U.S. Steel Accuses China of Hacking
April 29, 2016
Shah Sheikh (1294 articles)

U.S. Steel Accuses China of Hacking

PITTSBURGH— U.S. Steel Corp. is alleging that Chinese government hackers stole proprietary methods for making lightweight steel on behalf of Chinese steel producers seeking to supply a bigger share of the U.S. auto-making market.

Pittsburgh-based U.S. Steel, in a complaint filed on Tuesday with the International Trade Commission, said a computer belonging to a Pittsburgh researcher was hacked in 2011, and that plans for developing new steel technology were stolen.

The ITC, an independent agency that reviews and enforces U.S. trade policy, has within 30 calendar days to decide whether to launch an investigation. The agency typically investigates complaints. U.S. Steel says it expects any ITC probe resulting from its complaint “to reveal that the Chinese government disseminated U.S. Steel’s trade secrets to” Chinese steelmakers, “enabling them to manufacture [lightweight steels] that [compete] with U.S. Steel’s products.”

In a statement Wednesday, China’s Commerce Ministry urged U.S. authorities to reject U.S. Steel’s trade complaint, and said that allegations of intellectual property infringement “are completely without factual basis.” The Commerce Ministry on Thursday didn’t respond to a request for comment on the hacking allegations by U.S. Steel.

U.S. Steel’s allegations are the latest escalation in a mounting trade fight over China’s massive production and exports of industrial metals, especially aluminum and steel.

The U.S. government has imposed new duties on Chinese steel imports this year and started a formal investigation into overproduction of aluminum that could lead to new tariffs. Steel imports into the U.S. have slowed this year, but steelmakers complain that the massive volume of overall Chinese steel exports—in 2015, more than 100 million tons, or 7% of global production—has had knock-on effects, deflating prices around the world, including in the U.S.

The steel-hungry auto industry is a key battleground.

With the U.S. and other governments implementing tougher fuel efficiency standards, auto makers need lighter metals. That’s translated into massive and lucrative new demand, including for steel’s competitor, aluminum. By 2025, 18% of all vehicles are expected to have all-aluminum bodies, compared with less than 1% in 2014.

Steelmakers are fighting back with so-called advanced high strength steel, which is made by changing the alloying chemistry, and the heating and cooling process. The stakes are huge, with auto makers around the world buying tens of billions of dollars a year of steel and aluminum. To boot, this kind of high-tech steel also has military applications, such as armored vehicles.

Developing this steel is a priority for U.S. Steel, which posted a loss of $1.5 billion last year. Its factories in Indiana and Ohio are geared toward supplying Detroit auto makers, and it has spent millions of dollars conducting research into new steels. With demand sagging for other steel products, like construction materials and oil and gas pipes, it needs contracts from car makers to survive, analysts say.

Chinese steelmakers have been chasing the same prize, but around 2010, according to U.S. Steel’s complaint, they had fallen behind and were losing contracts for supplying car companies with lighter steels.

U.S. Steel says its forensic analysis into the alleged 2011 hacking revealed that the alleged culprits were based in China, and that the methods were similar to those used by the Chinese hackers indicted in 2014 by a grand jury in Western Pennsylvania. China’s Foreign Ministry at the time said the accusations were based on “fabricated facts, grossly violates the basic norms governing international relations and jeopardizes China-U.S. cooperation and mutual trust.”

The hackers in the 2014 case allegedly worked for the Chinese military and stole price information and technological documents from U.S. Steel, Alcoa Inc., the United Steelworkers union and other entities to help companies win contract bids and trade disputes, according to court documents. Five military hackers were charged on 31 counts of thefts, computer fraud and economic espionage. No arrests have been made.

U.S. Steel says the 2011 cyberattack was conducted using a method similar to that allegedly used by the military hackers charged in the 2014 federal case. While the company didn’t provide evidence of a Chinese government hack in its published complaint, it said the hacking fit the pattern of previous cyberattacks involving the Chinese government. A program inserted in a U.S. Steel computer “contacted an Internet domain linked to a Chinese hacker group,” according to this week’s complaint. The hackers then turned over their findings to Chinese steelmakers, U.S. Steel alleges.

Chinese steelmakers “weren’t able to compete in these markets,” John Packard, publisher of Steel Market Update, a trade publication and consultancy, said in an interview. Steel mills in the U.S. “have invested millions of dollars in these new steels.”

The plans that U.S. Steel says were stolen included the chemistry for the alloy and its coating, the necessary temperature for heating and cooling the metal, and the layout of production lines. It says hackers stole designs for making one of U.S. Steel’s most valuable products, a metal known as Dual-Phase 980 that could withstand more than 140,000 pounds per square inch, placing it among the best performers.

Two years after the alleged hacking, Chinese state-owned steel giant Baosteel Group Corp., the world’s fourth-largest steelmaker by volume in 2014, according to the World Steel Association, had a new line of products on the market, U.S. Steel says. Among them: Dual-Phase 980.

U.S. Steel says it expects to show the product was made using technology stolen in the alleged 2011 hacking, and turned over to Baosteel. According to U.S. Steel, “since 2013, Baosteel has directly shipped ultra high-strength steel to the United States, causing and threatening to cause substantial injury to U.S. Steel’s domestic industry.”

In a response to questions from The Wall Street Journal, Baosteel called the latest accusations “complete nonsense.”

“Baosteel has consistently acted in accordance with regulations; respected intellectual property rights; and attached great importance to independent research and development and technological progress,” the company said.

Source | WSJ