CSWP1 2018 ER
Certain Carbon Steel Welded Pipe
Statement of Reasons

[21] CSWP, also commonly referred to as standard pipe, covers a wide range of pipe products generally used in plumbing and heating applications for the low-pressure conveyance of water, steam, natural gas, air, and other liquids and gases. CSWP, or standard pipe, may also be used in air conditioning systems, in sprinkler systems for fire protection, as structural support for fencing, as piling, as well as for a variety of other mechanical and light load-bearing applications.

[22] The size of CSWP is generally specified by two values: a nominal pipe size (NPS) and a schedule. The NPS relates roughly to the inside diameter of the pipe while the schedule relates to the wall thickness. For a given NPS, the wall thickness will increase as the schedule number increases. For example, CSWP with an NPS of 1 inch (NPS 1) and made to ASTM A53, Schedule 40 requirements will have an outside diameter of 1.315 inches and a wall thickness of 0.133 inch while the same pipe meeting the requirements of ASTM A53, Schedule 80 will have an outside diameter of 1.315 inches and a wall thickness of 0.179 inch.

[23] Although CSWP is generally produced to industry standards such as ASTM A53, ASTM A135, ASTM A252, ASTM A589, ASTM A795, ASTM F1083, Commercial Quality and AWWA C200-97, it may also be produced to foreign standards such as BS1387 or to proprietary specifications as is often the case with fencing pipe. While standard pipe may be manufactured to any of the standards mentioned above, the ASTM A53 specification is the most common as it is considered to be the highest quality and is suitable for welding, coiling, bending and flanging.

[24] Standard pipe may be sold with a lacquer finish, or a black finish as it is sometimes referred to in the industry. It may also be sold in a galvanized finish which means it has been treated with zinc. Both types of finish are intended to inhibit rust although the galvanizing process will deliver a superior result. Galvanized pipe will sell at a premium to black standard pipe because of this, and the fact that zinc costs much more than lacquer.

[45] The information considered by the CBSA for purposes of this expiry review investigation is contained on the administrative record. The administrative record includes the exhibits listed on the CBSA’s Exhibit Listing, which is comprised of the CITT’s administrative record relating to the initiation of the expiry review, CBSA exhibits and information submitted by interested persons, including information which they feel is relevant to the decision as to whether dumping and/or subsidizing is likely to continue or resume, if the finding is rescinded. This information may consist of expert analyst reports, excerpts from trade magazines and newspapers, orders and findings issued by authorities of Canada or of a country other than Canada, documents from international trade organizations such as the World Trade Organization and responses to the ERQs submitted by domestic producers, importers, exporters and foreign governments.

[46] For purposes of an expiry review investigation, the CBSA sets a date after which no new information submitted by interested parties may be placed on the administrative record or considered as part of the CBSA’s investigation. This is referred to as the closing of the record date. This allows participants time to prepare their case briefs and reply submissions based on the information that is on the record as of the date the record closed. For this expiry review investigation, the record closed on July 26, 2018.

Nova

[47] Nova made representations in its case brief in support of its position that dumping from China is likely to continue or resume in the event the present order is rescinded. Accordingly, Nova argues that the measures should remain in place.

[48] The main factors identified by Nova can be summarized as follows:

International Market Conditions

• Global Steel Market
• Global Excess Steel Capacity
• Proliferation of Trade Measures Affecting Steel

China

• Domestic Demand and Production
• Construction
• Overcapacity
• Capacity Consolidation Enhancing the Market Power of SOEs
• China’s CSWP Capacity and Steel Production
• China’s Propensity to Export
• Conditions in China’s Main Trading Partners for Pipe Products

Behaviour of Chinese Exporters While the Order has been in Effect

• Decrease of Imports from China
• Attractiveness of the Canadian and North American Markets
• Positive Effect of the Order
• Product Shifting
• China’s Recent Export and Domestic Pipe Prices

Other Factors

• Anti-dumping and Countervailing Duty Measures by Canada and Other Countries in Respect of Goods of the Same Description or in Respect of Similar Goods
• Competition with Low-priced New offshore Sources

International Market Conditions

[49] Nova submits that the international market conditions provide important context for macro-economic trends affecting the trade of CSWP. Several global developments are currently affecting the market for CSWP which would make the Canadian domestic industry susceptible to resumed injury if the finding is rescinded. These developments are further explained below.

Global Steel Market

[50] Nova contends that the global steel market is facing structural imbalances along with the increased production and capacity in the midst of moderate demand.^{Footnote 7}

[51] As noted by the Chair of the Organisation for Economic Co-operation and Development (OECD) Steel Committee in the 84th session of the OECD Steel Committee, despite the modest improvement in the global steel market, structural imbalances continue to be a challenge.^{Footnote 8}

[52] Nova also noted that although recovery of steel demand showed some potential in late 2016 and early 2017, world steel demand growth is projected to decrease in 2018 and into 2019. However, global steel production has continued to grow, and is forecasted to further increase. In 2016, world steel demand was 1.516 billion MT, while production was 1.605 billion MT. In 2017, world steel demand was 1.622 billion MT, while production was 1.688 billion MT. In both 2016 and 2017, production outpaced demand in the midst of efforts to control this imbalance.^{Footnote 9}

[53] Nova concludes that the current weak demand forecast, combined with continuing production growth, creates a climate whereby oversupply encourages the selling of low-priced steel and steel products (including CSWP) in markets such as Canada.

Global Excess Steel Capacity

[54] Nova argues that global overcapacity continues to affect the profitability of the steel industry. From 2000 to 2015, the global steel industry added more than 1.2 billion MT of crude steel production capacity, meanwhile, demand growth over that time is estimated at 700 million MT.^{Footnote 10}

[55] Nova noted that in the OECD’s most recent steelmaking capacity update, world steelmaking capacity still remains at 2.268 billion MT, which is significantly above world demand and production. Furthermore, gross capacity additions are both planned (37.23 million MT) and underway (44.68 million MT) for 2018-2020. Over the last 10 years, capacity has consistently surpassed production while utilisation has remained around 70%.^{Footnote 11}

[56] In addition to the OECD’s report on excess capacity, a report from the Global Forum on Steel Excess Capacity (GFSEC) notes that the current steel production capacity levels significantly exceed global consumption and capacity closures continue to be partially offset by capacity expansions. In 2016, the excess capacity surplus was estimated to be 737 million MT, the highest in the history of the industry.^{Footnote 12}

[57] Furthermore, the GFSEC data shows that approximately 137 million MT of steel production capacity was reportedly shut down from 2014 to 2016, while over the same period, 82 million MT of steel production capacity was added. The GFSEC concluded that while the overcapacity situation may have eased slightly very recently, it has not eased enough to meaningfully reduce structural imbalances and avoid future problems.^{Footnote 13}

Proliferation of Trade Measures Affecting Steel

[58] Nova notes that several countries have imposed trade measures to mitigate the impact of excess capacity/production on their domestic markets, which includes the “Section 232” measures in the United States and the safeguard measures in the EU.^{Footnote 14}

[59] On March 1, 2018, the United States announced the imposition of a 25% tariff on steel imports. Although temporary exemptions from these measures were put in place, on June 1, 2018, the tariffs were implemented, and various countries including both Canada and China are now subject to these 25% duties.^{Footnote 15}

[60] Nova contends that if the order was to be discontinued, the Canadian market would be the target of diversion of not only those goods that are currently being shut-out of the US market by pre-existing anti-dumping/countervailing duty measures but, in addition, would also be a target for the exports once destined for the United States that may be diverted to Canada now that the tariffs are in place, which are estimated to be 61,514 MT of standard pipe.^{Footnote 16}

[61] Regarding the EU safeguard measures, Nova believes that 16,972 MT of standard pipe imports into the EU from China could be diverted to Canada now that the EU tariffs are in place.^{Footnote 17}

[62] Nova claims that if the order is not renewed, Canada would likely become a very attractive market for Chinese CSWP no longer bound for the United States or the EU.^{Footnote 18}

China

Domestic Demand and Production

[63] Nova notes that China’s steel demand has dropped 7.4% below the peak reached in 2013, and that it is expected to contract and decelerate further. The World Steel Association expects that China’s steel demand will remain flat in 2018 and contract by 2% in 2019.^{Footnote 19}

[64] Despite China’s projected deceleration in steel demand, crude steel production in China has increased year-on-year since 2015. The new daily average crude steel production in China is approximately 2.67 million MT. Canada’s 2017 total crude steel output was 13.6 million MT, meaning that it would take China only six days to surpass Canadian annual crude steel production.^{Footnote 20}

[65] In 2016, China’s production outpaced the country’s demand by 93.1 million MT. Although this gap narrowed in 2017, it was still 59.5 million MT.^{Footnote 21}

Construction

[66] The construction sector is an important driver for steel demand growth and also an important indicator of CSWP demand. Fixed asset investment growth, which includes spending on new homes, factories, roads and ports, was at a record low at 6.0% for the first half of 2018, while industrial output for June matched the slowest growth rate in over two years at 6.0%. Growth in construction activity slowed from 5.4% in the second quarter of 2017 to 4% in the third quarter, the weakest expansion in the Chinese construction sector since the fourth quarter of 2000.^{Footnote 22}

[67] Nova argues that the bleak forecast for the construction sector in China contributes to a weak CSWP demand forecast, and indicates that Chinese producers of CSWP will be looking to export markets to sell their products.^{Footnote 23}

Overcapacity

[68] Nova submits that China’s massive steel capacity and production continues to be the most important cause of distress to the global steel industry. As China’s demand continues to weaken, and overcapacity and excess supply fail to decline at a reciprocating pace, cheap Chinese steel will continue to be pushed onto the global market.

[69] The Government of China announced in 2016 that its goal is to cut steelmaking capacity by 100 to 150 million tonnes by 2020. Nova submits that, due to capacity creep,^{Footnote 24} exceptions granted to steel mills by the government, China’s aim to close capacity that is generally used for the production of long products and China’s history of past efforts, the likelihood of the Government of China reaching its goal is questionable.^{Footnote 25}

Capacity Consolidation Enhancing the Market Power of SOEs

[70] Nova contends that in 2016, 80% of steel mill closures reported by the Chinese National Development and Reform Commission were reportedly private mills.^{Footnote 26}

[71] This increase in the relative capacity held by State Owned Enterprises (SOEs) at the expense of smaller, private producers increases the threat of resumed dumping because the large SOEs have significant market power and export distribution networks through which dumped CSWP can be shipped to Canada.^{Footnote 27}

China’s CSWP Capacity and Steel Production

[72] Nova estimated Chinese CSWP capacity to be more than 12 million MT using available information from the Simdex Metal Tube Manufacturers Worldwide Guide (Simdex).^{Footnote 28}

[73] Furthermore, Nova believes that several companies on Simdex have the capability to shift their production to produce CSWP if the finding were to be rescinded.^{Footnote 29}

China’s Propensity to Export

[74] Nova indicated that China’s 2017 steel exports was nearly double that of the world’s second largest exporter, Japan, despite the fact that there are 134 trade remedies in effect in 20 countries involving steel mill imports from China.^{Footnote 30}

[75] Between 2009 and 2016, China’s steel exports as a share of production more than tripled from 4% to 13.5%.^{Footnote 31}

Conditions in China’s Main Trading Partners for Pipe Products

[76] Nova claims that China’s main trading partners for pipe and tube are the Philippines, South Korea and India, and that the sustainability of these markets to continue to accept large volumes of CSWP imports from China is uncertain.^{Footnote 32}

[77] The Philippines has been importing from countries such as Qatar, Vietnam, India and Russia as opposed to China, where import volumes have dropped 4% in 2017.^{Footnote 33}

[78] The iron and steel industry in the Philippines has also envisioned itself to be a majority producer of steel products for domestic users by 2030 – according to the World Steel Association, welded tube production increased from 99,000 tons to 330,000 tons from 2012 to 2014 through 2016.^{Footnote 34}

[79] Nova notes that the Korea Iron and Steel Association reports that steel production increased by 6% during the first half of 2017 and pipe production surged by 20.5%, although there was a decline in domestic pipe consumption. It appears that the domestic CSWP market in Korea cannot absorb both an increase in domestic production and imports from China.^{Footnote 35}

[80] India’s production of steel grew by 59.6% between 2009 and 2017. In the United States International Trade Commission Circular Welded Pipe decision, it was found that Indian exports of circular welded pipe increased from 110,646 short tons in 2012 to 209,268 short tons in 2016.^{Footnote 36}

[81] Nova contends that the information available for China’s main export markets, in the Philippines, South Korea and India, indicates that these markets are unlikely to be able to sustain current import levels, which places the Canadian market at risk of dumping should the order be permitted to expire.^{Footnote 37}

Behaviour of Chinese Exporters While the Order has been in Effect

Decrease of Imports from China

[82] Nova submits that CSWP imports from China have been low during the POR, thereby demonstrating that Chinese exporters are unable to sell subject goods at normal values and that, in the absence of a renewed order, Chinese exporters would resume dumping subject goods in Canada.^{Footnote 38}

Attractiveness of the Canadian and North American Markets

[83] Nova claims that the Canadian market will continue to be attractive to Chinese CSWP exporters because of relatively higher prices in Canada. Using the U.S. Midwest spot price as a representation of Canadian spot prices, one can see that the U.S. Midwest prices have been higher than all markets since 2014, whereas Chinese CSWP prices were significantly lower than all markets. This disparity demonstrates the attractiveness of the Canadian market to Chinese manufacturers.^{Footnote 39}

Positive Effect of the Order

[84] The low volumes of subject goods imported during the POR demonstrate the positive effect of the order, as the order ensures that subject goods are not being sold below normal values. Nova believes that China would return with significant volumes of dumped goods if the order was to expire.^{Footnote 40}

Product Shifting

[85] Nova notes that various specifications of pipe and tubular products can be produced using the same equipment. Simdex shows that many standard pipe mills can also produce hollow structural sections.^{Footnote 41}

[86] In light of the fact that Chinese exporters shipped 8,859 MT of hollow structural sections to Canada in 2017, Nova concludes that Chinese pipe exporters continue to have a keen interest in the Canadian market, their distribution channels are in operation, and they would be willing and able to ship very significant volumes to Canada in the absence of a renewed order for CSWP.^{Footnote 42}

China’s Recent Export and Domestic Pipe Prices

[87] Nova used several sources to estimate materials and conversion costs (hot-rolled coil pricing from Steel Orbis Hot-Rolled Coil Ex-Mill US Midwest Spot prices), a reasonable amount for profit (publicly available financial information from Hyundai Steel in Korea) and export prices (2018 Steel Orbis Welded Pipe Ex-Works China spot pricing). In combining these factors, Nova was able to determine a significant margin of dumping from China in the absence of a renewed order.^{Footnote 43}

Other Factors

Anti-dumping Measures by Canada and Other Countries in Respect of Goods of the Same Description or in Respect of Similar Goods

[88] Nova submits that there are numerous anti-dumping measures imposed against China by Canada and other countries. In regards to CSWP, China is subject to anti-dumping measures in four major jurisdictions including the United States and the EU.^{Footnote 44} CITT findings are in place in respect of similar goods from China: Carbon and Alloy Steel Line Pipe, Fabricated Industrial Steel Components, Flat Hot-Rolled Carbon and Alloy Steel Sheet and Strips, Large Line Pipe, Oil Country Tubular Goods, Piling Pipe, Pup Joints, Seamless Casing and Steel Plate.^{Footnote 45}

[89] Nova argues that the CBSA may consider the existence of these findings as evidence that without findings in place, resumed dumping of subject goods from China is likely.^{Footnote 46}

Competition with Low-priced New offshore Sources

[90] From 2015 to 2018, the volume of imports from Pakistan, the Philippines, Turkey and Vietnam has been high, and continues to have a significant impact on the Canadian market.^{Footnote 47}

[91] As the domestic industry is already facing low priced-competition from the aforementioned countries, Chinese producers would have to match or beat these prevailing low selling prices in order to obtain sales to Canadian customers, creating additional likelihood that exports to Canada would be dumped if the order expires.^{Footnote 48}

DFI Corporation

[92] DFI made representations in its case brief in support of its position that dumping from China is likely to continue or resume in the event the present order is rescinded. Accordingly, DFI argues that the measures should remain in place.

[93] The main factors identified by DFI can be summarized as follows:

• Commodity Nature of the Goods
• Global Market Conditions
• Chinese Excess Steel Capacity
• Rise in Steel Related Trade Measures
• Domestic Market Conditions Encourage Imports
• China’s Propensity to Dump in Significant Volumes

Commodity Nature of the Goods

[94] DFI argues that CSWP products are similar to other steel products such as piling pipe, line pipe or oil country tubular goods in that they are steel commodities that trade primarily on price.^{Footnote 49}

[95] Therefore, the CSWP market is susceptible to sudden downturns, as well as being very sensitive to price erosion due to an increased supply of imports, which may occur if the order is allowed to expire.^{Footnote 50}

Global Market Conditions

[96] DFI notes that the global steel market continues to be plagued with persisting structural imbalances from increased steel production and capacity combined with moderate demand growth. Because CSWP is produced from hot-rolled coil, the supply, demand and pricing of CSWP products are closely tied with the state of the global steel market.^{Footnote 51}

[97] The steel industry struggles from a state of global overcapacity. Since 2000, capacity growth has surpassed demand growth by nearly 500 million tons per year.^{Footnote 52}

Chinese Excess Steel Capacity

[98] Since 2000, China has accounted for more than 75% of worldwide steel-making capacity.^{Footnote 53}

[99] DFI quoted the CITT in Steel Piling Pipe Expiry Review No. RR-2017-003 as saying, “As the Tribunal has previously found in other recent cases, there is significant global steel overcapacity. This is primarily due to the Chinese steel industry’s production imperative and strong export orientation in the face of weak domestic demand.”^{Footnote 54}

[100] The House of Commons Standing Committee on International Trade attributed the primary source of global excess capacity to China as it represents 60% to 70% of global overcapacity.^{Footnote 55}

Rise in Steel Related Trade Measures

[101] DFI notes that the United States, the EU and several other regions have enacted trade measures targeted at Chinese steel products in order to protect their markets against unfair trade practices.^{Footnote 56}

[102] The United States imposed a 25% ad valorem tariff on certain articles of steel imported from most countries (including China) beginning March 23, 2018. This created a risk of diversion to Canada.^{Footnote 57}

[103] The EU also initiated a safeguard investigation on March 26, 2018 concerning imports of steel products.^{Footnote 58}

[104] DFI contends that other countries are likely to implement similar trade protectionist measures.^{Footnote 59}

[105] Thus, market access for steel exports from China has been restricted, threatening the Canadian industry with the prospect of diversion should the order be rescinded.^{Footnote 60}

Domestic Market Conditions Encourage Imports

[106] DFI submits that a recovery in the Canadian energy sector and market for steel pipe increases the likelihood of higher volumes of low value steel pipe entering the domestic market.^{Footnote 61}

China’s Propensity to Dump in Significant Volumes

[107] DFI argues that the propensity of Chinese exporters to dump steel pipe is not unique to the Canadian market. Many countries have adopted anti-dumping measures to counteract the actions of Chinese exporters. The order must continue or Canada will be out of step with the other jurisdictions with which it competes.^{Footnote 62}

Atlas Tube Canada ULC

[108] Atlas made representations in its case brief in support of its position that dumping from China is likely to continue or resume in the event the present order is rescinded. Accordingly, Atlas argues that the measures should remain in place.

[109] The main factors identified by Atlas can be summarized as follows:

• Capital Intensive Production
• Chinese Excess Capacity
• Diversionary Impact

Capital Intensive Production

[110] Atlas contends that there is a need for Chinese pipe mills to produce and sell product wherever possible, whether on the home market or abroad, due to the capital-intensive nature of pipe-making. Atlas refers to Carbon Steel Welded Pipe Expiry Review No. RR-2012-003 where the Tribunal noted that producers have an incentive to protect their capital investment by maintaining production volumes if they can continue producing at their marginal cost of production.^{Footnote 63}

Chinese Excess Capacity

[111] Atlas notes that China is by far the world’s largest producer and exporter of steel products, both primary steel and steel pipe and tube, with massive over-capacity in the sector. Atlas refers to multiple CBSA and Tribunal decisions regarding steel products such as piling pipe and Oil Country Tubular Goods to show that over-capacity and surplus production implied a likelihood of renewed imports of dumped product from China.

[112] Atlas argues that although many examples were provided based on non-CSWP products, the interchangeability of production lines for production of a variety of pipe products, such over-capacity applies in 2018 to the CSWP sector.

Diversionary Impact

[113] Atlas submits that the recent imposition of national security tariffs by the United States will have a major impact on global steel markets, including Chinese CSWP producers and exporters. The United States tariffs vastly increase the likelihood of diversion of Chinese standard pipe to any other available market, including Canada.

[114] None of the parties contended that resumed or continued dumping of subject goods from China is unlikely if the order is rescinded.

Nova

[131] Nova states that CSWP producers in China benefit from substantial subsidies conferred by both the federal and sub-federal levels of government and that if the order were to expire there is a strong likelihood that the subsidies would resume or continue. Nova points to the original CSWP investigation and the 2011 CSWP re-investigation, both finding that CSWP producers located in China benefited from multiple subsidies.^{Footnote 87}

[132] Nova notes that the United States Department of Commerce determined that countervailable subsidies were provided to producers and exporters in China of certain cold-drawn mechanical tubing of carbon and alloy steel in 2017. Nova submits that the subsidy programs in the United States investigation are indicative of the continuation of numerous subsidy programs to producers and exporters of carbon steel welded pipe in China.^{Footnote 88}

[133] Nova states that no exporters in China participated in the current expiry review investigation; accordingly, there is no evidence on the record to suggest that subsidization of the CSWP industry in China has been discontinued.

[134] Nova showed that closely related pipe products from China are subject to countervailing measures in Canada, and in other jurisdictions including Australia and the United States. According to Nova, the existence of these measures supports their submission that the GOC places a great deal of importance on its steel industry, and continues to subsidize it accordingly.^{Footnote 89}

[135] None of the parties contended that resumed or continued subsidizing of subject goods from China is unlikely if the order is rescinded.