIHAN: Good morning. TCA is the 24 largest processor of high end seamless OCTG products 25 in the United States. We focus on high collapse, sour Heritage Reporting Corporation (202) 628-4888 71 1 service products and probably supply over half - - 2 CHAIRMAN PEARSON: Excuse me. Could you please just identify yourself? MR. BREIHAN: Yes. TCA. I’m Jim Breihan with I’m sorry. CHAIRMAN PEARSON: MR. BREIHAN: Thank you. We focus on high collapse, 8 sour service products and probably supply over half 9 the U.S. demand for these high end products. We rarely export our products and maintain our capacity 11 12 for our U.S. customers. Sumitomo and Tenaris companies are two of 13 the largest worldwide competitors for these high end 14 products, but they have not been allowed to dump their 15 products in the U.S. market for the past decade. 16 Tenaris’ recently announced acquisition of 17 Hydril will make them an even tougher competitor and 18 allow them to bundle OCTG with premium threads 19 directly to energy companies. 20 Interestingly, before Tenaris’ purchase of 21 Hydril, Hydril itself pointed out in their own 22 disclosures to their shareholders and to the 23 Securities and Exchange Commission that integrated 24 tubular companies such as Tenaris that could provide 25 premium connections and bundled sales could have a Heritage Reporting Corporation (202) 628-4888 72 1 material adverse effect on Hydril and its operations 2 and profitability. 3 Now that Tenaris is purchasing Hydril, that 4 threat to TCA and the rest of the U.S. industry is 5 very real if Tenaris can bundle their dumped tubular 6 products with Hydril threads to our customers. 7 As detailed in Attachment C of our 8 questionnaire response, our backlog at TCA plummeted 9 through 2006. This is largely because the demand for 10 sour service products is declining as offshore rigs 11 were moved from the Gulf of Mexico to other markets 12 around the world with larger potential oil finds and 13 without sky high post Katrina insurance rates. 14 As a result of the declining backlog and now 15 falling production, we have reduced our number of 16 employees at TCA this year. 17 into the market from Tenaris in Japan will severely 18 harm TCA’s future operations. 19 Dumped high end products I know that this afternoon you will hear 20 from witnesses from Shell complaining about their 21 ability to purchase sour service products. 22 either at the lunch break or after this hearing these 23 executives could contact me and place additional 24 orders. We desperately need the business. 25 I hope On behalf of our remaining employees, I ask Heritage Reporting Corporation (202) 628-4888 73 1 you not to allow Tenaris and Sumitomo to harm our 2 employees and jeopardize our business by revoking these orders. Thank you. MR. SHOAFF: Good morning. I am John Shoaff, President of Sooner Pipe, one of the world's largest distributors of OCTG. I would like to explain why demand will not 8 insulate domestic producers from injury if the orders 9 are revoked. Much of the increase in OCTG demand 10 consists of demand for low end products that are used 11 in onshore drilling. Domestic producers are being squeezed out of 12 13 this end of the market by imports from nonsubject 14 countries, particularly China. 15 producers are being forced to concentrate on high end 16 products and customers such as the major oil 17 companies. As a result, domestic Furthermore, demand for high end OCTG is by 18 19 no means unlimited. Whenever companies like Chevron 20 or BP announce a major drilling project, there is 21 fierce competition for that business not only from 22 domestic mills, but from international mills such as 23 V&M . 24 There is also stiff competition for high end 25 contracts with major end users who sometimes prefer to Heritage Reporting Corporation (202) 628-4888 74 1 negotiate a single deal to cover all of their global 2 OCTG requirements. This competition takes place 3 almost entirely on the basis of price. 4 Allowing a company like Tenaris to undercut 5 domestic prices in these negotiations would certainly 6 hurt the domestic industry. Domestic producers would 7 have no good option. 8 prices or lose the business. 9 prices to get one contract, they would have to lower 10 They could either reduce their Moreover, once they cut prices for all of their high end customers. There is simply no possibility that demand 11 12 will be sufficient to insulate domestic producers from 13 the impact of such a development. Thank you. MR. DIONISIO: Good morning. 14 I’m Jim 15 Dionisio, Manager of OCTG Products for Red Man Pipe 16 and Supply. 17 closely. Here’s what I believe will happen if these 18 orders are revoked. My job requires me to study this market First, the subject producers will almost 19 20 immediately become more active in this market. 21 U.S. 22 for OCTG in the world, and no major producer would 23 willingly stay out of it. 24 25 The is by far the largest and most profitable market Second, the subject producers will target high end customers. For example, importers pride Heritage Reporting Corporation (202) 628-4888 75 themselves on serving high end companies like Chevron, 2 Shell and Exxon Mobil. Currently they cannot do that 3 here. 4 immediately go after the most advanced and most 5 profitable contracts in the market. Once the orders are revoked they will Third, the subject producers will start 6 7 winning high end contracts. They already serve a lot 8 of these companies in other markets, and they will 9 undercut domestic producers on price. Once they do 10 that they will get the business. 11 that OCTG customers are always looking for lower 12 prices. I can assure you Fourth, once subject producers get a few of 13 14 the key contracts, this entire business will change. 15 Please understand there are no secrets in this 16 business. All of the major players in this business 17 are very sophisticated, and they closely monitor 18 pricing developments throughout the market. If one end user gets a lower price, other 19 20 end users will demand similar treatment. 21 happens, domestic producers will be hurt. 22 be nothing they can do other than to be hurt. 23 why we need this relief. There will That’s Accordingly, I urge you to keep these orders 24 25 Once that in place. Thank you. Heritage Reporting Corporation (202) 628-4888 76 1 MR. TRUE: Good morning. I am Dave True, 2 President of Tool Pushers Supply Company headquartered 3 in Casper, Wyoming. 4 Tool Pushers Supply Company is a distributor 5 of OCTG and has been in the oil field supply business 6 since 1953. We have seven store/warehouse locations 7 and eight sales offices covering the oil and gas 8 industry in the Gulf Cost, Texas, Oklahoma and 9 throughout the Rockies. 10 My family is also an oil and gas exploration 11 production independent with most of our activities in 12 the Rocky Mountain region, and we also operate a 13 drilling rig contracting company, so I come with a 14 fairly broad background. 15 In our supply business, we primarily 16 distribute domestic products, but we also handle some 17 imported tubulars via third party importers as well. 18 We have experienced the real, on-the-ground 19 consequences that Halliburton referenced a few weeks ago and Neighbors Industry more recently with their 21 22 weaker earnings forecast for 2007. Drilling in the Rockies is definitely 23 softening. Our OCTG sales are down significantly in 24 2007 compared to 2006 and 2005, which means in turn we 25 are reducing our purchases from U.S. mills. Heritage Reporting Corporation (202) 628-4888 As a 77 1 matter of fact, our sales may be down more significantly than sales of many import wholesalers who are directly handling Chinese product, which is being traded at notably lower prices than U.S. manufactured OCTG. Inventories are very high by historical standards, and thus operating companies are ordering 8 less far in advance from us, and we are waiting until 9 we need product because we know that mill lead times 10 have shortened. 11 We would like to see the OCTG months of 12 supply inventory at no more than four months or a 13 third lower than the current rate of nearly six months 14 of supply. There is a very large quantity of 15 inventory reduction that has to take place, and it 16 will take a lengthy time and probably at painful 17 economic consequences. In our drilling company, only seven of our 18 rigs are currently working all for outside 19 12 20 customers. 21 question how does demand for drilling services going 22 down with the rig count moving up? 23 The current situation might beg the You must understand that new rigs and 24 remodeled rigs have been contracted by exploration 25 companies many months or even years in advance. Heritage Reporting Corporation (202) 628-4888 The 78 1 operator must take that new rig when it is ready and 2 release the older rig. 3 been more rig additions than the growth in rig demand. Over the past year there have The other reason that rig usage in drilling 4 5 is declining in the Rockies is that the price 6 differential between natural gas at the wellhead in 7 the Rockies and the Henry Hub price in Louisiana, 8 which is normally 9 and $4. 50 to 75 cents, is now between It means that we are getting about $3.50 $3.50 to $4 at the wellhead in the Rockies compared to over $7 12 per MCF in many other areas of our nation. 13 not healthy. 14 over the past several years has been in the Rockies, 15 and it seems to be the area in which we are seeing the 16 most weakness now. 17 That is The biggest drilling growth in the U.S. As a family business sitting on millions of 18 dollars of OCTG inventory, as well as a family 19 business with our roots deep in the American oil and gas business, we believe that trade remedy laws should 21 continue to be applied so that our U.S. suppliers 22 should not have to compete with unfairly traded 23 product particularly at a time when we seem to be 24 heading into a weaker part of the cycle and a 25 tremendous oversupply situation partially caused by Heritage Reporting Corporation (202) 628-4888 79 1 low-priced Chinese imports. 2 Thank you. 3 MR. STEWART: Good morning. I‘m Dick 4 Stewart, Vice President and General Manager of J.D. 5 Rush Corporation, a major distributor of OCTG. 6 depends upon my ability to predict which way the 7 market is going. Let me tell you what I ’ m seeing right now. 8 9 My job Like everyone else here, I’ve seen the optimistic 10 projections of energy prices and rig counts. 11 they are correct. 12 for 39 years, and I’ve seen many downturns that no one 13 expected. 14 demand, which has already lasted for three years, is 15 extremely unusual. But I have been in this business I also know that the current increase in Based on the last 16 I hope 25 years of history in 17 this market, we are overdue for a downturn. We are 18 seeing signs of the downturn. At J.D. Rush we notice 19 that the prices for carbon grades of OCTG, what we 20 think of as the low end of the market, started to drop 21 off about a year ago. 22 the enormous volumes of the imported OCTG in the 23 market. 24 This was due in large part to The prices for high end alloy material stayed firm until about six months ago, but since then Heritage Reporting Corporation (202) 628-4888 80 1 they have also fallen. 2 slashed, and we may soon have to ask our suppliers for 3 a price cut. Meanwhile, inventory levels are too 4 high. We have about six months worth of inventory 5 right now, which is about two months more than we 6 would like. 7 Our profit margins have been In short, while some projections of OCTG 8 demand are quite optimistic, I’m very concerned about 9 the near term future of this market. At a minimum, I 10 am certain that demand will not increase by any amount 11 large enough to make up for the increased supply that 12 would result from revoking these orders. 13 Accordingly, I am convinced that revocation 14 will harm domestic producers. 15 orders in place. 16 I urge you to keep the Thank you. MR. CAUSEY: Good morning. I’m John Causey, 17 President of Cinco Pipe and Supply. 18 oil and gas business for 45 years and was a co-founder 19 of Cinco Pipe and Supply in 1976. 20 I‘ve been in the I am the president. Ralph Bell, the CEO of the company, was one 21 of my fellow co-founders, and it is a pleasure to have 22 had a chance to work with someone for 31 years. 23 Our company is headquartered in Houston, 24 Texas. Our distribution of oil country tubular goods 25 is primarily to mid-sized independent operators. Heritage Reporting Corporation (202) 628-4888 For 81 1 many years we were a primary distributor for Japanese 2 stainless pipe produced by Nippon Steel. After these dumping orders went into effect 3 4 in 1995, we began shifting to predominantly domestic 5 product, mostly Lone Star Steel’s ERW product. 6 majority of our business was for offshore production, 7 but given the decline in offshore drilling our 8 business is now fairly evenly split between offshore 9 and onshore drilling. The 10 While overall real demand has definitely 11 increased over the past few years, the increase in 12 inventories has far outstripped the increase in demand 13 leading to a massive inventory buildup of OCTG in this 14 country. Put another way, demand is good, but we are 15 in a horrible oversupply situation in the U.S. market. As I mentioned, we handle Lone Star’s large 16 17 ODE heavy-walled ERW product, which is accepted in 18 most offshore applications in competition with 19 seamless OCTG. 20 heavy-wall casing we do not really think we are 21 competing with any of the welded products made by 22 Maverick. 23 To be honest, in 10 3/4 and above However, if you sunset these orders we will 24 almost certainly see tremendous additional import 25 competition. That is certainly going to make our Heritage Reporting Corporation (202) 628-4888 82 1 competitive life more difficult, and it is already 2 difficult enough given the massive oversupply and 3 overinventory situation of the U.S. market. For those self-serving reasons and based on 4 5 the fact that we would like to see continuation of a 6 strong domestic supply base for the U.S. exploration 7 industry, we think that this Commission should 8 continue to maintain fair trade in the U.S. market for 9 OCTG . 10 Thank you. 11 MR. JOHNSON: Good morning. I am Jim 12 Johnson, Executive Director of Hunting Energy 13 Services, which provides a variety of services to 14 parties drilling for oil and gas both in the United 15 States and around the world. 16 I agree with the portrait of the industry 17 you have heard so far, and I would like to fill in a 18 few critical details. 19 sales in the United States, the subject producers 20 would not only improve their position here, but would 21 also be more successful in other markets they serve. 22 First, by increasing their The United States is the leading OCTG market 23 in the world. Producers want to be here for the same 24 reason that baseball players want to be in the majors. 25 It shows that they are the best. Heritage Reporting Corporation (202) 628-4888 83 If the subject producers get high end business in the United States, this would help them obtain even more business overseas. This is a major 4 incentive for subject producers to increase exports to 5 the United States. 6 Second, while overall demand is good right 7 now, demand for high end OCTG has not been so great. 8 Rig counts in the Gulf of Mexico have declined in 9 recent years. A lot of new rigs are drilling 10 relatively shallow onshore wells to reach 11 unconventional gas such as methane found in coal 12 seams. 13 end OCTG. 14 losing much of this business so they really cannot 15 afford to lose any of the high end sales. This type of drilling does not require high Thanks to imports, domestic mills are Third, while you’ll hear a great deal about 16 17 the major oil companies, Tenaris has made clear that 18 it also intends to serve independent oil producers, 19 which account for most of the OCTG used in the United 20 States. This will certainly harm domestic producers. For all of these reasons I am certain that 21 22 these orders should stay in place. CHAIRMAN PEARSON: 23 Thank you. Thank you. The red light 24 has come on, so we will turn now to Mr. Cannon and to 25 Maverick. Heritage Reporting Corporation (202) 628-4888 84 MR. CANNON: Thank you, Mr. Chairman. We’ll proceed with testimony from Jeff Shorter. MR. SHORTER: Good morning. My name is Jeff 4 Shorter. Until the acquisition by Tenaris in October, 5 I was the Vice President and General Manager of 6 Maverick Tube Corporation. I‘ve been involved in this 7 business for 14 years. 8 Since the merger I’ve been training in 9 Argentina to fully understand the Tenaris global 10 organization. At the end of the year I’ll be 11 returning to the United States to assume a position 12 with the Tenaris management team. As set forth in our prehearing brief, 13 14 Maverick strongly supports the antidumping orders 15 against Japan and Korea. 16 will benefit if the antidumping orders are terminated 17 with respect to tubing and casing from Argentina, 18 Italy and Mexico. At the same time, Maverick Maverick is now the largest U.S. producer of 19 welded casing and tubing. We account for over 17 21 percent of the total U.S. OCTG production. 22 has invested over $ 3 billion in the Maverick 23 acquisition, and we have over 24 country. 25 3,000 Tenaris employees in this We are fully committed to supplying the U.S. Heritage Reporting Corporation (202) 628-4888 85 1 market from our plants in Arkansas and Texas, and this 2 is evident in our long-term supply contract with Nucor 3 and our continuing steel purchases from U.S. Steel and 4 Mittal. 5 Let me describe the products we make. 6 Maverick manufactures welded tubing and casing. 7 Maverick only produces welded products, and all of our 8 products are electric-resistance welded or ERW 9 products. ERW products are generally used in less 10 11 demanding onshore applications. Seamless products are 12 generally used in more demanding applications. 13 Although seamless products can be used in place of 14 ERW, it does not make economic sense to do so. The 15 average selling price of seamless products is 16 substantially higher than the price of ERW tubing and 17 casing, and the ERW products perform equally well in 18 these less demanding applications. Maverick has gone to the marketplace to 19 educate our customers and build acceptance of ERW 21 pipe. That’s one of the ways that ERW increased its 22 market share over seamless tubing and casing. 23 rest of the world, by comparison, still uses seamless 24 products the majority of the time. Because of this, 25 the U.S. consumes 86 percent of all welded OCTG tubing Heritage Reporting Corporation (202) 628-4888 The 86 and casing, and Canada consumes much of the rest. Maverick is particularly concerned that Japanese and Korean imports of welded tubing and 4 casing will be directed to the U . S . market if the 5 antidumping orders are lifted. As the Commission has 6 previously found, Korea and Japan have significant 7 capacity, and they have no home markets. 8 they produce in order to export. Therefore, Most, if not all, of these Japanese mills 9 10 have the capacity to produce ERW products, and the 11 Korean mills subject to the antidumping orders only 12 produce ERW tubing and casing. 13 termination of the antidumping orders will allow 14 producers in both countries to again target the U.S. 15 market. It is obvious the As for the Japanese products, Japanese 16 17 welded tubing and casing have largely disappeared from 18 the U.S. market because of the high dumping rates 19 established by the orders. Before the antidumping order was in place, imports from Japan were 21 substantial and were increasing rapidly. Japanese products since the 1980s have been 22 23 perceived in the market as the highest quality OCTG 24 products. 25 and in fact three major distributors in the U.S. are They are sold by nearly every distributor, Heritage Reporting Corporation (202) 628-4888 87 1 owned by Sumitomo. Because of the fact that our distributor 2 3 customers have historically carried the Japanese 4 products, we will be forced to compete with these 5 products if the antidumping order is lifted. 6 Japanese mills have an incentive to produce 7 the OCTG products that can earn the highest return on 8 investment. OCTG products sell for a premium price. 9 Also, the Japanese producers have invested in 10 upsetting, heat treating, threading and finishing 11 operations. These investments are not utilized if the 12 13 companies make line pipe, structural pipe or other 14 replacement products. Welded OCTG products made in 15 Japan will seek out the U.S. market because it is 16 almost the only market for welded OCTG. Unlike the imports from Japan, Korean 17 18 imports subject to the antidumping duty order did not 19 stop. Korean producers do not really have a stake in 20 the marketplace and are concerned primarily with 21 moving product and making sales. This approach is 22 illustrated by the sharp increase in Korean imports in 23 the last 10 years. 24 doubled from 25 Bureau. 2001 Total imports from Korea more than to 2006 according to the Census Heritage Reporting Corporation (202) 628-4888 88 At Maverick we encounter direct competition 1 2 from Korean imports across the market. In some cases, 3 Korean imports are the lowest priced in the market, 4 even lower than the Chinese imports. We have lost 5 sales due to these low prices. For example, our largest customer buys both 6 7 tubing and casing from us, but in the area of tubing 8 they only buy 9 70 30 percent of their tubing from us and percent from Korea. To make matters worse, foreign 10 producers have piggybacked on our efforts to get 11 welded pipe accepted in the marketplace. 12 After Maverick has invested time, money and 13 resources to guide customers in substituting ERW for 14 seamless, Japanese and Korean producers find very 15 little resistance switching their customers from U.S. 16 made ERW to their imports. 17 Given these conditions, if the antidumping 18 orders on Japan and Korea are terminated, dumped 19 imports will invariably return, depressing U.S. price levels, capturing market share and causing material injury to the U.S. industry. 22 For these reasons, the Commission should not 23 terminate the antidumping orders on Japan and Korea. 24 Thank you. 25 MR. C U M : Good morning. My name is Germdn Heritage Reporting Corporation (202) 628-4888 89 1 Curd. I’m the Managing Director for Tenaris North 2 America and also the President and CEO of Maverick. 3 I appeared before the International Trade 4 Commission in 2001 as President of Siderca Corp., and 5 at the time I supported revocation of the antidumping 6 orders against Argentina, Mexico and Italy. I appear today as a member of the U.S. 7 8 industry that is committed to the U.S. market, and I 9 again support the revocation of the dumping orders again Argentina, Italy and Mexico. 11 To begin with, I want to emphasize that the 12 U.S. market has dramatically changed since I was here 13 in 2001. The landscape has changed. First, 14 consumption of OCTG in the U.S. market has increased 15 from 2.9 million in 2001 to 4.5 million in 2006. Second, the U.S. industry has consolidated. 16 17 The growth in demand has attracted both domestic and 18 foreign investment. Third, China has become the 19 largest single supplier.of imported OCTG to this market. 21 In the midst of these changes, Tenaris has 22 taken a leading role with its acquisition of Maverick. 23 The merger of Maverick and Tenaris was not intended to 24 give Tenaris a sales agent. 25 three largest manufacturing bases in the Tenaris Maverick is one of the Heritage Reporting Corporation (202) 628-4888 90 system today. Our intention is to grow it further. Once the Hydril transaction closes, our U.S. employment will grow to around 4,500 U . S . employees. 4 This will make the U.S. one of our two largest 5 employment bases around the world. Tenaris acquired Maverick because of our 6 7 commitment to grow in the single biggest market for 8 less demanding or low end pipe application and because 9 of Maverick’s leadership position in the U.S. market. 10 As a part of Tenaris, Maverick is now able to better 11 serve its customers with a full basket of tubular 12 products. 13 Also to better serve our customers we have 14 planned for the first year an additional investment of 15 $70 million to streamline Maverick’s operations and 16 debottleneck and improve the product quality. 17 In these circumstances, Tenaris will not 18 undermine its own investment by depressing prices and 19 causing material injury to the U.S. market. At the same time, Maverick will become a stronger company 21 because it will be better equipped to compete against 22 increasing imports. 23 In fact, the merger of Maverick into Tenaris 24 has changed the way Tenaris approaches the market 25 altogether. In other countries, Tenaris sells Heritage Reporting Corporation (202) 628-4888 91 1 directly to the end users and provides some of the 2 pipe services that are needed by the few, big state- 3 owned or multinational companies that purchase our 4 OCTG products. This approach by and large reflects the fact 5 6 that there is no pipe management infrastructure for 7 selling OCTG in those markets. 8 structurally different. The U.S. market is We recognize that. The U.S. market is automized. 9 Customers are 10 geographically dispersed. 11 market presence such as Maverick cannot be sustained 12 without the complementary services that are supplied 13 by the existing distributors. As a long-term U.S. 14 producers, Maverick looks at the major distributors as 15 partners. 16 In this market, a major Now, you must not ignore the change that has 17 occurred since the first sunset review. Tenaris is 18 now a committed and a major U.S. producer, and as a 19 U.S. producer and given that the U.S. is such an 20 important base for Tenaris we are in a very different 21 position than producers in Japan or Korea. 22 In these circumstances, the orders with 23 respect to casing and tubing from Argentina, Italy and 24 Mexico are no longer justified. Thank you. 25 CHAIRMAN PEARSON: Okay. Your timing is Heritage Reporting Corporation (202) 628-4888 92 1 perfect. The light just turned red. I would just like to express my appreciation 2 3 for the depth and breadth of experience that is 4 represented here this morning by this panel in oil 5 country tubular goods. 6 you’ve taken to come here. 7 you all. It’s a pleasure to have With that we will turn to Commissioner 8 9 I appreciate the time that Pinkert for the first questioning. COMMISSIONER PINKERT: 10 Thank you, Mr. I, too, would like to thank the panel for a 11 Chairman. 12 very informative presentation. I want to start with the last witnesses and 13 14 to ask Mr. Cannon if he can to explain to me how the 15 position of Maverick in the U.S. market producing 16 welded product has any impact at all on Tenaris‘ 17 incentives to export seamless product to the United 18 States. 19 MR. CANNON: Thank you, Commissioner 20 Pinkert. You will hear, and you can hear from German 21 after me, and you will hear I’m sure this afternoon 22 from Tenaris’ executives who appear with Respondents 23 about their plan for the world and about their 24 business strategy. 25 Tenaris has a global business strategy. Heritage Reporting Corporation (202) 628-4888 93 1 They have plants in 10 countries. The U.S. is now one 2 of the top three of their manufacturing bases. What 3 they are is essentially a diversified company. They 4 have put a plant in many markets to serve those 5 markets. 6 As a result, when the oil business goes up 7 in one area of the world or goes down in one area of 8 the world, they can take advantage when it goes up in 9 another area of the world. 10 markets. They want to serve local They’re a home market producer. In the U.S. market, they’ve studied the 11 12 market, and a big portion of the U.S. market - - 13 percent of it - - is for less demanding applications. 14 Those less demanding applications are ideally served 15 by Maverick, so in their judgment the best position in 16 the U.S. market is Maverick in order to take advantage 17 of that. 18 60 Now, indeed there are more demanding 19 applications where you need seamless. As you‘ve 20 heard, Maverick is able to obtain that from Canada. 21 As demand has increased, indeed they’ve brought in 22 some product from Algoma, and they’re able to do that. 23 Algoma is not covered by a dumping order. 24 dump, and there is no issue there. 25 They don’t So the real question here is, and I think Heritage Reporting Corporation (202) 628-4888 94 Roger said it at the beginning, what’s the volume that Tenaris is likely to import? Our position on that is that you can look at what they’ve been importing from 4 5 these countries. The U.S. market has not been using Tenaris’ 6 high end product because it’s not a market in which 7 they need to be selling that product. 8 committed to selling Maverick‘s product here. 9 MR. CURA: They are I think, Commissioner Pinkert, the short answer to your question is the end users are 11 by and large buying complete packages for all of their 12 tubular needs, both seamless and welded. 13 Naturally Maverick is a very strong player 14 in the welded field. We are today by and large 15 complementing some of the seamless requirements that 16 are coming from some of our production bases, but we 17 believe that our ability to compete with a full basket 18 of tubular products, both seamless and welded, would 19 make the U.S. companies stronger vis-5-vis integrated requirements from the end users. 21 COMMISSIONER PINKERT: Thank you. Perhaps 22 some of the other members of the panel would like to 23 comment on that issue? 24 25 MR. DUNN: I‘d just like to mention just one thing relative to complete packages. Byron Dunn. Heritage Reporting Corporation (202) 628-4888 95 In order for Tenaris to offer complete 1 2 packages to their customer base here they'll have to 3 import. He just told you what he plans to do. 4 COMMISSIONER PINKERT: All right. 5 MR. SCHAGRIN: Commissioner Pinkert? I 6 would just like to add. This is Roger Schagrin. I 7 think your first question kind of points out, and 8 we're going to go through this all day, a very unusual 9 situation. I've been doing this for 25 years now before 10 11 the Commission, and I've never before been a 12 participant on a domestic panel which really has kind 13 of a Trojan horse in the panel where the same panel 14 that's supposed to be supporting the opposition to 15 revocation of the orders is also answering questions 16 about why the orders shouldn't be revoked. It's a very unusual situation. We protested 17 18 it to the Commission, but I think it's appropriate 19 before the Commission to just point out how difficult 20 this is. 21 bipolar and we have a globalized industry, folks like 22 Tenaris and Maverick were put on their own panel. 23 would have made things a lot cleaner. 24 25 In the past in situations where people are I hope we'll get through it. It Obviously the answers to this question demonstrate, as the whole Heritage Reporting Corporation (202) 628-4888 96 1 domestic industry testified today, including the 2 distributors, that Maverick can only supply welded 3 products to about 60 percent of U.S. consumption. The other 40 percent takes seamless product, 4 5 and that’s what Tenaris is making in those four 6 countries so in order to access that other 40 percent 7 of the market they will have to dump products here 8 after revocation of the order. 9 that all the seamless producers here and, to a certain 10 That‘s the product extent, Lone Star are focused on. That’s a huge portion of the market and the 11 12 only portion of the market where they’re not getting 13 chased by China right now, which is really focused, 14 albeit it with seamless products, extremely cheap 15 seamless products, on that lower 60 percent of the 16 market. COMMISSIONER PINKERT: 17 18 MR. KAPLAN: CHAIRMAN PEARSON: 25 I think Could you please identify yourself, Dr. Kaplan? MR. KAPLAN: 23 24 Yes, Commissioner. there are extremely strong - - 21 22 Is there another witness that wishes to speak? 19 20 Thank you. Seth Kaplan from the Brattle Group. I think there are extremely strong reasons Heritage Reporting Corporation ( 2 0 2 ) 628-4888 97 1 to expect large volumes of imports from Tenaris to 2 enter. 3 welded pipe are complements. 4 qualities of pipe could be used. 5 baskets of different qualities. I think the first point is that seamless and In the same well, all End users buy Members of the panel will talk about 6 7 physical limitations and quantity limitations of the 8 potential seamless products of Tenaris from Canada, 9 but they’re better situated to supply these products 10 from their other countries. 11 Second, as an economic matter, you‘re going 12 to equalize and maximize profits, and you’re going to 13 do this by finding the lowest marginal cost supplier 14 of the particular tubular product across your whole 15 company. 16 It could be the case in fact that Maverick 17 will be better off by being able to supply seamless 18 products that are complementary with its tubular 19 welded products, but the rest of the U.S. industry will be worse off as increased imports from the 21 dumping countries would enter as complements to their 22 welded product. 23 Now, I‘d like you to take a look at an 24 exhibit from the Maverick brief. It’s Exhibit 3, 25 which is a Tenaris investor day presentation from Heritage Reporting Corporation (202) 628-4888 98 On page they show where their net sales have 1 2007. 2 been around the world, one from the fourth quarter of 3 2003 4 and the second from the fourth quarter of 2006. What you will see first is that they could 4 5 shift product around the world pretty quickly as these 6 shares have changed, but in the fourth quarter of 7 their net sales largest was North America at 36 8 percent and the Middle East and Africa at 25 2006 percent. As we have put in briefs and there will be 9 10 testimony too, there are large seamless mills now 11 being built and plan to be built in Saudi Arabia. 12 That is their second largest market. These mills are coming on board, and where 13 14 are they going to go? 15 North America where they complement their Maverick 16 product, where they have deep wells using their types 17 of seamless products, where they have ambitions to 18 enter. 19 Their incentive is to come into Whereas people have testified it’s important 20 that they sell to the high quality producers, where 21 they are selling to producers that already exist here, 22 that they sell to in other parts of the world through 23 worldwide sourcing contracts because prices are higher 24 here because there’s price gaps around the world. 25 Because they have significant amounts of Heritage Reporting Corporation (202) 628-4888 99 1 divertible capacity from where they sell into other 2 parts, because of the growing importance of the U.S. 3 market and the growth of the U.S. market, because of 4 the emergence of China as a competitor pushing them 5 out of certain other markets, because of the 6 demonstrated ability of subject OCT from them to enter 7 markets quickly through existing distribution 8 channels. So there are many, many reasons they will be 9 10 here. 11 ignore the world's largest market. 12 maximizing multinational enterprise, I think it is not 13 credible to believe they wouldn't source from all 14 their mills giving the physical requirements that do 15 not overlap between all their mills and the inability 16 of Canada to supply the product. 17 I do not think it's credible that they will As a profit I think it is plain that they will come here 18 in significant quantities to increase their profits 19 and make the synergies with their Maverick purchase 20 realized should the orders be lifted. 21 COMMISSIONER PINKERT: Thank you, Mr. 22 Kaplan, and thank you, Mr. Chairman. 23 CHAIRMAN PEARSON: I have some experience in 24 cyclical markets. You know, sometimes things go well, 25 and sometimes they don't go so well. Frankly, I Heritage Reporting Corporation (202) 628-4888 100 1 really like being on the upside of things because 2 making money is just a whole lot more fun than the 3 opposite. I ’ d just like to celebrate with you the fact 4 5 that things have gone well here recently. 6 that’s great for your industry, and we all can be glad 7 of that. What I’m trying to get a more thorough 8 9 I think understanding of is the trend for apparent consumption I mean, apparent consumption of 10 in the United States. 11 OCTG has roughly doubled over the period of review, 12 and I think we have an argument from Respondents that 13 there have been structural changes in the marketplace 14 that will keep OCTG demand high. How do you see this? 15 Is there a structural 16 change, and are we going to be looking at a different 17 market for OCTG going forward than we have in the 18 past, or is this a normal cycle and we’re just peaking 19 out at a very nice, high level and it heads down from here? Any thoughts on that? CHAIRMAN PEARSON: 22 23 24 25 Mr. Surma. MR. SURMA: Mr. Chairman, I ’ l l make a modest attempt, thank you. In our view there has been a substantial change in the marketplace in the last several years, Heritage Reporting Corporation (202) 6 2 8 - 4 8 8 8 101 driven of course by the much higher energy price structures which prevail in the world and, naturally, North America. And given our North American demand 4 for energy we think it‘s likely that drilling rates 5 would be higher over time than in the past and that in 6 fact OCTG demand would be higher than it has been in 7 the past. 8 likelihood of there being continuing cycles in this 9 business. We think that’s quite likely over time. But that does not in any way eliminate the In my history at one time I was the Chief 10 11 Financial Officer for Marathon Oil Company. 12 1997 and 8 I was doing price forecasts and budgets 13 with WTI of 10, 15 and 14 and 4. So I don’t expect it to be back at that level 15 soon but I don’t expect us to have no cyclicality in 16 what is a notoriously cyclical industry. So I think 17 we have a higher level of OCTG consumption likely for 18 the long term but not likely to be completely 19 eliminating cycles. 22 And Henry Hub Gas at 2, 3 CHAIRMAN PEARSON: Any other comment? 20 21 20. In late Mr. Cura? MR. CURA: Thank you, Mr. Chairman. I would 23 like to say that we agree with Mr. Surma’s view. 24 I think there’s a structural reason for that which we 25 will be very happy to expand with post-hearing notes. Heritage Reporting Corporation (202) 628-4888 And 102 Over the last four years the consumption of 1 2 OCTG recount has increased in the numbers that we’re 3 seeing dramatically. 4 production in the countries has stayed about the same 5 level. And that deals with I think two factors: one, 6 the notion that the gas fields are maturing, that the 7 declining rates of each and every well getting done is 8 dramatic, we’re talking about elements like 9 percent. And consequently to sustain the level of Notwithstanding that, the gas 50 10 domestic production industry has no other choice but 11 increase the level of drilling, increase the level of 12 activity. 13 I tend to agree also with Roger with respect 14 to calling the products gas country tubular goods. 15 is in fact driven by that. 16 reason why we’ve seen these dramatic increases. 17 18 CHAIRMAN PEARSON: It And it is in fact the Okay. You are agreeing with Mr. Schagrin there I take it then? 19 MR. CURA: Only in the name, yes. 20 MR. SCHAGRIN: Mr. Chairman, I would like to 21 invite Mr. Hunt and Mr. True to answer your question 22 because they are both actually drilling for gas. 23 I think they can talk about how there’s been 24 structural changes in costs as well as in prices which 25 may not result in any structural increase in drilling. Heritage Reporting Corporation (202) 628-4888 And 103 1 CHAIRMAN PEARSON: 2 MR. SCHAGRIN: Mr. Hunt, you first and then 3 Right. Yes. Mr. True, please. MR. HUNT: 4 I think there's definitely an 5 uncertainty in where gas prices are in the United 6 States at this time. 7 for gas third and fourth quarter last year, first 8 quarter this year. 9 come off. Our company curtailed drilling Prices for gas has significantly The costs of drilling our wells are more 10 than doubled, almost tripled, so our return on 11 investment sort of plateaued. I think drilling stays up for a while but 12 13 the uncertainty over what our industry has been able 14 to accomplish with L&G imports certainly figures into 15 what the demand for domestically produced gas is. 16 There is quite a bit of uncertainty in where we are in 17 the natural gas business right now. 18 would probably agree with that. CHAIRMAN PEARSON: 19 I think they Could you just clarify why have your drilling costs doubled or tripled recently? Is it are there factors other than the 22 rather high price you're paying now for oil country 23 tubular goods? 24 25 MR. HUNT: Oh, that's a minor part. costs of drilling rigs, the costs of all your Heritage Reporting Corporation (202) 628-4888 The 104 services, cementing, stimulation in particular, logging. Almost anything that goes into drilling a well is way up. 4 CHAIRMAN PEARSON: 5 MR. HUNT: Availability - - And to be fair, there needed to 6 be price increases for return on investment to all the 7 people that hadn‘t had much when times were really 8 bad. 9 prices have gone up for what it costs to drill and now It’s just like so many cyclical businesses, 10 the price of natural gas is certainly off from $10. 11 Where we are in West Texas and New Mexico our gas that 12 we‘re getting is 13 Henry Hub. 14 that we don’t know about. 15 over the five-year historical average of where we are 16 coming out of the winter on inventories. So all those 17 things enter into it. 18 $5.50 to $6.50, not what’s posted at But I think L&G is the biggest import item CHAIRMAN PEARSON: Plus there’s a big overhang Could you just clarify, 19 are there sufficient skilled drilling crews available 20 or is availability of skilled people sufficient to 21 keep the rig numbers up there? 22 MR. HUNT: The question is skilled. It is 23 extremely hard for the service companies to find and 24 keep skilled people on their rigs. 25 glamorous job. It’s a hard job. It‘s not a They’ve managed to Heritage Reporting Corporation (202) 628-4888 105 increase the number of rigs working. The productivity is not near what it was three or four years ago because the people can’t do the job as well as they 4 5 6 used to. I’m not completely sure how to answer that but I have severe doubts as to that question. 7 CHAIRMAN PEARSON: 8 Mr. Schagrin, you had another person who was 9 10 Okay. Well thank you. going to comment? MR. TRUE: Mr. Chairman and Commissioners, 11 I‘m Dave True. And as my testimony indicated, we 12 operate, our family operates a drilling rig 13 contracting firm as well as an E&P operating firm. 14 I come with both sides of that perspective along with 15 being a distributor or OCTG. 16 So In the Rocky Mountains, as my testimony 17 indicated, our differential that we receive or that 18 reduces the price that we receive in the Rockies for 19 well-head gas has grown significantly to where it is 20 now three to five times what it normally would run 21 just to reflect the transportation difference. That 22 reduction in prices has caused some operators, 23 including ourselves, to take a more severe look at 24 various projects. 25 lot of the low hanging fruit in gas drilling in the It is relatively safe to say that a Heritage Reporting Corporation (202) 628-4888 106 1 Rockies has been taken. So right now we're looking at 2 projects that have less economic return than some of 3 those low hanging fruit projects did in years past. So with the reduced prices that we're 4 5 getting for our well-head gas we're taking a much more 6 critical look at the projects that we're considering 7 drilling. The other thing is the rig count last week 8 9 in Wyoming stood at rigs. A year ago it was right 69 10 at 100. 11 in utilization of drilling equipment. 12 So regionally we are seeing a real reduction The crew situation, I can speak specifically 13 on that, and Mr. Hunt is accurate, we have been able 14 to staff our rigs but the experience level is 15 certainly much lower than it was when the rig count 16 was significantly lower. 17 of years of this increased activity we have been able 18 to train more people. 19 but itls still not what it used to be. Fortunately, with a couple The experience level is gaining 20 So it's a combination of factors. 21 distributing company, as I testified, our dollars and 22 tonnage of OCTG that we have handled so far this year 23 the first quarter is significantly below what it was 24 in the first quarter of 25 of roughly 30 to 40 '05 and percent. '06 So I by the magnitude truly believe we Heritage Reporting Corporation (202) 628-4888 With our 107 1 are seeing a softening in the overall market as we go 2 forward. 3 CHAIRMAN PEARSON: Thank you very much for 4 those answers. My time has expired. 5 will turn now to the Vice Chairman. VICE CHAIRMAN ARANOFF: 6 So I think we Thank you, Mr. I want to join my colleagues in welcoming 7 Chairman. 8 this panel. 9 time with us to share your expertise. We appreciate so many of you spending the 10 We heard a lot in all of your direct 11 testimony this morning about two categories of 12 imports, current non-subject imports and likely 13 imports from subject companies. There is a third 14 category that I wanted to ask some questions about. 15 And particularly if you look at Table 4 in the Joint 16 Respondents' Brief it indicates that domestic 17 producers and their affiliates import a non-trivial 18 quantity of OCTG from non-subject sources. Could I 19 have some of the domestic producer witnesses explain 20 why this product was imported at a time when the 21 domestic industry appears to have a substantial amount 22 of unused capacity? 23 MR. HORNET: Didier Hornet. I am the 24 Chairman of V&M Star. And it is true that when both 25 in domestic manufacturing and imports and the imports Heritage Reporting Corporation (202) 628-4888 108 1 we make into the United States are coming in addition 2 to complement the size, range and grade that we are 3 able to deliver from our domestic manufacturing. 4 point is that the level of imports that we made over 5 the last five years has remained constant in volume. 6 Yes. 7 MR. SUTHERLAND: Our I will perhaps make a 8 comment. We are producers of oil country tubular 9 products in both Canada and the United States. for a period of time certainly in 2006 And and before we 11 were bringing product into the United States because 12 in the United States we were not able to produce the 13 products that to round out with respect to some of our 14 accounts. And at a point in time there were certainly 15 some opportunities because the Canadian marketplace 16 was not as strong as the U.S. marketplace was. 17 But what we did, which I noted in our 18 testimony, is we made an acquisition which we closed 19 on in the first of December of 20 out the products that we have here and will displace 21 any need to bring products from Canada to the United 22 States. And so you are very likely to see a 23 significant shift at least in terms of our 24 contribution to that from Canada to the U.S. from 25 products that are going to be made principally in 2006 which will round Heritage Reporting Corporation (202) 628-4888 109 1 2 Kentucky. VICE CHAIRMAN ARANOFF: Okay. To follow up 3 on that the Respondents assert in their brief, or at 4 least they strongly imply that in looking at the 5 likely volume of subject imports if these orders were 6 to be revoked the Commission should compare what it 7 thinks that likely volume might be to two things, both 8 the current volume of non-subject imports for which 9 domestic producers and their affiliates are 10 responsible and which we just discussed or, 11 alternatively to the current volume of domestic 12 producers' exports. Do you think that either of those 13 comparisons has any probative value in assessing the 14 likely volume and its likely impact? 15 16 I've got a hand up in the third row. And that's Mr. Narkin is that you back there? 17 MR. VAUGHN: 18 VICE CHAIRMAN ARANOFF: 19 MR. VAUGHN: No? No, it's Mr. Vaughn. Mr. Vaughn. Sorry. Vice Chairman Aranoff, what 20 you're supposed to be thinking about is, is the likely 21 volume of imports from the subject countries going to 22 be significant if the orders are revoked? 23 in your analysis should be that likely volume and how 24 that likely volume is going to affect market 25 conditions here in this market. Heritage Reporting Corporation (202) 628-4888 The focus . 110 Comparing it to these other measures is not necessarily, you know, probative or helpful. With respect, for example, to the imports that are being brought in by other U.S. producers, I mean are those Is there any data on whether or not 5 dumped imports? 6 they‘re dumped imports? 7 the imports have been unfairly traded? 8 sort of now way to know that. 9 Is there any evidence that There’s really Whereas, the subject imports the Department 10 of Commerce is already saying they’re going to be 11 dumped and they’re going to be unfairly traded. 12 comparison between those two measures is very helpful. 13 So a Second of all, with respect to the issue of 14 exports by the domestic industry, I mean again 15 presumably these are exports that are being taken 16 place in a market-based system, you know, they’re not 17 dumped in any way, there‘s trade that’s going on from 18 one party to another party. And once again, you don’t 19 have a whole lot of data about how those particular 20 exports may be affecting pricing in this market. 21 So I think the focus here, what the law 22 tells you to do is to focus on how revocation is going 23 to affect the domestic industry in this market. 24 think the focus there is not just comparing, you know, 25 weighing tonnages, it’s sort of trying to think Heritage Reporting Corporation (202) 628-4888 And I 111 1 through if the orders are revoked how is the market 2 going to change as a result? 3 MR. SCHAGRIN: Vice Chairman Aranoff, this 4 is Roger Schagrin. I would first agree with Mr. 5 Vaughn as to his legal analysis of the fact that I 6 don't think the Commission should give much probative 7 value to the comparisons claimed by Respondents. But 8 I would add a couple of factual points in case the 9 Commission is considering that probative value. 10 First, V&M Star is in the midst of a major 11 expansion of capacity and heat treating which will 12 allow them to make even more higher grade alloy 13 products which could affect their need to import from 14 their related parties. 15 Sutherland say that their acquisition of NS Group has 16 changed their need to import products from Canada 17 because they've already rounded out what they're 18 making in the U.S. market. And I would suppose that 19 the acquisition by U.S. Steel of Lone Star would also 20 round out the offerings, complement your offerings of 21 those two companies which would reduce the need for 22 either of those companies to import products 23 previously to complement. And that's different from 24 now Tenaris needing to import to complement Maverick. 25 You already heard Mr. Secondly as to exports, I think you'd find Heritage Reporting Corporation (202) 628-4888 112 1 that about 80 percent of U.S. exports of OCTG have 2 been to Canada. 3 has been a really robust growth market. 4 based on looking at rig counts and permits seems to be 5 slowing down maybe because the low hanging fruit for 6 natural gas has also changed up there. And so we have 7 seen a pretty significant decline in demand in Canada 8 through the first part of 9 affecting 2007 And Canada over the last few years 2007 That now as it’s already exports to Canada. And that will mean 10 that there‘s going to be more product that U.S. 11 producers have to sell in the U.S. market because 12 their principal export market is declining. 13 that is a condition of competition that you could take 14 into account. I think Thank you. 15 VICE CHAIRMAN ARANOFF: Thank you. 16 U.S. producer Lone Star announced that it 17 recently entered into an agreement with a Chinese 18 producer of OCTG and that as part of the agreement 19 Lone Star committed to import into the United States 20 in 21 China. 22 Commission interpret the concerns expressed by members 23 of the domestic industry, including Lone Star, about 24 China’s growing market share? 25 MR. DUNN: 2007 approximately 200,000 tons of OCTG produced in In light of this agreement how should the Couple of things. First of all Heritage Reporting Corporation (202) 628-4888 113 1 that we haven't calculated that investment yet. 2 200,000 ton estimate is inaccurate. There was a press 3 release that indicated that we would have access to as 4 much as 200,000 tons, not that we intended to import 5 200,000 tons. 6 7 8 9 So The let's be real clear about that. And the investment is intended to diversify our manufacturing base. But if I could just kind of piggyback on your earlier question and that ties to Chairman 10 Pearson's question. 11 of view is not about the demand as much as it is about 12 the balance of supply. You can have a really good 13 market if your demand is going off the charts and you 14 can't keep up with it. But the benefit that our 15 industry has realized the last few years has generally 16 come to us as the result of a balance in supply and 17 demand. We got our operating rates up. 18 supplemented, Lone Star supplemented our inventories 19 with some material that we source from outside, non- 20 subject countries. And we have dissipated that since 21 the supply has become excessive. 22 terminated several of those relationships. 23 24 25 The key issue here from my point We In fact, we So watch supply. That's much more important to our prosperity than the demand. VICE CHAIRMAN ARANOFF: Appreciate those Heritage Reporting Corporation (202) 628-4888 114 answers. And as my light is yellow, thanks, Mr. Chairman. CHAIRMAN PEARSON: 4 COMMISSIONER OKUN: Commissioner Okun. Thank you, Mr. Chairman. 5 And I join all my colleagues in welcoming all of you 6 here today, welcoming back many of you. 7 the time you have taken to be here and to discuss this 8 case with us. I appreciate 9 I would like to continue along the lines of 10 the Vice Chairman in trying to understand some of the 11 changes you’ve just described about what products you 12 will be producing in the United States because again 13 on this issue of, as I’ve heard you describe, that the 14 imports by the domestic industry have been to round 15 out the product line that you offer. 16 has made a point of distinguishing Maverick in that 17 sense of not having to import from subject countries. 18 And Mr. Schagrin But I’m not sure, maybe you can just point 19 me to the record if it’s already in there, for each of 20 you is there, at the current time there’s product you 21 do not produce that you want to supply to your 22 customers that you import, and for the post-hearing 23 can you put in there when, when you will have the 24 ability to manufacture those products and, well, when 25 you expect they are and what those products are? Heritage Reporting Corporation (202) 628-4888 But 115 1 let me start over here, Mr. Hornet, and just help me 2 understand the timetable and specifically what types 3 of products we’re talking about? 4 one of the points made by Respondents is that to the 5 extent on the service load that the U.S. has not had 6 the ability to consistently produce the product 7 needed, and if you could respond to that as well, all 8 of you on that one? 9 MR. HORNET: Because obviously First, starting with the type 10 of products we are manufacturing and importing in the 11 U.S., the core business of V&M Star is to manufacture 12 a range of products between 5 inches and 10.75 and 13 mostly etricivised. 14 say the low grade material where we show a huge amount 15 of Chinese imports. So we are less involved in let’s 16 The big difference also from Tenaris is that 17 we are domestic already for the manufacturing of these 18 seamless pipes. 19 a little bit of tubing but mainly caving, so pipes 20 with a diameter above 10.75. So we only need to import to the U . S . Still, we have the possibility to increase our capacity and our 22 capability within our domestic mill. And this is what 23 we did and what we plan to do over a 3-year capital 24 investment program. 25 program is about 100 million U.S. dollars. We started So this capital investment Heritage Reporting Corporation (202) 628-4888 116 1 with the first phase that, as Roger Lindgren was 2 stating, is already operational because starting 3 February 2007 we are now able to manufacture in the 4 U.S. self-service grades, so high end grades, 5 including C-110. I know Shell is similar, we talked 6 about C-110. So including C-110 up to 10.75. 7 Parts of this material were before imported 8 from Europe typically to the U.S. And we are now 9 through this investment planning to manufacture it 10 domestically. And a significant reason for that is 11 that being domestic allows us to deliver to our 12 customers on a shorter lead time. 13 interest as a company to grow our business 14 domestically. So we also have an 15 COMMISSIONER OKUN: Okay. Mr. Sutherland? 16 MR. SUTHERLAND: Thank you. 17 As I mentioned in our testimony we, and I 18 mentioned a bit later, we acquired a firm and closed 19 in December of 2006. That closing, the closing of 20 that transaction virtually eliminated almost all the 21 need to bring any other product from Canada which may 22 have been brought in in 2006 and prior. 23 We are spending an additional $118 million 24 this year, just this year, that’s cash out the door 25 this year to bring additional capacity and capability Heritage Reporting Corporation (202) 628-4888 117 1 to the facilities here in the United States but which 2 will both add further diameters to our offering here 3 in the U.S. and as well allow us to upgrade a 4 considerable amount of the product that we produce 5 today. 6 NS facilities, that’s the firm we purchased in 7 December, and there are also investments being made in 8 the IPSCO firm that existed prior to the close of that 9 transaction. 10 11 Those investments are being made both in the COMMISSIONER OKUN: Mr. Sutherland, can you remind me in terms of the specific product - - 12 MR. SUTHERLAND: Right. 13 COMMISSIONER OKUN: - - would that be 14 described, how would you describe, a high end and are 15 there other specific categories? 16 MR. SUTHERLAND: It’s actually - - I’m sorry 17 for interrupting. Yes, it’s actually both. 18 investing upwards of $90 million in capacity which 19 will allow us to participate in the higher end, as 20 it’s been called this morning. 21 products both in the ability to make further diameters 22 but also in the ability to further heat treat that 23 product to make higher grades if you like. 24 will - - that increases our capacity and capability in 25 the lower end products. This is seamless As well we I sometimes take exception to Heritage Reporting Corporation (202) We’re 628-4888 118 1 that phrase since that’s all we were in as it’s been 2 described this morning until December. But that also 3 increases our range there as well because up until 4 December all we were able to make was up to 5 diameter in a welded product here in the United 6 States. And with the acquisition we are now able to 7 make diameters up to 16 inch. 8 COMMISSIONER OKUN: 9 MR. BROGLIE: 10 8 5/8 Okay. Les Broglie, U . S . Steel. We are not importing pipe to this country. MR. DUNN: Let me just for the, maybe the 11 12 risk of being a little over-dramatic, the ramp-up in 13 this industry for tubular demand - COMMISSIONER OKUN: 14 15 gets your name? MR. DUNN: Excuse me. 16 17 18 Just so the reporter Byron Dunn, Lone Star Steel. - - has been driven by basically three casing 19 sizes and tubing. 20 casing has been the largest growth demand because of 4.5, 5.5 and 7 inch heat treat the unconventional drilling that’s taking place for 22 gas in the Barnett Shales and Fayetteville and Arcomb 23 and other basins, more information in tubing. 24 result of those increased demands that’s where the 25 ramp-up has been. Heritage Reporting Corporation (202) 628-4888 So as a 119 Lone Star Steel saw that demand coming our 1 2 way. We committed capital to increase our thermal 3 treating capabilities to be able to make 4.5, 5.5, 7 4 inch heat treat casing to serve that need. 5 interim we were supplementing it from a manufacturer 6 in Colombia, a non-subject country, Tub0 Caribe. We 7 had an alliance with those people. 8 import source of supply in 2005. 9 of our supplemental tonnage came from Tub0 Caribe. But in the It was our largest A significant amount It 10 is now owned by Maverick, which is obviously therefore 11 owned by Tenaris. That will be, that's one of their 12 sources of supply. We have since completed our heat treat 13 14 capacity and, you know, we no longer have that 15 requirement for that supplemental source. COMMISSIONER OKUN: 16 17 18 Okay. Yes, in the back there? MR. VERELLEN: Tom Verellen, U.S. Steel. 19 Commissioner, you know U.S. Steel is like said, we 20 don't import anything. entire size range. It's because we make the We make from 2 3/8 J-55 up through 22 24 inch seamless casing. We make every grade that 23 there is. You know, we play, we have to play in the 24 low end, you know, due to the volume that we make. 25 But we make C-100. We've made it for Shell. Heritage Reporting Corporation (202) 628-4888 We make 120 1 C-110. We’re developing a C-120. So I mean we 2 believe we can supply everything that anybody needs in 3 the United States. 4 COMMISSIONER OKUN: Well, on that point to 5 the extent there have been - - that the Respondents 6 have made arguments that it hasn’t I think been 7 consistently supplied or not supplied and the 8 quantities, again I’m not sure, I mean I was going to 9 be asking Respondents this afternoon because there aren’t specifics as I see them on the record but it 11 may mean that I need to come back to you for some 12 post-hearing information depending on what I hear this 13 afternoon. 14 Then help me, and this may go then to 15 counsel. A lot of what I’ve heard in the testimony is 16 that the reason for the not, for the order to stay on 17 is that if this order were lifted that the subject 18 producers would be competing in this high end, and 19 since there’s a lot of product coming in from non- 20 subject sources in the low end. 21 described it, that the competition is really going to 22 be in this high end. 23 in terms of what that means in looking at changes 24 since the original investigation, changes since the 25 review, and how to evaluate it going forward. In particular, as you And I’m trying to evaluate that Heritage Reporting Corporation (202) 6 2 8 - 4 8 8 8 Am I looking then saying it’s going to be competing in a different part of the market than what we saw in the original investigation and in the first review and that’s where I should be focused, not what I looked at before? Mr. Schagrin? MR. SCHAGRIN: No, Commissioner Okun, it is competing in the same parts of the market. I mean the 8 foreign producers haven’t changed. It’s kind of 9 interesting this presentation saying it only changed 10 in the U.S. 11 little bit in Japan, in the foreign industry. They 12 are still making basically the same product. 13 have expanded a lot themselves to get more towards the 14 high end of the market. 15 away from the Chinese internationally. 16 you’ve seen huge Tenaris investments in heat treat 17 capacity in Mexico and in Argentina. 18 there‘s been change they’re moving more towards the 19 high end of the market. 20 Really haven‘t been changes very much, a They They are also trying to run That’s why So to the extent And I think what we were trying to point 21 out, notwithstanding the fact Korea is still at the 22 same low and moving more towards the high end with new 23 capacity there, is that one big change, and it’s 24 really showing up now in this terrible over-inventory 25 situation, is how the Chinese are chasing the domestic Heritage Reporting Corporation (202) 628-4888 122 1 industry out of the low to mid-end of the market. 2 Their pricing is insane. And so the retreat for the domestic industry, a retreat that in which they have benefitted the most from this anti-dumping release is they’ve all made investment to make more high end product, which as Mr. Dunn just said, has been a growing part of the market. And it’s that area of refuge that is now the 8 9 most threatened. And that is a condition of 10 competition that I think the Commission should take 11 into account. COMMISSIONER OKUN: 12 13 Hope I answered your question. Okay, thank you. My red light’s come on. 14 Thank you, Mr. Chairman. 15 CHAIRMAN PEARSON: 16 COMMISSIONER LANE: Commissioner Lane. Good morning. I’d like 17 to follow up with some questions relating to what 18 Commissioner Okun was referring to. Could you all provide me with specific data, 19 20 including perhaps exhibits, that support your 21 assertion that the United States.industry is making 22 its money at the high end of the product and that the 23 non-subjects are taking away the lower end of your 24 market? 25 MR. LIGHTHIZER: We‘ll certainly be happy to Heritage Reporting Corporation (202) 628-4888 123 1 do that, Commissioner. And I would just for purposes 2 of discussion right now reference our chart which sort 3 of shows the difference between what’s happening at 4 the low end and at the high end, which was our chart 5 number 17, which shows that there’s a bigger and 6 bigger gap. 7 we’re seeing the Chinese come in at incredibly low 8 prices in the low end. 9 price you bid against them they go down below it. What is happening, as Roger said, is that It almost doesn’t matter what And everyone is focusing more 10 They take that market. 11 and more on the high end of the market. And I think 12 that that chart was put in there to demonstrate that 13 point. 14 But we certainly have additional information 15 that we’d be happy to share, where our sales are, 16 things that we’ve bid on and the like. 17 COMMISSIONER LANE: It seems to me that if - 18 19 20 21 CHAIRMAN PEARSON: Excuse me, Commissioner. Commissioner, I’m sorry. Could I please encourage even people who are 22 really well known to this Commission to identify 23 themselves for the benefit of the court reporter. 24 That was Mr. Lighthizer who was speaking earlier. And 25 apologies for that. Heritage Reporting Corporation (202) 628-4888 124 Give another 30 seconds to Commissioner Lane, please. COMMISSIONER LANE: And hopefully I won’t 4 have forgotten my question. 5 Bar Mr. Lighthizer‘s mike. 6 MR. LIGHTHIZER: Okay. I just wanted to get 7 on the record, this is Roger Schagrin, that the 8 information you requested, Commissioner Lane, we will 9 provide that confidentially from the producers we are 10 representing in our post-hearing brief. COMMISSIONER OKUN: 11 Right. It seems to me 12 that, let’s take U.S. Steel‘s answer for instance, 13 that it makes a whole range of product. And I would 14 be interested in seeing that whole range and where 15 you’re making your money and where the Chinese or the 16 other non-subjects are coming in and taking away that 17 market. 18 19 And then my follow-up question is can you give me specific projections as to what you think will happen if these orders come off to substantiate what I 21 think you are saying which is if the market, if the 22 orders come off that the subject imports or the 23 subject product which maybe is a higher end than the 24 non-subjects are going to be competing head-on with 25 your higher end? And I mean I would like to see grade Heritage Reporting Corporation (202) 628-4888 125 by grade or size by size to see what this is going to do. MR. SURMA: This is John Surma. Thank you, Commissioner, we will provide that information of course confidentially. And my colleagues will assemble it. But what is implied by your question is 8 precisely what I tried to emphasize in my testimony 9 that for our company we are indeed competing most 10 effectively in the higher end product, casing and tubing, and what we are concerned about is if the 12 orders are revoked that that’s precisely the market 13 that the countries that we’re discussing here will be 14 aimed at. 15 market. And that will then be conveyed throughout the 16 market suffer and we‘ll suffer not just on those tons 17 but all the tons we’d be selling into that high end 18 market. 19 They will do so by underpricing that So that‘s precisely the risk that we see here, precisely what we think the outcome would be. And we will provide the information to you. I will 22 have to allow my colleagues to consider the question 23 of projections. 24 the information but we will do our best to answer your 25 question fully and confidentially. I don’t know what form we might have Heritage Reporting Corporation (202) 628-4888 126 1 COMMISSIONER LANE: 2 MR. LIGHTHIZER: 3 COMMISSIONER LANE: 8 9 Identify yourself please. MR. LIGHTHIZER: 6 7 Commissioner, could I also just add. 4 5 Okay, thank you. This is Bob Lighthizer again. Commissioner, I would also just add, I think there was some reference to this before, this product 10 is going to come in from Tenaris. There’s no question 11 about that. They spent an enormous amount of money in 12 their Mexican plant. 13 here to supplement what Maverick has to offer. They 14 have done the same thing in Argentina. 15 believe is their global strategy, to go after that 16 market with these souped-up plants to go precisely at 17 the high end of the market in the U.S. 18 COMMISSIONER LANE: 19 MR. HORNET: 20 COMMISSIONER LANE: 21 they fully expect to ship it up Yes. That we Yes, sir? If I may I think we - Okay, would you please identify yourself, please? 22 MR. HORNET: Excuse me. Mr. Hornet. 23 So I should add that if we are defining the 24 high end market as seamless etricivised I think we 25 should not forget that the Chinese are already in this Heritage Reporting Corporation (202) 628-4888 127 1 segment. 2 grade carbon that competes with the let‘s say seamless 3 carbon or ERW, the Chinese are already supplying 4 etricivized to the U.S. market. 5 increasing. Their imports have doubled from 6 2006. 7 hearing briefs. The capacity is 2005 and We will be able to provide you that on post- So the oversupplying that we see globally, 8 9 The Chinese are not today only supplying low if we analyze the oversupplying by segment, so low end 10 and high end, this oversupply is starting to appear 11 also in the high end. 12 subject countries will only accelerate what’s already 13 started from the Chinese imports. And the additional imports of And I may add at that point that one, I 14 15 think that one of the strategies when U.S. Steel or 16 IPSCO or Tenaris is investing in all the size range, 17 in seamless like ERW, in carbon and etricivised this 18 is because they also need to protect their low end 19 business, bundling it with high end segments of the 20 market. 21 Tenaris for example are too investing in Maverick, 22 that’s leaving the U.S. in a weak situation because of 23 the pressure for imports. 24 Hydril, that is in the premium high end business ready 25 to be bundled with seamless imports, ready to be And this is not by chance. I think that Just after that invested in Heritage Reporting Corporation (202) 628-4888 128 1 bundled with Maverick’s low end. 2 to deliver a complete package to customers like 3 Chevron Texaco. And they told that in their quarterly 4 conferences. And this is the best way they will have 5 to protect this Maverick business that may be at risk, 6 that is at risk today from Chinese imports. 7 This will allow them If bundling let’s say some volumes are at 8 risk against the Chinese with dumped seamless imports. 9 This is our belief. Okay, thank you. 10 COMMISSIONER LANE: 11 Would the subject imports be able to sell 12 significant quantities into the United States market 13 from existing capacity? And in answering could you 14 please tell me why or why not? 15 be likely enabled to increase capacity to sell more 16 product into the United States market? 17 MR. LINDGREN: And if not, would they Commissioner Lane, my name is 18 Roger Lindgren from V&M Star. 19 point I made in my testimony that Tomsa has increased 20 their heat treating capacity by 70 percent and their 21 sister by 90 percent, notwithstanding the decline of 22 drilling in Mexico. 23 capacity for the as we’re referring to high end 24 products but a decreased domestic demand. 25 Just to highlight a So they will have an increased MR. HORNET: Maybe to add another point is Heritage Reporting Corporation (202) 628-4888 129 that the pressure that the domestic industry sees in the U.S. from Chinese imports this is also happening worldwide. So low cost countries, Russia, Chinese are 4 exporting also the same type of product at the same 5 type of process in the Middle East. 6 these subject countries are facing today much more 7 pressure on what they are today supplying to areas 8 like the Middle East. 9 capacity today that they are delivering to these Which means that And this is why, I mean the 10 locations, to the Middle East, could be easily 11 switched, eventually changing the mix, heat treating 12 more - - this is why we believe they invested in heat 13 treating capacity - - so could be switched to the U.S. 14 And I would say it makes a lot of sense to 15 deliver the U.S. from Mexico that is a trucking 16 distance from Texas instead of delivering from Mexico 17 to the Middle East. 18 MR. LIGHTHIZER: Commissioner, I’d just add 19 a point too, and that is that the chairman of the 20 board of Tenaris on March 21 capacity. That’s one of the things he told his 22 investors, that in fact they have capacity and they 23 can come in here. 24 25 8 said that they have Also I would point out obviously the prices are higher here so it’s a real incentive, he has an Heritage Reporting Corporation (202) 628-4888 130 1 incentive to ship products into the OCTG with other 2 products, and they‘re being pushed out of other 3 markets. 4 in some places but also, yeah, the Middle East. 5 There’s a report that we’ve indicated there’s going to 6 be a new big middle plant in the Middle East. 7 going to be a real, real problem for Tenaris. 10 It’s Also there are capacity issues in Korea 8 9 They’re being pushed out of by the Chinese which we have in our confidential brief, and Japan which we can’t talk about yet. 11 COMMISSIONER LANE: 12 Mr. Chairman, I will wait till my next 13 Okay, thank you. round. 14 CHAIRMAN PEARSON: Commissioner Williamson. 15 COMMISSIONER WILLIAMSON: Thank you, Mr. 16 Chairman. I want to express my appreciation for the 17 in-depth testimony that has been given so far. 18 I’d like to continue a little bit on the 19 question of high end and low end. I know on page 17 20 of the chart that Mr. Lighthizer referred to that you 21 have a distinction between carbon SMR casing as low 22 end and I guess the alloy SMR casing as high end. 23 this just an example or is this, what is the 24 definition of high end and low end? 25 interested in what is the share of the U.S. market And would be Heritage Reporting Corporation (202) 628-4888 Is 131 1 that is represented by high end and what is the share 2 that’s represented by low end and is this relationship 3 changing? MR. BROGLIE: 4 Les Broglie from U.S. Steel. 5 We define the market basically in three segments, low, 6 medium and high. 7 is in the low end category and 30 percent in the 8 medium and about 10 percent in the very high end. 9 talked a little bit about salver service. And we estimate roughly 60 percent As far as, you know, one of the other issues 10 11 that we haven’t talked about here is the Gulf of 12 Mexico. 13 last four or five years, there’s been a drastic 14 decrease in the amount of rigs operating there. 15 that is where we spent $85 million at Lorraine to 16 focus our product in that area. And we‘ve seen a 17 major fall-off there. 18 We And that’s been a drastic change here in the So So as far as those percentages that’s, you 19 know, where we see the market. And again back to the 20 Gulf of Mexico. 21 Thank you. MR. LIGHTHIZER: Commissioner, if you want, 22 we certainly have people that can talk about all the 23 details of the various levels of this product. And I 24 realize that it is for those of us who are lawyers 25 complicated and confusing to speak as one who has Heritage Reporting Corporation (202) 628-4888 132 1 studied it. And we have other people who can go into 2 that. But the way I look at it it’s sort of a 3 4 spectrum. And there are questions of quality that run 5 from one end of the spectrum to the other, questions 6 of chemistry and physical characteristics like wall 7 thickness that makes it more higher end versus lower 8 end or brittleness or strength. Welding comes into it 9 and the welding can be not very highest but up towards 10 high end, at the very high end. And there is low end seamless if it doesn’t have high quality, it doesn’t 12 have all the characteristics of it. The carbon alloy example that we gave here 13 14 is like a proxy for that because there’s a hundred 15 different ways you could talk about these things. And 16 it is sort of a spectrum that overlaps in various 17 places. 18 But the important thing to remember is that the high 19 end is actually very expensive and very small by And I realize the fact that it is confusing. comparison to the overall market, and that there’s a 21 lot of fairly expensive and high technology stuff in 22 the middle then too I believe. But we have other people who will develop 24 this if you want to develop it now or if you‘d like to 25 develop it later for the post-hearing briefs. Heritage Reporting Corporation (202) 628-4888 133 1 COMMISSIONER WILLIAMSON: Okay, thank you. 2 You can develop it later. But I think the point is 3 trying to understand the point that everyone is making 4 that the subject imports are going to compete at the 5 high end with the U.S. producers and the fact that the 6 U.S. producers are trying to move up the scale in 7 terms of what they're producing. And so that's what I 8 was trying to get further clarification on. 9 10 Yes? MR. VAUGHN: Commissioner Williamson, this 11 is Stephen Vaughn. I just wanted to clarify one point 12 about our argument to make sure that the Commission 13 fully understands the argument we're making. 14 believe very much that these imports are going to come 15 in and compete at the high end market. 16 things that the Commission should also understand, and 17 the industry people can testify to this as well, I 18 just want to lay out for purposes of our argument is 19 that a lot of the times you're dealing with a 20 particular customer. And that customer may have high 21 end business, medium business, low end business. 22 if you can go to the customer and offer them the 23 entire range of the business, you know, focusing in 24 the high end you may get the medium end and the low 25 end business as well But one of the Heritage Reporting Corporation 202) 628-4888 We do And 134 So I just wanted to make clear we are not 1 2 saying that they are only going to take high end 3 sales. There could be situations where they take a 4 customer and get all that customer's business or they 5 take the business associated with a particular well 6 and get all that business. 7 into the market, particularly for Tenaris, would be at 8 the high end. COMMISSIONER WILLIAMSON: 9 10 But their sort of entre Thank you for that clarification. As a follow-up to that, I think Mr. Hornet 11 12 mentioned that the importance of bundling and 13 everybody is trying to bundle. 14 been comments that in the U.S. the oil companies are a 15 lot of independents. Do they also look for bundles 16 packages as well as the large companies like Shell and 17 CONOCO? 18 MR. SHOAFF: I think there have In some instances they do. In 19 most cases it would be the major independents, the 20 larger independents. 21 sometimes when it comes to, you know, when they come 22 up in specific inquiries. But I would say that going 23 forward into 2007 we are seeing more of that, there is 24 more actual package bidding going on for longer term 25 contracts and that will be coming up. But there is kind of a mixed bag We're seeing Heritage Reporting Corporation (202) 628-4888 135 1 more of that in the future than we‘ve seen in the last 2 couple of years. 3 know, going forward. COMMISSIONER WILLIAMSON: 4 5 So that will play a larger role, you Thank you for that clarification. I would like to turn to the question of 6 7 inventories. And I think several of the producers 8 have stated that inventories are unusually high. 9 I wonder do you expect an inventory correction to 10 occur? 11 last? 12 If so, when? And And how long is it likely to MR. SHOAFF: This is John Shoaff again with 13 Sooner Pipe. 14 question, maybe wouldn’t be here. 15 while, it takes quite a while for an inventory 16 correction to happen. 17 question depends on how many more imports are going to 18 be coming in here. 19 we‘re here for. 20 grown substantially in the last couple of years. And 21 right now we don’t see anything, you know, in place to 22 limit those. And of course that’s why we’re here in 23 this particular case. 24 25 I wish I knew the answer to that But it takes a And really the answer to that And that’s what, obviously what Those numbers, as you’ve heard, have You know, when you talk about 6.2 months of inventory on the ground, just to help clarify, you Heritage Reporting Corporation (202) 628-4888 136 know if everybody just, you know, stopped what they were doing in business I mean in six months it wouldn’t rectify itself. There’s a lot of things that 4 go into that with regard to mix of product, usage of 5 the product and those types of things. So our best recollection as distributors is 6 7 that we’re going to have this inventory problem 8 definitely through the end of ’07 and probably even 9 into ‘08. And if the imports keep coming at the rates 10 they are it’s going to just exacerbate itself. MR. BROGLIE: 11 This is Les Broglie, U.S. 12 Steel. 13 change in the last couple years, significant inventory 14 put out there, domestic shipments are up. 15 you know, there was some material bought as inventory, 16 not getting used particularly. 17 not gone away. 18 Regarding inventory, you know, we saw a major However, And that inventory has If you look at the latter part, and some of 19 my colleagues have commented already that they’ve cut, 20 you know, reduced production and all that and there’s 21 still high inventory levels on the ground. 22 through Houston and everything else you’ll see it. 23 But sort of like Mr. Shoaff said, it’s going to be a 24 while before this gets corrected. And we don’t know 25 when exactly it’s going to happen. And right now Heritage Reporting Corporation (202) 628-4888 If you go 137 1 there's still somewhat of a build in inventory. 2 Thank you. 3 MR. TRUE: Mr. Commissioner, this is Dave 4 True with Tool Pushers Supply. The difficulty of 5 answering that question is there are so many 6 components that make up the answer to that. 7 demand stays high and production reduces then that 8 inventory can run off relatively quickly. 9 Unfortunately, we believe in our particular situation If the 10 that the supply, rate of supply being produced will 11 continue at a relatively high level and if additional 12 imports are allowed into the country that will 13 exacerbate the amount of inventory on the ground. 14 with the softening of demand we will actually expand 15 the problem, not reduce it. And 16 So there are many factors that go into that. 17 It's almost beyond my ability to analyze it because of 18 all the different factors. 19 The other point I'd like to reference is one 20 of the historical comparisons were back in the 21 We had way more inventory than we needed as a company 22 and as an industry. And it took years literally to 23 work through that. And it was very painful 24 economically. 25 Thank you. Heritage Reporting Corporation (202) 628-4888 '80s. 138 1 MR. SHOAFF: Mr. Commissioner, this is John 2 Shoaff at Sooner Pipe again. 3 that because this does kind of speak to the cyclical 4 nature of our industry, I would agree with Mr. Surma's 5 comments earlier that even though we are in a stronger 6 market the thought that we're going to be in this 7 great market forever is pretty foreign to us people 8 who have been in this business a long time. 9 To add a little bit to There's a certain saying that none of us 10 every say because we're afraid it's going to jinx 11 ourselves and it's saying that "this time it's 12 different." We've all been in this industry many, 13 many years and there's been a whole lot more bad times 14 than there has good times. So I would just say that, 15 you know, and another comment with regard to gas 16 prices and the extra rig count that we talked about 17 earlier, you know, I was at a meeting the other day, 18 Mark Pappa, the chairman of EOG Resources, which is a 19 large producer of natural gas in the United States, 20 and his comment was that, you know, if we wouldn't 21 have had this cold spell that we had across the 22 country in like mid-January to mid-February his actual 23 comment was that "saved our bacon." Because the gas 24 prices, without that the gas prices were going down. 25 And one thing about our industry, it's Heritage Reporting Corporation (202) 628-4888 139 1 extremely delicate. And when gas prices start going 2 down you start seeing rigs going down. 3 seeing rigs going down, then obviously demand goes 4 down. And as distributors here we sit on inventory, 5 that's what we do for a business. 6 company sits on in excess of $250 million of 7 inventory. 8 continue to allow, you know, low, low priced imports 9 to come in here, this thing happens overnight, our You start My particular It has a certain cost to that. And if we 10 inventory can come devalued 20 percent within a very 11 short period of time. And the ramifications of that 12 are not very pretty. COMMISSIONER WILLIAMSON: 13 14 Thank you, Mr. Chairman. 15 CHAIRMAN PEARSON: 16 COMMISSIONER PINKERT: Thank you, Mr. 17 18 Commissioner Pinkert. Chairman. I have some questions focused on capacity 19 constraints. And I want to begin by asking the 20 industry people whether the manufacturing processes to 21 produce seamless and welded OCTG in the United States 22 are similar to the processes used in foreign 23 countries, subject countries. 24 25 MR. SUTHERLAND: This is Dave Sutherland. And the answer to that is yes. There is no secrets to Heritage Reporting Corporation (202) 628-4888 1 40 1 the technology. And in fact in tubular production as 2 opposed to other aspects of the steel industry there 3 has not been any significant disruptive technology 4 brought to the market in some time. Now that’s not to say that there’s not 5 6 significant know-how. You‘ve heard from a number of 7 people, Didier and John or some of John’s colleagues, 8 about the significant amount of intellectual know-how 9 that’s going into making higher and higher grades. 10 And that is significant. But that’s being done on the 11 same piece of gear. 12 differently or adding changes in chemistry or changes 13 in thermal circumstance to the product to enhance the 14 product. 15 equipment here in this continent that is being 16 utilized anywhere else in the world today. It‘s just operating it But it’s being made on the same types of 17 COMMISSIONER PINKERT: Thank you. 18 Now what I‘m interested in understanding 19 from a technological point of view is how difficult is 20 it to produce seamless OCTG on the same machinery 21 that’s used to produce other seamless products, non- 22 subject seamless products? 23 understand the capacity constraint issue. MR. BROGLIE: 24 25 This will help me Repeat the question again please? Heritage Reporting Corporation (202) 628-4888 141 COMMISSIONER PINKERT: 1 How difficult is it 2 to produce seamless OCTG on the same machinery that’s 3 used to produce other seamless products, non-OCTG 4 products? MR. BROGLIE: We sell both product lines and 5 6 we can make both products the same. I mean it’s 7 without heat treating and those kinds of things. 8 we can easily make both product lines, if that’s what 9 you’re asking. But COMMISSIONER PINKERT: On the same 10 machinery? MR. BROGLIE: Right. COMMISSIONER PINKERT: Yes. Okay. And do you have the same answer for the welded OCTG? MR. TRUE: 15 I’m not sure from a welder’s 16 perspective. The welders’ facilities that we 17 certainly have are quite versatile. 18 the same equipment we would produce either OCTG line 19 pipe, what’s called standard pipe and in some cases So we would on structural tubing, squares and rexes as we often call 21 22 it. One of the differences though is that there is no product that any of us would make whether it be seamless or welded product that undergo as many steps 25 and as much additional value add as would OCTG in Heritage Reporting Corporation (202) 628-4888 142 1 contrast to the other products that the same machinery 2 - - or the other applications that they could make a 3 seamless product for. 4 seamless product for another application and perhaps a 5 half or two-thirds through the whole process that 6 product would be a finished product for the other 7 application but it still has to go through a number of 8 iterations and a number of additional steps to produce 9 OCTG, especially in the higher grades. Because you could make a The highest grades of OCTG would likely 10 11 utilize or will utilize much, much more equipment and 12 steps to produce than many other products. COMMISSIONER PINKERT: 13 Okay, so I guess 14 perhaps the lawyers might wish to comment on how we 15 are to view capacity constraints that are reported 16 from subject countries for this product? MR. SCHAGRIN: Commissioner Pinkert, on all 17 18 the time, right, Mr. Bishop? 19 enough. 20 21 22 Okay. I think it’s good You know, I probably can project. Even I’ll bet the court reporter can probably - - No? Commissioner Pinkert I would comment based 23 on having participated in cases on other seamless and 24 welded products that this commission has long 25 recognized. In fact, very recently in a negative Heritage Reporting Corporation (202) 628-4888 143 1 determination on seamless standard line and pressure 2 pipe from Mexico, the commission went out of its way 3 to say, given the strength in OCTG that they didn’t 4 the Mexican producers shifting to lower value products 5 like standard line and pressure. Now of course in this case, because with the 6 7 high end, it’s just the opposite, which this 8 commission did recognize in the first sunset review. 9 That all of these producers who have seamless 10 equipment or welded equipment will always choose to 11 make OCTG first because it’s the highest value product 12 that they can make and the one in which they should 13 get the highest return. So when you lose capacity constraints, if a 14 15 producer in X country says “our capacities’ 16 tons on a seamless mill, we’re running flat out at 17 200,000 18 country and 100,000 tons of other seamless products, 19 you can assume that they will will try to shift that 20 100,000 tons of other seamless products towards OCTG 21 if they have the opportunity to. 22 that kind of information in your record on total 23 product mixes and I think it’s very reasonable to 24 assume, and this commission did properly assume it at 25 the investigation phase in the first sunset reviews 200,000 tonsil, your only making 100,000 tons of weld I think you have Heritage Reporting Corporation (202) 628-4888 144 1 that producers make multiple products on the same 2 equipment will shift towards OCTG. MR. SHOAFF: 3 This is John Shoaff. To add to 4 Mr. Schagrin's comments, not only would they prepare 5 to make OCTG but if they had a preference, and I think 6 I can speak for the manufacturers here because as a 7 distributor it's the same way, we would prefer usually 8 to sell the higher end product. 9 manufacturers if they had their druthers, if you will, So I think the 10 would prefer to manufacturer the higher end. From a 11 commercial standpoint you have a higher dollar per ton 12 and it's a more attractive product commercially. And of course that's why we are saying that 13 14 the subject countries we think they would focus on 15 bringing the higher end product in here since they 16 already have the lower end, you know, product already 17 covered. MR. SUTHERLAND: 18 19 22 This is Dave Sutherland again with IPSCO. And that's where the $118 21 Excuse me. million that we're spending in '07 is going, to the higher end of the marketplace. MR. SHORTER: Commissioner Pinkert, this is 23 Jeff Shorter from Maverick. I think it's important to 24 note that when you look at the Japanese and the Korean 25 imports that all of the Korean and the majority of the Heritage Reporting Corporation (202) 628-4888 145 1 Japanese subject imports are ERW welded products. 2 these products when you utilize a substitute product 3 to produce on these lines they‘re not utilizing the 4 huge, the very large part of the capital investment 5 that they’ve made in threading, heat treating, 6 upsetting and finishing equipment. 7 making substitute products their margins and their 8 utilization of their capital is much, much lower. 9 And So when they’re So again to emphasize that in the two cases 10 of Japan and Korean focusing on the welded market that 11 their substitute product that they’re currently 12 making, because basically keep in mind the only market 13 for OCTG ERW is basically the U.S. and Canada, the 14 bulk of that being the U.S., they are forced to make 15 substitute products that they’re not utilizing their 16 investment on. 17 think you have a significantly different case. So when you look at Japan and Korea I 18 COMMISSIONER PINKERT: 19 MR. HECHT: Mr. Hecht. Jim Hecht. And I just to follow 20 up on that, five years ago in this review the 21 Commission did find that these producers would have 22 the capability to shift products in response to 23 relative profitability levels. 24 that’s been looked at and the Commission found and we 25 think it‘s still true today. So that’s something Heritage Reporting Corporation (202) 628-4888 146 The other factors to think of, of course, is in terms of restraints in markets. You know, you have producers like the Japanese that are subject to other 4 anti-dumping orders here which would give them an 5 added incentive if these orders were lifted to perhaps 6 devote more of that production to OCTG if, for 7 example, they’re getting lower returns on those 8 products in other markets. MR. DUNN: This is Byron Dunn. 9 Just think 10 about it like a cake, the difference between a cake 11 and a souffle: similar ingredients, the oven doesn’t 12 really care, but there’s a lot more value added on the 13 souffle. So that‘s exactly what they would like to 14 produce. 15 COMMISSIONER PINKERT: Thank you. 16 I’d now like to turn to questions about the 17 relative attractiveness of the U.S. market. 18 perhaps Mr. Hornet could explain whether U.S. OCTG 19 prices are generally higher than in other markets, and 20 in particular the subject markets that have a domestic 21 market for this merchandise? 22 MR. HORNET: Could you repeat? And You are 23 telling that the U.S. market is higher than the 24 subject market? 25 COMMISSIONER PINKERT: Than those subject Heritage Reporting Corporation ( 2 0 2 ) 628-4888 147 1 countries that have a significant domestic market. MR. HORNET: 2 Oh yes. Okay. So it’s I mean 3 the competitive pattern, it’s difficult to answer 4 because let’s say the market prices on each region of 5 the world depends on the supply/demands regionally. 6 So it’s a fact today that the market, the prices in 7 the U.S. market are slightly higher than what they are 8 in the Middle East and West Africa for example. 9 have no other explanation for this. I MR. DUNN: But I might add that the - - this 10 11 is Byron Dunn, Lone Star Steel - - the sales prices in 12 Mexico and Argentina those are much higher transaction 13 prices than they are here in the U.S. 14 protected market which we can’t participate in. 15 they’re going to, you know, sell all they can and 16 export the rest. 17 demand for product in their home markets and they’re 18 going to export it right at the U.S. They have a So So there’s only a limited supply or MR. HORNET: Another comment I would make is 19 20 that it‘s very difficult to compare the rest of the 21 world with the U.S. because the customers are not the 22 same. 23 typically not also the U.S. but also Canada, the means 24 of selling to distribution and distribution providing 25 the services before selling to the end user. You understood that. In North America, Heritage Reporting Corporation (202) 628-4888 In the 148 1 Middle East for example a company like Saudi Aramco 2 buys the pipes and stores the pipes and they take care 3 by themselves of all the financing, handling, I mean 4 all the services that is added on these pipes in 5 addition. 6 So it’s at the end of the day not so easy to 7 compare prices. Still while you have some ways to 8 compare what this would mean in terms of export, 9 export prices for Mexico. But it’s a complex process 10 to reveal because the structures of the markets are 11 not the same. 12 MR. HECHT: Jim Hecht. If I could just I think you need to distinguish 13 quickly follow up. 14 again between the home markets for these countries, as 15 Mr. Dunn was saying, and the available export markets 16 that they can ship to. 17 Argentina for example really are closed markets which 18 is why we’re here today, which is why they dump. 19 have protected markets. 20 prices there and then will sell at lower prices in 21 available export markets. 22 The home markets in Mexico and They They tend to get higher The point we‘re making is that if you look 23 at the prices in the available export markets they 24 tend to be lower than the U.S. market prices. 25 would have an incentive to ship those sales to the Heritage Reporting Corporation (202) 628-4888 So they 1 49 market. And that’s a point that, for example, 1 U.S. 2 Tenaris/Maverick make in their brief. 3 have conceded that point. 4 that, public data. And we have provided some 5 proprietary data and we‘ll try to do some more of that 6 to prove that up. MR. LELAND: 7 8 9 10 Staff report has data on I’m Martin Leland with U.S. Steel. CHAIRMAN PEARSON: Excuse me. You’re on red, right? 11 COMMISSIONER PINKERT: 12 CHAIRMAN PEARSON: Okay. 13 COMMISSIONER PINKERT: 14 They seem to I’m on red. I’ll pick up on this in my next round. 15 CHAIRMAN PEARSON: Okay, thanks. 16 Mr. Shoaff, at the conclusion of my 17 questioning an hour ago you were seeking recognition. 18 And you may not recall what you had in mind but we 19 were discussing the high level of apparent consumption 20 and whether that would be a permanent feature or 21 whether consumption was softening. 22 to comment now you may. 23 So if you wanted MR. SHOAFF: Yes, sir. And I think I 24 covered that with Commissioner Williamson I believe 25 with regard to the cyclical nature of the business and Heritage Reporting Corporation (202) 628-4888 150 1 whether or not there would still be volatility in the 2 future. And again I think my point was that that 3 would be hard for us to believe that we're going to 4 have a great market for the next 20 years in a row. 5 You know, I think I made that comment of the saying of 6 "this time it's different" is pretty tough for us to 7 swallow. 8 So it is a very cyclical market, a lot of 9 variables depend on whether our market is strong or not, whether rigs are operating or not. But I think I did cover that with Commissioner Williamson. 12 CHAIRMAN PEARSON: Okay, thank you. 13 MR. SHOAFF: 14 CHAIRMAN PEARSON: Tables Thank you. 4, 29 and 30 on 15 pages 16 worldwide rig count figures. 17 quite interesting. It gives ten years of global rig 18 counts. And these things would be familiar to you, 19 they were less familiar to me. 20 4, 52 and 53 give it's the Baker Hughes I really found that Over the ten years that we have data we have enough growth in U.S. rigs so that U.S. rigs are 22 almost equal to the total rigs worldwide back in 1995. 23 And the U.S. rig count now is just a little over half 24 the global rig count. What is it that causes that? 25 Because the United States is not the largest producer Heritage Reporting Corporation (202) 6 2 8 - 4 8 8 8 151 of oil, I don’t think we’re the largest of gas either, why is the United States such an attractive market for drilling rigs? MR. SUTHERLAND: 4 Because it’s the largest - - 5 excuse me, this is Dave Sutherland - - it’s the largest 6 consumer. And there clearly are opportunities and 7 there are people willing to go out and search for 8 them. 9 as has been the case in Canada. Where as you point So you’re always going to have high levels here 10 out from the data, well over half of the rigs in the 11 world are on this continent. 12 MR. LELAND: Martin Leland with U.S. Steel. 13 One of the things too to remember is as we’ve talked 14 about it, this is a gas market, where oil you can 15 bring oil in, you can export it. 16 a lot of our oil so that keeps the oil rig count down, 17 we import the oil. 18 liquified natural gas. We’re just kind of kicking off 19 but it’s a recent thing. You know, we import You until recently we just Your natural gas that you consume you have to go find it. And America is the 21 largest consumer of natural gas so you’re going to 22 have a tremendous amount of natural gas rigs running 23 to supply the gas to this country. 24 25 MR. VIVIAN: Chairman Pearson, this is Paul Vivian from Tenaris. Heritage Reporting Corporation (202) 628-4888 152 1 CHAIRMAN PEARSON: 2 MR. VIVIAN: Yes. It also goes to the issue as we 3 were talking earlier about this being a gas market and 4 the depletion situation in terms of the need to drill 5 more wells in order to keep supply constant. 6 what we’ve seen is that we’re drilling more and more 7 ‘wells,consuming more and more of this product in 8 those markets yet we’re not increasing supply, we 9 continue to see the supply of natural gas in the 10 United States going down. 11 big part of that. So the depletion issue is a 12 CHAIRMAN PEARSON: 13 MR. SURMA: 14 15 I think Mr. Surma? Thank you, Commissioner. It’s John Surma. Just one thing I‘d add also is that with 16 respect to gas in North America we have extensive and 17 excellent infrastructure for gathering and 18 transmission. 19 certainly find gas, it’s like finding sand on a beach, 20 but it doesn’t do you much good to have it where no 21 one can use it. 22 which allows it to be transported and consumed in an 23 environmentally friendly way is also very favorable. 24 25 In other regions of the world you can So I think our infrastructure here CHAIRMAN PEARSON: Okay. So these points that have been made are they a reflection of the Heritage Reporting Corporation (202) 628-4888 153 1 relative maturity of the industry in the United 2 States? 3 got pumped out some years ago and now we as a nature 4 are worker harder to find the bits that are left and 5 get them to the marketplace? The fact that perhaps the easiest supplies MR. DUNN: 6 Byron Dunn, Lone Star. I would 7 say if not for the significant advancements in 8 technology in recent years, last four, five years, the 9 decline curves that Mr. Vivian referenced earlier 10 would be steeper. But the technology to lift the 11 hydrocarbons from tight formations, which is a set of 12 conventional drilling that I spoke of earlier, has 13 really kept the activity rate in the U.S. for natural 14 gas exploration and production at a higher level. MR. SHOAFF: This is John Shoaff with Sooner 15 16 Pipe. 17 Gulf of Mexico. 18 have drilled up more the I guess we could call it the 19 easier stuff and now they’re going into more difficult 20 deep water plays. 21 Those are years, you know, many years long projects. I think your comment is especially true in the It is getting they feel like they Those are extremely expensive. And so that’s definitely true for the Gulf of Mexico. 23 But as Byron said, we are seeing the focus 24 on land towards the natural gas plays now because we 25 do have 85, as Mr. Schagrin mentioned earlier, 85 to Heritage Reporting Corporation (202) 628-4888 154 1 2 90 percent of the rigs are drilling for gas. MR. SCHAGRIN: Chairman Pearson, this is 3 Roger Schagrin. One of the repercussions certainly of 4 what all these witnesses are talking about of the gas 5 currently being more difficult to find is also it 6 becomes more expensive to find. And contrary to what 7 Mr. Greenwald said in his opening of, oh gee, every 8 forecaster has all agreed that things are going to 9 boom forever, you know, we have had three of the 10 largest service providers, and everybody when they 11 drill is using a major service provider, and we have 12 had three of them, Halliburton, Baker Hughes and 13 Nebors, say within the past 30 days telling Wall 14 Street that they are forecasting a decline in their 15 profits related to drilling in the United States. And 16 they have all cited that the increase in the costs of 17 drilling are outpacing the return on drilling, i.e. 18 where the gas price is, and so these companies are 19 forecasting decline. 20 There is contrary information. We all like 21 to see things boom forever. But that’s one of the 22 repercussions, as the easy gas has been extracted it 23 costs more to extract the less easy and makes your 24 costs go up. 25 independent gas producers aren’t going to keep If the price of gas isn‘t going up these Heritage Reporting Corporation (202) 628-4888 155 1 drilling, they’re going to cut back somewhat until 2 either the price goes up for the gas or the cost for 3 drilling goes down. CHAIRMAN PEARSON: 4 So if the United States 5 is using a lot of OCTG because it‘s a mature market 6 and we’re working hard to get the remaining supplies, 7 if we look around the world at other countries as 8 their production matures are they going to be 9 demanding more and more OCTG to keep their rigs 10 running? MR. DUNN: This is Byron Dunn, Lone Star 11 12 Steel. 13 increased drilling and increased OCTG demand that’s 14 pretty tight, we demonstrated in this country. But 15 since we filled out our questionnaire, finished our 16 questionnaire and forwarded it to the ITC there has 17 been, golly, 3 or 18 production capacity announced the world. 19 reference to one in Saudi. 20 China, some in South America. 21 plenty of OCTG. 22 I think there is a correlation between 4 million tons of new OCTG There’s been There’s been several in There’s going to be And back to my original point, it’s not 23 about demand, it’s the supply. So, you know, the 24 world is doing such a massive amount of OCTG capacity 25 that’s what we’re looking at now. You know, it’s Heritage Reporting Corporation (202) 628-4888 156 1 already large but it’s getting bigger by the day. Just yesterday getting on an airplane to 2 3 come up here there was an announcement of a Chinese 4 mill adding 250,000 tons of, a mill I‘ve never heard 5 of, of OCTG capacity. And it was going to have it 6 onstream the end of this year. 7 going on in non-subject countries which is why we‘re 8 so fearful that if you vote to set these orders aside 9 subject countries are just going to add insult to 10 Just amazing what’s injury here. 11 CHAIRMAN PEARSON: 12 MR. VAUGHN: Mr. Vaughn. Chairman Pearson, a couple of 13 points. One is that if you look at this Table 429 and 14 430, actually you know the ratio of the U.S. to the 15 rest of the world from 1995 to 2006, if you look at 16 those numbers you‘ll see that the U.S. actually became 17 sort of bigger with relative to the rest of the world 18 over that time period. 19 the United States is still far and away the most 20 attractive market. So at least up to this point Second of all, these different stories in 21 22 these different countries are playing out in different 23 ways. 24 recently about some of the problems that Mexico is 25 having in terms of some of the difficulties facing For example, there’s been a lot of reports Heritage Reporting Corporation (202) 628-4888 157 1 PEMEX and so they’re not able to invest as much, 2 they’re not able to drill as much as they may have in 3 the past. 4 things in a market like Mexico may actually make the 5 U.S. seem more attractive vis-a-vis Mexico. 6 sort of it kind of cuts in different directions. 7 So in some ways some of these maturing CHAIRMAN PEARSON: So that Yeah, but let me make 8 sure I understand. 9 potential for some slowdown in drilling that is a 10 political or policy issue rather than a technical 11 issue of what would be required to maximize output; is 12 that correct? 13 industry like the U.S. industry wouldn’t there be more 14 drill rigs and there’d be more demand for OCTG? 15 Your comment about Mexico and the I mean if the Mexicans ran their oil MR. HUNT: One of the distinctions you have 16 to make - - this is Clay Hunt - - is that the United 17 States is the only country in the world with a 18 significant independent drilling population. 19 I believe that they drill more than the major 20 companies in the United States today. 21 of the world they don‘t have an independent industry 22 that‘s family run that drills ten, five, ten, 23 a year, they’re all major companies or state-run 24 companies that have to drill very high-volume wells. 25 The independents are willing to pick that low, that In other parts Heritage Reporting Corporation (202) 628-4888 In fact, 20 wells 158 1 harder fruit, and it makes an impact to an individual 2 company that it wouldn't even pay for, you know, 3 somebody's salary at a major oil company. 4 So you've got a whole lot of people drilling 5 wells here that don't drill wells in any other part of 6 the world. CHAIRMAN PEARSON: 7 8 has expired. Madam Vice Chairman. 9 VICE CHAIRMAN ARANOFF: 10 11 Okay, thank you. My time Thank you, Mr. Chairman. The material that's presented in Exhibit 72, 12 Steel brief, suggests that the bulk of Chinese 13 U.S. 14 OCTG exports and recent increases in those exports 15 have been to the United States and to Canada. 16 light of this, what can you tell me is the basis for 17 the domestic producers' argument that increasing 18 Chinese exports will likely displace subject producers 19 or are displacing subject producers from their export In markets and therefore, you know, creates an incentive 21 or a need for them to move that production into the U.S. market if these orders are revoked? Or to put it another way, can you identify 24 the evidence in the record that would show me what 25 individual export markets there are where increased Heritage Reporting Corporation (202) 628-4888 159 product from China has displaced or shortly will 2 displace subject production? 3 CHAIRMAN PEARSON: Mr. Vaughn? 4 MR. VAUGHN: Vice Chairman Aranoff, Yes. 5 first of all I don’t want to get into any confidential 6 data. 7 questionnaire data which discusses particular 8 countries that some of the subject producers are going 9 in and we compared some of those countries to what was 10 going on with respect to China, so we have put a great 11 deal of information about this sort of on the record. In our brief we went through a lot of the But just to give some examples you were 12 13 correct that they are very active in the United States 14 and in Canada, but if you sort of go through the 15 Chinese export numbers, I mean, they ship significant 16 volumes to Algeria, they ship significant volumes to 17 Kazakstan, they ship volumes to Pakistan, they shipped 18 77,000 tons to Singapore, 19 74,000 tons to Sudan, 20 tons last year to the United Arab Emirates. 21 45,000 26,000 tons to Saudi Arabia, tons to Thailand, 30,000 You know, it was 1.3 million tons of exports 22 last year, so they really are sort of not just in the 23 U.S. and Canada but in a lot of other markets around 24 the world. 25 VICE CHAIRMAN ARANOFF: I appreciate that Heritage Reporting Corporation (202) 628-4888 160 1 they’re in a lot of other markets and I do know that 2 you had that Chinese data in the record, but I‘m still 3 not sure that connects the dots for me and also the 4 displacement argument, that China either is displacing 5 or is going to displace. 6 trying to understand is to what extent has there 7 already been displacement? 8 9 I guess the first thing I‘m Clearly China is exporting, but that doesn’t necessarily prove that there’s been displacement. And 10 to what extent does the displacement argument depend 11 on things that haven’t happened yet like for example, 12 you know, the opening of new production facilities, 13 some of which you pointed out are coming on line. 14 MR. NARKIN: 15 Steve Narkin with Skadden Arps. 16 briefly the gentleman from Tenaris Maverick, that’s 17 exactly what they have told you is happening as well. 18 I wonder if the gentleman from V&M could shed some 19 light on this as well. 20 Vice Chairman Aranoff, this is MR. HORNET: Yes. If I could just add Thanks. Mr. Hornet 21 speaking. So we have some documents that we could 22 provide to you in posthearing brief that shows the 23 results of tenders, I mean, these are internal 24 information we gather ourself within the middle east 25 and we see definitely that on the standard API Heritage Reporting Corporation (202) 628-4888 161 1 segments let's say low cost countries from China and 2 Russia typically have significantly displaced the 3 subject countries on the typically thin ice over the 4 last 18 months. We will provide you this information. VICE CHAIRMAN ARANOFF: 5 Okay. I appreciate 6 that and any further information that you can provide 7 that just helps connect up the dots between where the 8 Chinese exports are going and who is being displaced 9 will be very helpful. Let me turn to another 10 question. Historically the U.S. and Canada have been 11 the only major markets for welded OCTG, but my 12 understanding is that demand for welded OCTG is now 13 growing in other markets, particularly in Russia and 14 China. Can anyone describe the extent to which 15 16 demand for welded OCTG is growing outside of North 17 America and what accounts for that trend? 18 wants to take a stab at that? 19 can give us something - - wait, wait, wait. 20 way back. Okay. Well, if anyone 21 Mr. Kaplan, coming to my rescue. 22 MR. KAPLAN: Thank you. Nobody All the Seth Kaplan from 23 Brattle. I would just refer to the exhibit. 24 confidential exhibit put together in the Maverick 25 Tenaris brief about the shares of welded and seamless Heritage Reporting Corporation (202) 628-4888 It's a 162 throughout the world. It’s Exhibit 2 to the Williams Mullen brief, and I think it fits with their own previous statements and their direct testimony by Mr. Cannon regarding the import and the size of the Canadian and U.S. market with respect to welded. So, you know, we agree. VICE CHAIRMAN ARANOFF: Okay. In contrast 8 to other pipe products that the Commission has 9 investigated seamless and welded OCTG products have 10 consistently been found to encompass a single like 11 product and yet I note that in these reviews there 12 have been a great many issues that have been argued 13 differently for the seamless part of the market and 14 the welded part of the market, and so I’m thinking at 15 least a little bit about whether the Commission should 16 reconsider the like product issue. I realize that nobody argued for it and we 17 18 don’t frequently do that in reviews when no one raises 19 the issue, but I can’t help raising it here this 20 afternoon in any event. 21 MR. LELAND: Mark Leland with U.S. Steel. 22 We know that seamless and ERW all cuts and casing can 23 be used in the same applications. 24 even go in the same wells depending on the depth of 25 the wells. In fact they can The ERW casing can be at the top of the Heritage Reporting Corporation (202) 628-4888 163 well, the seamless casing would be at the bottom and you could reverse that. The only significant factor can be in price. 4 If you get prices right in many cases they’re 5 interchangeable and all. 6 see except for certain that 10 percent high level 7 application out there sometimes can be a little 8 different, but it can be used. 9 in the marketplace, and we quote against the Lone Star 10 It‘s interchangeable people daily. We quote against each other for the same 11 12 In most business that you piece of pipe and the same well. MR. NARKIN: 13 Vice Chairman Aranoff, this is 14 Steve Narkin again. 15 as I’m sure you know the degree of interchangeability 16 that you require in order to find that two products 17 belong in the like product is not necessarily that 18 high. 19 Just speaking to the legal issue I’m sure you know, also, that the Commission 20 has frequently found that there’s a continuum of 21 products where there’s some overlap in the middle, but 22 actually just about no interchangeability at the 23 outsides and that in those cases pretty much 24 consistently the Commission has found products like 25 that to be a single like product. Heritage Reporting Corporation (202) 628-4888 164 1 VICE CHAIRMAN ARANOFF: Yes. 2 MR. SCHAGRIN: Vice Chairman Aranoff, this 3 is Roger Schagrin. Once again, if you want to say it 4 because there is a lot of talk about; has been today 5 about low end, high end, extremely high end, if you 6 want to think about it that usually breaks down to 7 carbon, and then alloy and then the super high alloy 8 and special threads. Because about 60 percent of the 9 U.S. market is carbon, you know, that can either take 10 seamless, J55 and K55 or ERW. Now, you know, historically at the very 11 12 lowest ends because seamless prices were higher than 13 welded prices you didn’t at the very lowest end of the 14 market have that much competition between seamless and 15 welded. 16 seamless carbon, J55 and K55 every day in the U.S. at 17 30 percent below U.S. welded prices. The Chinese have changed that. So 18 They now sell that Chinese seamless interchangeable all 19 the way down to the bottom end of the market. When 20 you get to the middle part you have a lot of 21 competition between the two. 22 a very high proportion of their welded product is in 23 heat treated alloy that is substitutable for alloy 24 seamless product, so once again you have overlap 25 there. In fact Lone Star makes Heritage Reporting Corporation (202) 628-4888 165 So it’s really market segments more than seamless and carbon. At the very top what TCA does, their production is 100 percent seamless. They don’t quench, temper, heat treat, get special threads put on 5 to welded product. What they do on the sour service 6 type products is so high end that little part of the 7 market at the top is really just seamless. 8 VICE CHAIRMAN ARANOFF: 9 Okay. Well, I appreciate those answers and since my time is nearly 10 up I’ll just ask if in the posthearing you could just 11 address for me aside from the lower price is there any 12 reason why an end user would prefer welded to seamless 13 in any particular use? That would be helpful. 14 Thanks, Mr. Chairman. 15 CHAIRMAN PEARSON: 16 COMMISSIONER OKUN: 17 Let‘s see. Commissioner Okun? Thank you, Mr. Chairman. I‘m going to put this question 18 first to you, Mr. Surma, but then I’d appreciate the 19 other producers, both Maverick and V&M, to respond as well. You made the point in your testimony that the 21 investment that U.S. Steel made in Lone Star, the 22 Commission in evaluating that shouldn’t penalize you 23 for making an investment in the future when you’ve had 24 orders in place. 25 I guess my question for you to help me Heritage Reporting Corporation (202) 628-4888 166 1 understand is how should we evaluate the acquisitions 2 that have occurred since the second review in light of 3 a large increase in nonsubject imports and at a time 4 when the industry has lost market share yet we’ve seen 5 these significant investments go on? 6 part I’m interested in. MR. S U M : 7 So that’s the John Surma. Thank you, 8 Commissioner. It’s a complicated question, and I’ll 9 give you my take on it and 1/11 speak mostly for our 10 pending transaction with Lone Star Technologies, which 11 of course is not complete yet, so it limits a bit what 12 I can say. 13 transaction like that in the context of market 14 conditions that will change over time that in general 15 are going to be favorable conditions compared to the 16 last 17 described earlier. 18 20 or In our particular instance we viewed a 25 years for some of the reasons we We will certainly have cycles, we‘ll have 19 ups and downs and we’ll have periods where we’ll have 20 to be in discussions with people like you about 21 subjects like this, but we felt that over time we 22 would base our decisions on the fact that we expected 23 trade to be fair and the trade laws of our country to 24 be enforced and well-enforced by you and your 25 colleagues. Heritage Reporting Corporation (202) 628-4888 167 1 So that’s the framework for our overall 2 conclusions, our overall investments. In our 3 particular case you should also be aware of course 4 that one of the reasons we’re comfortable with our 5 overall investment strategy in the Lone Star 6 transaction is that Lone Star is steel short, so 7 they’re buying slabs and hot-rolled bands to make into 8 bands to make into pipe. 9 We‘re a flat-rolled steel producer and we therefore have some synergistic opportunities beyond 11 the market synergies, beyond the obvious 12 and things like that. 13 G&A synergies So we have a particular economic platform 14 upon which to form an investment decision that would 15 be markedly different than someone who would not have 16 a steel position and an onward position really all the 17 way back to our integrated operation that we can look 18 to for a means of synergy that allows us to make what 19 we think is a wise investment. 20 We recognize fully that there‘s going to be 21 continued discussion about the low end penetration 22 from China, particularly on a subsidized basis. 23 heard from Senator Brown that we invested over $80 24 million in a quench and temper line in Lorraine, and 25 we did that with money that we borrowed and we Heritage Reporting Corporation (202) 628-4888 You 168 1 2 intended to pay back. We’re competing with people from China that 3 did that with money that they can turn into equity, 4 that they can have a subsidy on exports as you heard 5 from Attorney Schagrin as well. We took all that into 6 account in deciding that we still thought that adding 7 a high end premium welded business that my competitor 8 and colleague, Byron Dunn, helps to manage was the 9 right thing for our company over a range of market 10 conditions, over a long period of time considering the 11 overall synergies that we think we could enjoy. 12 COMMISSIONER OKUN: 13 MR. HORNET: Yes. Okay. Mr. Hornet? Concerning V&M I told you 14 that we are investing especially first in the 15 treatment and then we’d increase our running capacity. 16 This investment was made following the market lease 17 and the market volumes that we are forecasting for the 18 coming years. While we’re comfortable that the market 19 for our segment of the product each which alloy was 20 going to grow and we were not planning to increase our 21 penetration to the U.S. market for - - but through 22 domestic manufacturing. 23 So basically we listened to our customers, 24 the distribution, we listened to our end users by the 25 way asking for more volume but also asking for let’s Heritage Reporting Corporation (202) 628-4888 169 1 say our uniques even as I was explaining that some of 2 the technology that we’re imposing today we’ll be able 3 now to manufacture in the U . S . , 4 let’s say for this investment. so this was the driver Just two comments, maybe? 5 The first one is 6 that the cycle we are using ourself and we provided to 7 the Commission to evaluate the pay back of our 8 investment are not exactly the speediest type because 9 well, we have been like everybody here for a long time 10 in the business. Management invented the seamless 11 pipe business 100 years ago, so the cycle in the oil 12 and gas business, we went through that. 13 Let‘s say we know that a lot of things can 14 change, I mean, even geopolitically, that can impact 15 the supply demand in the U.S., so we are never using 16 the bullish forecast that you may see from Spears for 17 example. 18 comment I would make is that this investment that we 19 started in February, definitely this investment today 20 is not running. 21 So this is my first comment. And the second It’s empty. So let’s say it’s difficult to 22 tell when we will not have anymore impacts of the 23 inventory that is on the ground and that we will be 24 able to run this investment as planned, but the fact 25 is that this investment is empty. Heritage Reporting Corporation (202) 628-4888 170 1 2 3 COMMISSIONER OKUN: Okay. Going to turn back to you, Mr. Cura. MR. CURA: Thank you. I think the basis of 4 our investment in the U.S., Commissioner Okun, deals 5 with two dimensions. One I mentioned, that is we are 6 convinced that the country would require energy and 7 the industry would be compelled to continue to drill. 8 This translates in specific numbers that we review. 9 That is OCTG consumption almost duplicating despite 10 the fact that gas production has more or less stayed 11 at the same level. 12 It deals with the nature of the fields, or 13 gas fields, it deals with the nature of the operation 14 and depletion rates. 15 last quarter we are confident that the drilling 16 activity in the United States will continue and that 17 in the end energy needs would be by and large provided 18 by domestic production. 19 So by and large and despite this Now, with respect to Maverick specific when 20 Maverick is the biggest player on these less demanding 21 pipe applications, segment that I was referring to, 22 that today account by and large something close to 60 23 percent of the overall market size. That provided us 24 an opportunity to naturally grow as a company by 25 establishing a very important production base that is Heritage Reporting Corporation (202) 628-4888 171 devoted by and large to service, a very important component of the market starting from U . S . production. Now, with respect to the threats naturally 4 like everybody in this room we see the Chinese are 5 bringing us with major concerns and that is why we are 6 convinced that some of the elements that we are trying 7 to do, would like to do which are in fact as expressed 8 being done today by some of the other industry 9 participants in terms of complimenting our product 10 would constitute without a doubt a very important 11 element to confront these Chinese companies and with 12 what we I think all have serious reservations about. Now, I’d like to just take two more seconds 13 14 to clarify an issue which is today Tenaris has the 15 ability to participate in the seamless markets. 16 have been doing this for a few years with I would say 17 relatively small volumes, and again, all with the 18 intent of being able to complete packages to reinforce 19 the competitive position of the important production 20 based in the States. COMMISSIONER OKUN: 21 22 23 We Appreciate those comments. Counsel, did you want to comment at all in 24 terms of how the Commission should evaluate continued 25 investment in this industry in looking at our forward Heritage Reporting Corporation (202) 628-4888 172 looking analysis? MR. HECHT: This is Jim Hecht. Yes. I mean, I think it was said pretty well by Mr. Surma 4 that when you look at these investments which are 5 justified over the long-term and under different 6 market conditions based on value enhancement to the 7 industry I think in the context of the assumption that 8 our laws will be enforced those are exactly the type 9 of transactions that you would want to see the 10 industry pursuing and that they should be able to 11 pursue. 12 hat should in no way disqualify them from 13 coming in and making use of the trade laws. 14 I think these are long-term investments made 15 essentially to enhance the competitiveness of these 16 companies and based on the assumption that these laws 17 will be enforced. 18 COMMISSIONER OKUN: Okay. So again I'm not sure if 19 this is a quick question, 1/11 try to get it in, which 20 is it's clear to me where Maverick stands with regard 21 to Korea and Japan. 22 exercise its discretion, not cumulate, I don't know if 23 the other producers would comment on Korea 24 specifically in terms of its competition in the market 25 or its - - yes. If the Commission were to Back row. Heritage Reporting Corporation (202) 628-4888 173 MR. VERELLEN: 1 Tom Verellen, U.S. Steel. 2 You know, as we've said we make the full range of 3 products. 4 of carbon tubing. We have a facility in Lorraine, 5 Ohio, I mean, as you know that's working one shift 6 five days a week. 7 makes tubing, it makes small diameter standard and 8 line pipe and makes green tubes for drill pipe. 9 Koreans bring in today tremendous amounts That mill makes three products. You will be ruling on all of those things, So, I mean, it 10 you know, within the next few weeks. 11 is very critical to the continued existence of that 12 facility that no more imports come in here. 13 It COMMISSIONER OKUN: I have a question, but, 14 Mr. Dunn, my red light's come on. 15 because I have other questions about that as well. 16 Thank you, Mr. Chairman. 17 CHAIRMAN PEARSON: 18 COMMISSIONER LANE: 1/11 come back Commissioner Lane? Mr. Sutherland, you said 19 that the United States is the largest consumer of 20 natural gas and more and more drilling is taking 21 place, and you made a reference to depletion. Are any 22 of you suggesting a specific timeframe for which 23 natural gas reserves in this country will be depleted 24 thus that fact affecting your OCTG market? 25 MR. SUTHERLAND: There may well be others in Heritage Reporting Corporation (202) 628-4888 174 1 the room that could comment - - this is David 2 Sutherland, I’m sorry - - as to when it may be 3 depleted. 4 is that all of the low hanging fruit I think was 5 mentioned or all of the easier opportunities have long 6 since passed on the continent. That I‘m not sure. What we do know however 7 As Mr. Dunn said earlier fortunately with 8 respect to the technological improvements that have 9 taken place over the last five to 10 years the 10 industry has had the opportunity to continue to search 11 across the continent and to find natural gas where 12 that many years ago they would have not been able to. 13 You’ll also note all of the discussion that 14 has taken place, a lot of it in a political 15 circumstance, as to going into further and more 16 complex parts of the continent, some of which are 17 within areas of which people just don’t want to see 18 exploration taking place, whether it be up north or 19 whether it be on the waters that surround the country. 20 But as well what‘s happening is that as the 21 search for gas becomes more complex the products that 22 are needed to complete those wells are becoming more 23 complex, and so there has been and will continue to be 24 a shift from the so-called low grade products to 25 higher grade products as we continue to drill. Heritage Reporting Corporation (202) 628-4888 175 1 2 3 4 COMMISSIONER LANE: Okay. Mr. Conway, did you want to make a comment? MR. DUNN: I'm not Mr. Conway, I'm Byron Dunn, Lone Star Steel. 5 COMMISSIONER LANE: 6 MR. DUNN: I'm sorry. It's okay. Tom left. I did want 7 to just piggy back on that if I could. Relative to 8 the declined curves somebody mentioned Mark Pappa, the 9 chairman of EOG, earlier. He's got a decline graph 10 that shows about 11 on natural gas reserves. It's out quick. 12 pulling them down. 13 drilling in the future, but here's the issue. 14 29 to 30 percent the last few years We're So it's going to require some The biggest limitation in natural gas 15 drilling would be access, and I think Mr. Sutherland 16 touched on that. 17 to public lands and access to frontiers that have not 18 been drilled will limit the activity. 19 uncertain as the weather in terms of the demand for 20 the product is the access for the drilling 21 opportunities in this country. 22 I just want to emphasize that access COMMISSIONER LANE: Okay. That's as Thank you. Now, 23 in the past we have seen significant upward swings in 24 gas and oil prices and comparable upswings in active 25 drilling rigs in the United States and worldwide. Heritage Reporting Corporation (202) 628-4888 176 1 However, the current upswing of prices and drilling 2 activity does not seem to have the relatively short 3 life span that we saw prior to 4 expect this upswing to slow down other than your past 5 experience? 6 Mr. Dunn? 7 MR. DUNN: 2000. Why do you Thank you. Again, Byron Dunn. I mean, you’ve heard 8 Just because of the economics. 9 testimony already and maybe Mr. Hunt can expand on it, 10 and my testimony on the point of the drilling cost and 11 the volatile well head prices. 12 driven by demand for that hydrocarbon generated by 13 weather. 14 Well head prices are If you get good weather, you get good 15 seasonality, again a reference from Mr. Shoaff earlier 16 about Mr. Pappa’s comment about it saved our bacon 17 that we had cold weather in the country, if not the 18 gas prices would have fallen as they did last year to 19 dangerous levels. 20 year which caused part of this overhang because 21 shipments were targeted to the U.S. based on the 22 continuing climb of that drilling rig which flattened 23 out mid-year. 24 It started curtailing drilling last So I think that’s fundamental economics. I think Mr. Hunt, somebody, or Mr. True, that’s been in Heritage Reporting Corporation (202) 628-4888 177 that business can tell you about the rest that they have to contemplate when they allocate capital to oil and gas drilling. MR. TRUE: 4 Commissioner Lane, this is Dave 5 True again with Tool Pushers Supply. I truly believe 6 that the Rocky Mountain region is a small sampling of 7 what reality is. 8 price for natural gas is about a half of what it is at 9 the Henry Hub currently and you then compare that to As my testimony stated the well head 10 the drilling activity in Wyoming which a year ago 11 involved 100 rigs roughly and last week involved 69 12 rigs. 13 The industry as a whole is still subject to 14 the rules of economics in my opinion. Those results 15 that we're seeing in the Rocky Mountains will apply 16 industry wide. 17 not had that cold spell in the northeast this winter 18 the natural gas nationwide would be significantly 19 lower today and consequently the demand for drilling 20 services would be lower. Again, referencing Mr. Pappa if we had 21 One other item 1 / 1 1 mention that I don't 22 know has been verbally mentioned today is that the 23 number of drilling permits in the U.S. has 24 significantly dropped in the last months and that is 25 the most direct indicator of future drilling that the Heritage Reporting Corporation (202) 628-4888 178 1 industry has. So there are many, many signs that not 2 only in just the Rocky Mountains but industry wide we 3 could be looking at a softening. Thank you. COMMISSIONER LANE: Okay. 4 Thank you. Going 5 to another issue looking at the staff report, and it’s 6 probably confidential, but the productivity of 7 domestic producers is different from what I would have 8 expected. 9 productivity in the domestic industry and how we 10 Could you please give me your views of should be interpreting those numbers? Perhaps that will need to be posthearing 11 12 specifically, but maybe generally you can tell me what 13 they’re telling us? MR. S U M : 14 This is John Surma, 15 Commissioner. I read the brief, but of course not the 16 confidential parts, so I’m not sure exactly what the 17 numbers you’re seeing are, but just in general and 18 speaking only for our company it would be not just for 19 our OCTG tubular operations but throughout our 20 operation picking up on what Mr. Conway said our steel 21 industry in North America underwent an enormous 22 transformation in the earlier part of this decade. On May 23 20, 2003, when our company acquired 24 National Steel we were employing in North America 25 26,500 people. Today we employ 20,200 people making a Heritage Reporting Corporation (202) 628-4888 179 1 little bit more steel five times as safe with better 2 quality including our OCTG business. What we arrived at was a labor arrangement 3 4 that allowed us to unlock the huge productivity we 5 knew our employees had, but through a joint process 6 never really allowed them to exercise and also began 7 to reward them with a more realistic share of the 8 profits including for our retirees as Mr. Conway said 9 and it's been a very successful productivity 10 improvement, perhaps the largest in our industry we've 11 seen for the last That is evident in our OCTG productivity 12 13 years. 50 numbers I think as well as our overall steel numbers. 14 COMMISSIONER LANE : 15 MR. HECHT: Yes. Mr. Hecht? We would happy to do that. 16 I think it probably would be better posthearing. 17 think it's going to require taking a look at a company 18 by company basis to see exactly what's going on. 19 agree with you there's a few issues with the numbers 20 that are a little bit different than you've seen in 21 some other cases, and we would be happy to address 22 that. 23 I I MR. SCHAGRIN: Commissioner Lane, this is 24 Roger Schagrin. I think one of the reasons that in 25 OCTG, and this is in the public version of Table C-1 Heritage Reporting Corporation (202) 628-4888 180 1 on page C-4, that you don’t see increases for this 2 industry in productivity in terms of tons per 1,000 3 hours as you have in all the other steel cases you’ve 4 seen recently. A lot of that is some product mix change 5 6 over the period of this sunset review. If Lone Star 7 is making more tons or if any of these producers, 8 IPSCO, U.S. Steel, is making a higher share of their 9 tons or higher value added, have more quenching and 10 tampering, have more heat treating, then you’re going 11 to see less tons per hour of product, but more value 12 per hour. 13 I think that is somewhat unique to the OCTG 14 industry compared to the other segments of the steel 15 industry. Doesn‘t mean there haven’t been increases 16 in productivity, though they may not be the same 17 extent as others, but I think there has been a change 18 in product mix to a higher share. 19 Once again, I hate to beat a drum, but over 20 this period of sunset review with this huge increase 21 in imports from China the domestic industry is to a 22 certain extent fleeing up the value chain and making a 23 lot of investments to get up the value chain and 24 there’s more hours per ton of output for the higher 25 value product than there would have been for the lower Heritage Reporting Corporation (202) 628-4888 181 1 value product. I hope that helps and we can address it 2 3 further in the posthearing. 4 COMMISSIONER LANE: Okay. 5 Thank you, Mr. Chairman. 6 CHAIRMAN PEARSON: 7 COMMISSIONER WILLIAMSON: Thank you. Commissioner Williamson? Thank you, Mr. 8 Chairman. In looking at the question of the 9 likelihood of recurrence of injury - - this is for the 10 domestic producers - - do you have a position on how 11 long the reasonable foreseeable time should be in this 12 case? MR. HECHT: 13 You know, I would note that one 14 argument that was made by at least one of the 15 Respondents in their brief is that because this 16 industry is so volatile you should look at a shorter 17 period of time. 18 mean, traditionally what, you know, the analysis 19 you’ve employed would say that you want to wait and 20 see how this change would play out through the typical 21 conditions in an industry. I would argue exactly the reverse. I If you’re looking at a volatile industry I 22 23 would think you would want to see it through the 24 cycle. 25 longer period of time not a shorter period of time. So if anything we think that would argue for a Heritage Reporting Corporation (202) 628-4888 182 1 MR. SCHAGRIN: Commissioner Williamson, this 2 is Roger Schagrin. You know, normally we would say 3 before this Commission that given the need to get 4 returns on investment for these major capital 5 investments that the Commission ought to at least look 6 out two to three years as a reasonably foreseeable 7 timeframe. 8 9 The other thing is that it depends on how speculative some of the information would be. For 10 example we highlighted the recent announcement of a 11 joint venture between Arcelor Metal and Saudi 12 investors to build a new 500,000 ton seamless plant, 13 almost all of whose output will presumably go to 14 Aramco and displace product currently being shipped by 15 Tenaris and others to Aramco. 16 You know, they have a projection. They‘re 17 going to start construction later this year, the 18 beginning of next year and be finished in 19 the Commission might normally say gee, 20 out, that’s more than my reasonably foreseeable 21 timeframe, but when you‘re not speculating on what 22 happens in 23 published by the largest steel company in the world, 24 you know, that’s definite information. 25 2009 2009. 2009, Now, two years but you have a definite timetable You know what’s going to happen. Heritage Reporting Corporation (202) 628-4888 So at the 1 least where you have documented evidence going out a 2 couple of years that should be well within that 3 reasonable foreseeable timeframe that the Commission 4 should take into account. Thank you. 5 COMMISSIONER WILLIAMSON: Thank you. 6 Several of the domestic producers have argued in their 7 briefs that the casing and tubing industry is 8 vulnerable to material injury. 9 in which the Commission has found an industry with the Is there a precedent 10 kind of production growth and profit levels 11 experienced by the casing and tubing industry to be 12 vulnerable? 13 domestic producers are asking us to do in this case? 14 Is there a precedent for doing what the MR. HECHT: Jim Hecht. Again, 1/11 jump in 15 first here. 16 I think that traditionally the Commission has tended 17 to look not necessarily correctly in my view more in 18 terms of absolute levels of performance in making that 19 analysis. What vulnerability really is under the 20 statute is susceptibility to material injury. 21 I can’t give you an example offhand, and In other words what’s your susceptibility to 22 seeing a material change in your performance. As you 23 know from the legal argument we‘ve been making we 24 really hope the Commission will engage on this issue 25 because under the statute your job is not to look at Heritage Reporting Corporation (202) 628-4888 184 1 some abstract level of performance, but it’s to look 2 at what change would occur because of a return of 3 subject imports. 4 So in terms of susceptibility to change we 5 think you could be operating at a reasonably high 6 level and still be susceptible to change, and we think 7 this is just such a case. 8 9 MR. SCHAGRIN: Commissioner Williamson, this is Roger Schagrin. I would probably take as two 10 examples in the steel segment hot-rolled sheet from 11 Japan, Brazil and Russia where the industry was 12 already profitable, where production shipments were 13 increasing and yet the Commission found given the 14 likely increases of imports from those three countries 15 who were major players in that industry that injury 16 would be likely to recur. 17 Similarly probably cut to length plate from 18 France, Italy, Japan, Korea, Indonesia and India was 19 another affirmative determination in which the 20 industry had already shown increased production in 21 shipments and profitability, but the Commission made 22 an affirmative determination. 23 Finally, the first sunset review in this 24 case in which the industry was improving. 25 in quite the same condition it’s in the past couple of Heritage Reporting Corporation (202) 628-4888 It wasn’t 185 years, but the data on the record was an industry that was bepefitting relief, that did have in the 1999, 4 2000 1998, timeframe improved production shipments and profitability. In fact the Commission went so far as to say 5 6 we don’t find the industry presently vulnerable, but 7 we find that there is so likely to be a major increase 8 in imports that we’re making an affirmative 9 determination. So I think it‘s good to read the first 10 review. 11 a lot of similarities between the first review here 12 and this review. 13 still are maintained. I know we’ve highlighted it in our brief, but We believe that those conditions Thank you. MR. LIGHTHIZER: And not to beat a dead 14 15 horse, but just to make a point, Commissioner, that it 16 is not necessary for you to find us vulnerable in 17 order to continue these orders. 18 sense that if you see a change will come about as a 19 result of the revocation and that change will have a 20 consequence for us, that is what the Congress had in 21 mind when they decided that you should determine 22 whether or not there’s material injury in a case like 23 this. 24 25 Indeed it is our So you could find us not vulnerable, indeed in the last case you specifically did not find us Heritage Reporting Corporation (202) 628-4888 186 1 vulnerable, and still maintain the orders or I would 2 suggest in a new case you could very easily determine 3 that there was material injury caused by imports 4 without ever finding the people vulnerable if you 5 determine that the impact on the industry was going to 6 be such that it was not inconsequential, unimportant 7 or insignificant. 8 9 Indeed I guess I take the final step that if you found that that would be your legal obligation 10 would be to find that. 11 there have been times in the history of the Commission 12 when certain Commissioners for whatever reason seem to 13 have developed a much higher standard than the law 14 actually requires. Unlike most of the people here I 15 was actually working on the Hill. 16 I‘m stressing this because I was the Republican staff director of the 17 Finance Committee when we put the material injury 18 standard into place, and I can assure you it was not 19 meant to be this huge threshold. 20 at the whole history - - and I’ll just spend one second 21 on it if I can - - if you look at the threshold in 1921 22 we essentially put in place this Act and we had an 23 injury standard. 24 25 Indeed if you look We put an injury standard in place for the simple reason that the Customs officials said we can’t Heritage Reporting Corporation (202) 628-4888 187 1 investigate every single case so put some kind of a 2 standard in where it will administratively be kind of 3 easier to deal with this. 4 dealt with that until 1954. 5 we're going to have the U.S. Tariff Commission make 6 this determination. The Treasury Department Then in 1954 they decided 7 Then there was debate over a period of time 8 every now and then about what injury is, not material 9 injury, but injury. In 1975 in a statute they made it 10 quite clear approximately what we're saying now. 11 did not add the word material, but they said 12 approximately the same thing. They said material 13 injury means any injury that's not spiritual. 14 They To give you some idea of what they in fact 15 think the threshold was in 1979 we added the term 16 material injury. 17 of you probably remember Senator Long. 18 clear as a person could be that it was not meant to be 19 an increase in the standard of injury. Both the House Senator Long was the chairman. Some He made it as report and the Senate report, Ways and Means and Finance specifically state that. 22 If you go to the floor you will notice 23 Senator Hines and Senator Ribacoff, some of you 24 probably remember them, both having a colloquy sort of 25 saying if there's any doubt about what our standard Heritage Reporting Corporation (202) 628-4888 188 is, this is a very low standard. In part I believe and this is sort of based on personal experience that they were reacting to the fact that now and then you would get Commissioners who were not sympathetic to the antidumping laws and they would apply a higher standard. They made it as clear as they could be in both legislative history and in both Committee reports that this is a standard in which if you can show a 10 consequence you’ve proven material injury. So what 11 we’re saying really is - - and I’m sort of dwelling on 12 this because we seem to be spending our time talking 13 about whether oil is going to get more expensive or 14 less expensive, is building rigs going to be more or 15 less. In either event if you determine that by 16 17 bringing in Tenaris and bringing in Japan that you’re 18 going to see a change and it‘s consequential for us 19 then you should maintain these orders. COMMISSIONER WILLIAMSON: 20 21 for that explanation. 22 UP - Okay. Thank you I think my time is about 23 CHAIRMAN PEARSON: 24 COMMISSIONER PINKERT: 25 Okay. Commissioner Pinkert? Thank you. follow-up on that last line of questioning. Heritage Reporting Corporation (202) 628-4888 I want to Perhaps 189 Mr. Lighthizer could clarify some of what he just testified to. Are you saying that a material change is equivalent to material injury under the statute? MR. LIGHTHIZER: 4 I’m sorry. I’m sorry, 5 Commissioner. I’m saying that if you look at the 6 statute what it says is that you have to show an 7 impact. 8 worked on the Hill as I think just about everybody up 9 there worked on the Hill at one point or another, so 10 11 There are a lot of other things. And you you have some appreciation for the process. They were trying to determine a low 12 threshold. 13 that, and anybody who argues to the contrary is just 14 not being truthful. Their sense as a policy matter 15 was that this is unfair trade. 16 people, this is costing American jobs and in most 17 cases, the vast majority of cases it should not be 18 tolerated. 19 There is absolutely no question about This is hurting That’s clearly what everybody had in mind. It was not Republican, it was not Democrat, it was 21 clearly what everybody had in mind. What they said 22 was you have to have an impact. 23 kind of terms that they use they are terms that are on 24 their plain face sort of changed terms. 25 have something, you have to be in effect. If you look at the You have to Heritage Reporting Corporation (202) 628-4888 190 There are terms like that. 1 So you‘re to 2 look at the effect. There is no word anywhere that 3 suggests you have to actually be losing money or doing 4 badly. 5 Lighthizer, some Commissioners seem to feel that way, 6 I would say yes, historically there have been some. 7 think some of this legislative history was directed 8 exactly at slapping down those people. 9 Nothing. Now, if you said but, Mr. That’s my personal opinion. I So there have 10 been people. 11 believe in the antidumping laws or in the enforcement 12 of the antidumping laws. There were times when that 13 was more of a problem or less of a problem. 14 it’s not a problem at all right now. 15 combination of change and then material injury. 16 Some of them believe it or not didn’t Hopefully So you have a Then material injury is spelled out as clearly as it could be. You can put yourself in 18 Senator Long’s shoes if you think for a second. The 19 legislative history is saying we’re not changing what 20 the law was before we added material injury. We‘re 21 absolutely not changing it. 22 do you write that into a statute? 23 So he said to himself how They took the terms material injury means 24 harm which is not inconsequential, immaterial and 25 unimportant. It‘s about the lowest standard you can Heritage Reporting Corporation (202) 628-4888 191 1 imagine. 2 that was a discussion in the Senate side, which is 3 where I’m most familiar where I was actually sitting 4 on the floor, it was between Senator Hines and Senator 5 Ribacoff. 6 chairman. 7 Then if you look at the legislative history Ribacoff at that time was subcommittee They went through and talked about some of 8 the exact same language that was used in the 1975 Act. 9 It was the 1974 Act, but it was signed in January, 10 they said it was 1975. 11 is material to you? 12 they even say it in legislative history. 13 spiritual. That’s how little. 14 Was talking about well, what Immaterial means spiritual, and It means And individuals can have spiritual harm but 15 not companies. That literally is the term. That‘s 16 right in the legislative history in the colloquy. 17 It’s not in the Committee report language. 18 the Committee report language by the way from 1974. 19 So I guess this is a very, very long winded way of It‘s in saying you can find that we’re doing fine, you can 21 22 find if you like that we’re not vulnerable. If you think that having the biggest 23 aggressive exporting company in the world can come in 24 and cause us to have a change in our situation and 25 that is anything that’s not insignificant, Heritage Reporting Corporation (202) 628-4888 192 1 inconsequential, unimportant, if you make that 2 determination then you have to keep these orders in 3 place regardless of whether or not we’re vulnerable. 4 5 would make no sense as a matter of public policy. 6 public policy here is that if you‘re cheating you 7 ought to be punished at least in our market. 8 9 The MR. SCHAGRIN: Commissioner Pinkert, if I could just add I know I’m not as old as Mr. Lighthizer 10 so I wasn‘t there on the floor in 1974, but I was - - 11 MR. LIGHTHIZER: Let the record show I was 12 13 r I guess I would say finally anything else there in 1979, not 1974. MR. SCHAGRIN: 1979. There you go. 14 Actually, I look older than Bob, but anyway I am his 15 junior. But I was around when the Congress did the 16 Sunset Act. 17 I think the only thing that’s important to 18 add to everything that Bob correctly stated is that 19 there was a lot of debate when the Uruguay Round 20 Agreements Act was being debated, and the SAA was 21 being prepared and Congress was taking their action as 22 to a lot of argument from the respondent’s side and 23 from foreign countries actively lobbying that we have 24 to make it really a rebuttable presumption. 25 These cases should sunset and they shouldn’t Heritage Reporting Corporation (202) 628-4888 193 1 be continued. Congress went out of their way to say 2 no, we’re specifically rejecting that. We are going 3 to make this standard the same as the injury standard 4 for the initial investigation and all we are asking 5 the Commission to do is find that it is likely that 6 imports will increase and cause this material injury. 7 Now, the Courts have interpreted that likely 8 is more likely than not. So really in order to 9 justify a negative determination you have to find it is not likely that imports are going to increase where 11 it‘s not likely that when imports increase there‘s 12 going to be any material impact on the U.S. industry 13 and we don’t think this record can support that. 14 COMMISSIONER PINKERT: I’m not focused here 15 on the question of whether a conclusion that the 16 industry is doing fine right now would be sufficient 17 to compel a particular result. 18 question of whether material change is equivalent to 19 material injury. 20 the question would be to ask a hypothetical question. 21 I’m focused on this I suppose one way of flushing out Suppose the industry is doing fine now and 22 suppose the industry would be doing fine if the orders 23 were revoked, but suppose that there would be a change 24 between those two. What is your legal analysis of the 25 result of a sunset review under those circumstances? Heritage Reporting Corporation (202) 628-4888 194 1 MR. HECHT: Jim Hecht. 2 MR. SCHAGRIN: Well, anyway. Let me just 3 finish because I was - - is that if the difference 4 between doing fine and doing less fine that change is 5 that there has been an impact on production, 6 shipments, employment, wages, investment, prices, 7 profits, any of those, doesn‘t have to be all of 8 those, then that is material. So, you know, for example if the industry 9 10 were to lose another five or 10 points of market share 11 and their production and shipments would decrease but 12 their profits only went from 27 to 13 another 14 workforce lost their jobs that would be material. 15 it’s that if that change is material then that’s 16 material injury. Regardless of the place that the 17 industry‘s at, if the change is material. 15 23 percent but or 20 percent or 10 percent of the \ 18 COMMISSIONER PINKERT: Mr. Hecht? 19 MR. HECHT: Yes. This is Jim Hecht. So To 20 follow-up on that I think the way you asked that 21 question if you’re fine and will be fine I don’t see where the statute calls upon you to ask whether an 23 24 25 , industry is fine. COMMISSIONER PINKERT: I’m actually quoting from Mr. Lighthizer’s testimony on that point. Heritage Reporting Corporation (202) 628-4888 195 MR. HECHT: 1 Well, you know, I don’t know 2 exactly what you’re referring to, but the point I’m 3 trying to make is if you mean by that an abstract 4 assessment of where an industry is, in other words it 5 defines material injury and then it tells you in 6 determining that look at the price, volume and impact. 7 Volume obviously is movement in time, price I’d ask 8 you to look at suppression or depression, again 9 movement from one position to another, and then on impact it sets out a whole series of factors. Declines and outputs, sales, market share, 11 12 profits, declines. I don’t see where it calls upon an 13 abstract assessment of fine if you see what I’m trying 14 to get at. 15 flows, inventories, employment. Again, I think it 16 makes sense. How would you come about that abstract 17 assessment of where an industry should perform? Same thing with negative affects on cash I’m not sure that’s a determination that 18 19 could be easily made. To me what the statute seems to 20 be saying is an industry should earn what it can earn 21 in a market characterized by fair trade whatever that 22 is. 23 make. 24 different if you had unfair trade in the market? 25 least that’s how it reads to me. That’s sort of not this Commission’s decision to Your question is would it be materially Thank you. Heritage Reporting Corporation (202) 628-4888 At 196 1 COMMISSIONER PINKERT: Thank you. 2 Thank you, Mr. Chairman. 3 CHAIRMAN PEARSON: 4 one round? 5 you need more. Have you had enough for I could yield you a couple of minutes if 6 COMMISSIONER PINKERT: That’s all right. 7 CHAIRMAN PEARSON: How do you respond to the 8 Respondents‘ argument that both the industry producing 9 OCTG and the marketplace for OCTG have changed so much 10 since the original investigation that producers now simply have more pricing power in the market and are 12 less likely to be injured by imports? 13 stated their argument quite correctly I express my 14 regrets to the Respondents, but that’s the question I 15 have in mind. 16 MR. DUNN: If I haven’t Byron Dunn, Lone Star Steel. If 17 we had pricing power my testimony would be different. 18 We would have been able to pass on those rising steel 19 costs to our customers and the surge of imports would 20 not have had a negative affect on our margins. So I take exception to their comment. 22 CHAIRMAN PEARSON: Well, if I could just 23 follow-up, and I recognize you don‘t have access to 24 the confidential information in the confidential staff 25 report, but what you’ve just said does not square with Heritage Reporting Corporation (202) 628-4888 197 1 what I see regarding cost of goods as a percentage of 2 sales and the ability to pass-through, so just let me 3 mention that. 4 Who was seeking recognition? 5 MR. NARKIN: Yes, Chairman Pearson. They 6 have made the statement that there‘s been a lot of 7 consolidation in this industry and that has had an 8 affect on prices. 9 accomplish with that is for you to have it in mind 10 that in the flat-rolled industry there has in fact 11 been some consolidation resulting in fewer players in 12 the business. I think what they’re hoping they’ll The truth of the matter is that in this 13 14 industry until very recently there has been no 15 consolidation of different players. 16 will point to things like V&M’s acquisition of 17 Norstar. 18 market. 19 would make. 20 this in case, after case, after case, assertions that 21 consolidation has given the domestic industry power 22 over pricing. 23 You know, they Well, that didn’t take a player out of the So, you know, that‘s sort of one point I The other point is we seem to be getting Well, that is exactly the thing that the 24 Justice Department looks at when it decides whether or 25 not to let transactions like some of which are now Heritage Reporting Corporation (202) 628-4888 198 occurring go forward in this market. To the extent that they looked at, and they clearly did, for example IPSCO’s acquisition of MS Group, they let it go 4 through. What you’re being asked to do in essence is to second guess the decision of the agency and the U.S. government that has experience in analyzing those 8 issues and has the authority to do it. 9 respectfully submit to you that you ought not to put 10 We yourself in that business. CHAIRMAN PEARSON: 11 Okay. Well, I would just 12 note that I think there has been some consolidation in 13 this industry since the original investigation. I 14 mean, we were at I think 11 producers then, we’re now 15 down to four substantial ones. 16 here. 17 MR. NARKIN: Things have happened You’ve seen some very small 18 players being picked up by outfits live Maverick. 19 That’s all you’ve seen. CHAIFtMAN PEARSON: I would just note, too, that there’s been consolidation in the rest of the 22 world with Tenaris playing a role that you have 23 highlighted here where there now seems to me to be 24 pricing decisions sitting in fewer hands and perhaps 25 less likelihood of an undisciplined pricing Heritage Reporting Corporation (202) 628-4888 199 competition that would take prices down. MR. NARKIN: If I could respond to that briefly, Chairman Pearson. Specifically with respect to Tenaris when you have them making acquisitions with having their long history of pricing aggressively everywhere they operate in the world and they are acquiring facilities in different countries to me that 8 doesn’t reduce the prospect for aggressive pricing, it 9 increases it. CHAIRMAN PEARSON: 10 11 I would recognize someone from Maverick to respond to that if you’d wish. 12 MR. CURA: I do. Thanks, Mr. Chairman. 13 CHAIRMAN PEARSON: 14 MR. CURA: Mr. Cura. This is Mr. Cura speaking, with Maverick. 16 my colleagues - - will have plenty of time to 17 specifically address this point later in the day 18 today. 19 Within the premises of the law there’s been 20 consolidation in this market, and I think this is 21 absolutely good. 22 I think I’d like to be short now. I think 15 But I would agree with you 100 percent. The second thing that I would argue is the 23 reference to the pricing. We will see and create the 24 argument that the United States’ price, and these are 25 public numbers, are well above, well above the average Heritage Reporting Corporation (202) 628-4888 200 1 prices also published by some of the existing 2 companies here today and that creates from our 3 perspective very little incentive for us to turn that 4 situation around. Again, we would be very happy to expand not 5 6 only on the posthearing notes, but later this 7 afternoon as well. MR. SCHAGRIN: Chairman Pearson, following 8 9 the Respondents’ argument at the morning session I 10 would like to say that the argument that you cited at 11 the inception of your question that Respondents argued 12 that consolidation of the industry, and I won’t deny 13 that there’s been consolidation, has created pricing 14 power on the part of the industry. 15 record through 16 pricing products in the latter half of You do have some decline in 2006. But in 17 It‘s not on your 2007, 2006. and we are now some 45 days or 18 so into the year, I get this wonderful publication 19 ever day called American Metal Market, I read it every 20 day and I‘m going to say in the first 45 days of this 21 year I‘ve seen maybe 22 announcements in steel products reflective of the 23 increase in cost primarily in scrap, which is about 24 $100 25 have gone through all different - - I have not seen one 50 reports on price increase a ton this year, and those increase announcements Heritage Reporting Corporation (202) 628-4888 201 on oil country tubular goods. These witnesses already testified their costs are going up. Their scrap is going up, their 4 slab is going up, their hot-rolled is going up and 5 they’re not increasing prices. 6 sees increased costs - - and I recognize if you go back 7 to 8 cost of goods sold, I submit to you there’s already 9 evidence on the record in 10 2006, to 2004 Now, any industry that you find the industry doing a better 2007 that this industry has no pricing power. 11 CHAIRMAN PEARSON: 12 MR. KAPLAN: Okay. Dr. Kaplan? Several points. The first is 13 that consolidation could have to affects. 14 Steve pointed out the Department of Justice reviews 15 all significant mergers to see if there was any market 16 power that would develop, and in the matters here they 17 have not. 18 bigger affects that occurs especially between 19 sophisticated buyers and sellers is the efficiencies 20 created from the merger which actually has an affect 21 of pushing prices down. 22 First as But with respect to pricing one of the U.S. Steel talked about their ability now to 23 supply a welded producer with hot-rolled. Tenaris has 24 talked about the debottlenecking Maverick. 25 notion that mergers create market power on its face is Heritage Reporting Corporation (202) 628-4888 So the 202 1 2 though. The examples you gave would indicate that costs may have gone down, but not that pricing would have gone down. I think you did state that pricing would go down if I heard correctly. MR. KAPLAN: Well, you have demand 8 conditions changing. I’m thinking all things being 9 equal, does the merger create market power and give 10 control of prices? I said the first point is that 11 generally - - well, first the Justice Department looks 12 at it and gave you a definitive no. They do have an army of attorneys and an 13 14 army of economists that have been charged with looking 15 at this and a very well-developed statute and the 16 ability to sue people to stop the merger if they think 17 that’s going to happen and they haven’t done any of 18 that and their thresholds are relatively low. So I think the wild claim by someone who 19 hasn’t seen confidential data, hasn’t looked at it and is contradicting what’s happening in the Department of 22 Justice should be giving as much weight as that 23 sounds, which is none. 24 efficiencies created which could lower costs and lower 25 prices. The second is that there’s Then I think the final point is the fact that Heritage Reporting Corporation (202) 628-4888 203 prices are higher here has nothing to do with market power. The prices higher here have everything to do 4 with the reason we‘re here today. There’s dumping 5 orders against the people that will lower the prices 6 in the United States market should the orders be 7 removed and those prices would fall to the prices that 8 they’re charging in other markets especially given the 9 pressure that they’re facing in those markets with new 10 capacity coming on. So the facts are consistent, the evidence 11 12 has been examined by expert agencies, and there‘s no 13 reason to believe there‘s market power and every 14 reason to believe that the price gap just discussed by 15 Tenaris would cause prices to fall if the order would 16 be removed. CHAIRMAN PEARSON: 17 Right. My light is 18 changing. I would just observe I don‘t think that 19 there’s necessarily a problem with some increase in 20 market power in an industry like this that had been 21 perhaps too fragmented. 22 thing. 23 going on there, but just you can’t have an industry in 24 which everybody is losing money and things go on 25 happily forever after. I don’t think that’s a bad I don’t do antitrust, I don’t know what’s Heritage Reporting Corporation (202) 628-4888 204 It just doesn’t work. 1 So there‘s been some I would just 2 consolidation and it makes sense, okay? 3 observe that when we look at the empirical record that 4 we have and particularly for 2006 we see an industry 5 that doesn’t appear to be in just terrible shape. We have the highest level of sales in the 6 7 PORI we have the highest level of capacity 8 utilization, we have the highest level of export 9 shipments, we have the highest level of prices, we‘ve 10 got the highest level of employment in the industry. 11 I mean, this is an industry where a bunch of things 12 are going right. 13 to say that. My time has expired. 14 15 I don’t think we should be hesitant I turn to the Vice Chairman. VICE CHAIRMAN ARANOFF: 16 Thank you, Mr. 17 Chairman. 18 Can somebody please comment on the argument that NKK 19 Tubes made that drill pipe is priced higher in other 20 markets than in the United States. 21 their method involves comparing U.S. mills’ average 22 unit values with the average unit values of Japanese 23 export shipments. Is that a valid way to look at this 24 question? 25 For novelty a question about drill pipe. MR. HECHT: In particular It’s Jim Hecht to kick it off. Heritage Reporting Corporation (202) 628-4888 205 1 We don’t think that it probably is valid. 2 there may be differences in how the A W , what products 3 you’re talking about, whether it includes the full 4 finished product or not, and we can try to address 5 that further if you’d like in our posthearing. VICE CHAIRMAN ARANOFF: 6 We think I’d appreciate that. 7 I mean, as you know we‘re always somewhat skeptical of 8 looking at A W s in these cases. Where there are 9 product mix issues the product mix issues that affect 10 drill pipe may be fewer than the ones that affect 11 casing and tubing, but they may still be there, so 12 that would be informative. Can anyone describe what is the reason for 13 14 the increase in U . S . 15 shipments during the later portion of this period of 16 review? 17 want to comment? 20 We have one processor here, right? Do you MR. SCHAGRIN: TCA processes only oil 18 19 drill pipe processors export country. They don’t process drill pipe. VICE CHAIRMAN ARANOFF: Okay. All right. 21 Well, if there’s anything anyone wants to add on that 22 in the posthearing I’ll appreciate hearing it. 23 one other question. 24 but I would like to hear answers from all of the 25 domestic producers other than Tenaris and ask Tenaris I have This is a question about Tenaris, Heritage Reporting Corporation (202) 628-4888 206 to please answer this question this afternoon when you have your Respondent’s hat on. Here is the question. There are Tenaris 4 products currently entering the United States from 5 both Canada and Romania. 6 the domestic industry since you are arguing that you 7 would expect that if the orders are revoked that 8 imports would increase from Tenaris what product does 9 Tenaris make in the subject countries that the company What I’d like to know from 10 does not make in Canada, in Romania or in its U.S. 11 facilities that you would expect to enter the U.S. 12 market? 13 And in answering the question I’d like you 14 to be very specific about both what the products are 15 and what the countries are where those products are 16 produced because I really want to address the question 17 of whether we can expect to see a total increase in 18 imports or simply a shift in imports from Tenaris 19 between its nonsubject and subject facilities. 20 MR. SHOAFF: This is John Shoaff with Sooner 21 Pipe. Don’t hold me exactly to this. I’m not real up 22 to speed on Romania and maybe somebody could give me a 23 little support there. 24 understanding, I mean, for the last few years they’ve 25 only been able to make up to seven inch material. With regard to Algoma it’s my Heritage Reporting Corporation (202) 628-4888 I 207 believe it’s my understanding they now make nine and five-eighths or will be able to make nine and fiveeighths sometime soon. I don’t believe and just to my knowledge 4 5 that any of that material has come into the U.S. yet 6 on the larger material. 7 mills in question here it,s to my knowledge that they 8 can make pretty much the full product line. 9 good quality product and even into the high grades, With regard to the subject It is a 10 and high alloy grades, and larger OD, and heavy wall 11 materials that we had been discussing earlier 12 obviously they don’t have that capability yet at 13 Algoma. 14 I don‘t believe, and again don‘t hold me to 15 this, this is my opinion, that the Romanian mill has 16 the ability to make some of those products and maybe 17 some question on the quality of the Romanian mill 18 which I would expect knowing Tenaris like I do that 19 they’ll get that remedied sometime soon because they 20 are a quality producer. 21 MR. VAUGHN: Vice Chairman Aranoff, just to 22 support what Mr. Shoaff said this was an issue that 23 came up in that March 8 conference call with the 24 investors. 25 I mean, Tenaris at that call made a big deal Heritage Reporting Corporation (202) 628-4888 208 out of the fact they’re very focused on the U.S. 2 market, it’s a huge market, it‘s a very important 3 market, they need to be here to balance out their risk, they need to be here because it helps them develop business in other markets outside the U.S., and so they were sort of making a big pitch about their interest in the U . S . market. At one point they actually got a question 8 9 from a Morgan Stanley analyst who made the point that 10 at this time they cannot serve a company like Chevron 11 all the way down through the well with the plants that 12 are available to come into this market. In response to that the Tenaris people, I 13 14 believe they said that the Romania mill only goes up 15 to five and a half inches in outside diameter, and 16 that the Algoma mill only goes up to nine and five- 17 eighths inches in outside diameter and then of course 18 Maverick as we know only makes welded, so they would 19 need to bring in the larger diameter seamless product 20 from Siderca or particularly TAMSA which goes up to I 21 think 20 inches or again Dalmine, I think it also goes 22 up to 20 inches. So they would need to bring those products 23 24 in. If they wanted to go to a customer like Chevron 25 and say we want all your business and here’s sort of Heritage Reporting Corporation (202) 628-4888 209 1 the whole package that we’ve put together just for 2 you, they can’t do that right now. 3 bring in stuff from the subject mills. 4 VICE CHAIRMAN ARANOFF: They would have to Okay. Mr. Vaughn, I guess I just encourage all 5 that’s really helpful. 6 of you to the extent that you can really quantify that 7 for me because you’ll recall that in their brief 8 Tenaris actually gives a number what they think their 9 exports to the U.S. would be from subject countries. 10 Perhaps you could view that as a concession on their part that their total exports subject and nonsubject 12 13 to the U.S. would go up by that much. They didn‘t actually say that. I may ask 14 them that this afternoon, but, I mean, take a look at 15 that number. Let me know if you think that’s a 16 realistic number given what you know about the size of 17 the U . S . market for this large diameter product that 18 you’re describing. 19 Mr. Hecht? 20 MR. HECHT: If I could just make a few small points on that, too. It’s worth keeping in mind again 22 for example with the Algoma mill that’s a mill that 23 they came in and told the Commission they had no 24 interest in using to ship here and that they had a 25 full market in Canada for everything they had. Heritage Reporting Corporation (202) 628-4888 They 210 right now are shipping material from Argentina up to Canada and then shipping a similar amount back down into the United States, so I think that’s a little bit 4 5 relevant to think about as well. I just don‘t know that you’ve had a case 6 like this where it‘s not like we’re telling you. They 7 pretty much laid a road map as to what they wanted to 8 do in the U.S. market in that conference call, and 9 it’s a pretty vivid description. It talks about how 10 globally they are a one stop shop all the way from the 11 very highest end down to the lowest end, that they can 12 bring that model to the U.S. now with Hydraul and 13 Maverick and that they want to bring that model here. 14 They talk about how they have all these 15 mills that can do different things. They bundle and 16 package together all your needs and bring it in. 17 a pretty vivid description, and we think itrspretty 18 hard to see how that would not have some material 19 affect in the market. 20 VICE CHAIRMAN ARANOFF: Okay. It‘s Two things I 21 would to follow on. The first is, you know, I know 22 you made the comment about Algoma and what happened in 23 the past case a number of times. 24 recollection is that at the time that those arguments 25 were being made who the they was was in some doubt. The best of my Heritage Reporting Corporation (202) 628-4888