Global steel’s ‘China’ problem

While global steel production has increased in November, analysts see steel output from China reclining. This comes as a result of cut down on steel production in order to reduce choking pollution and smog the country is engulfed in. Environment is the cost China has been paying for massive industrialization. China currently supplies over half of the world’s steel production, which manifests in air pollution at home, and accusations of dumping abroad.

With China’s focus diverting toward environment, the production cuts are expected to run till March to clear the polluted skies across the country. However, at the same time, it was announced by the Chinese Finance Ministry that the country would be slashing down export tariffs for steel to boost exports. The two moves are not congruous.

The story of Chinese supply glut is well-documented. Just last month, it was the main topic of discussion during the G20 meeting in Berlin. China has been accused of dumping its excess steel to countries hurting steel manufacturers across the world that were not being able to compete with the Chinese steel on cheap prices.

Meanwhile, demand was stagnant in those times that added pressure on manufacturers along with the Chinese excess supply. As a result, many developed countries included the U.S imposed anti-dumping duties on steel imports from China (and other cheap steel exporting countries) to protect domestic producers. Whereas these duties went up to 240 percent, China found its way to these markets through other countries—like Vietnam—which resulted in little change in its steel imports. In fact, just a few days ago, U.S. slapped anti-dumping duties on Vietnam as well after its industry made a case for Chinese circumvention of U.S. tariffs.

On the other hand, China claims that it has already cut down over 100 million tons of its legal capacity and 120 million tons of illegal capacity. The former, analysts say is questionable as they were likely obsolete plants. Studies were conducted that found that some of the capacity that had been reduced was restarted as demand rose.

Analysts are saying that the capacity reductions have not put any restrain on China’s crude steel production. While U.S. and European countries import from many different economies in Eurasia and South East Asia, China remains a major threat to them given its sheer size and cost competitiveness.
The latest measure to cut exports taxes, especially when its own domestic demand is not expected to grow is a clear signal that China will continue to dominate the steel markets—cuts in production and environment protection notwithstanding. The world is alerted.