Cliffs CEO Goncalves “Service Centers are their Own Worst Enemy”

We first wanted a better understanding of what Mr. Goncalves meant by his statement that service centers were importing “illegal” steel through international trading companies. He explained that, in his opinion, steel that is imported from countries prior to the duties being imposed or going into effect was nothing more than a way of U.S. service centers maneuvering around the trade laws and that the service centers were “hiding behind the importer of record.” He likened these purchases, which attempt to beat the date at which potential duties were to go into effect, as being “illegal,” as the service center buyers (in his example) were doing nothing more than trying to circumvent U.S. trade laws.

Goncalves told us, “The service centers know what they are trying to accomplish. It is a matter of intent. How can we circumvent [potential duties]”

We spoke specifically about the Vietnam situation where the domestic steel industry has accused Vietnam of helping the Chinese circumvent the Antidumping and Countervailing Duties assessed by the U.S. Department of Commerce. He told SMU there was no Vietnamese steel coming to the United States prior to the dumping suits being filed against China. The growth of the Vietnamese exports coincided with the demise of Chinese exports due to dumping rulings.

The “intent” of the trading companies and service centers involved, said Goncalves, was nothing more than a way of circumventing the laws meant to protect U.S. producers from illegally subsidized imports.  These traders and service centers were looking for a way to bring in lower priced steel at the expense of the domestic steel industry.

SMU is well aware there is another side to this story as service centers have to compete with one another and with domestic steel prices that may or may not be higher than the rest of the world. We have explored these issues in the past and we are committed to report on both sides in the future.

Whether Vietnam and China were involved in a conspiracy to circumvent U.S. trade laws is in litigation and we will have to wait and see how that issue is ultimately resolved.

Mr. Goncalves did not have an issue with companies buying foreign steel. We discussed a situation when he was running Metals USA where a specific grade of military plate was in short supply due to ArcelorMittal not being able to produce it within the time period needed. In this case Metals USA did buy foreign steel. But for Metals USA, under his leadership, foreign steel was the exception not the rule.

Goncalves also told me that at Metals USA it would have been “crazy” to keep their inventories at two months and he claimed that the company “never” would have taken that kind of risk.

“Service centers are their own worst enemy because of their bad behavior,” he said.  He went on to explain that through their actions “they work to make the supply chain weaker.”

We expect there are others in the steel industry sharing the views of Mr. Goncalves while others will adamantly disagree. We have a letter to the editor in tonight’s issue of Steel Market Update from one service center executive who expresses his thoughts on the subject. We welcome the opinions of others within the industry and they can be sent to: info@SteelMarketUpdate.com.

While speaking with Mr. Goncalves this morning he expressed his displeasure/disdain for anonymous letters to the editor. He told us that he wished those having strong opinions “grow a pair” and be willing to sign their name to their comments.

For those of you who do not know Lourenco Goncalves, he has more than 30 years of experience in the metals and mining industry. He was born in Brazil where he started in industry before moving to the United States where he was the CEO of California Steel and later he was the Chairman of the Board, President and CEO of Metals USA Holdings Corporation. Goncalves was appointed Chairman, President and CEO of Cliffs Natural Resources in August 2014.