What’s behind China’s cheap steel exports?

By Andreas Illmer / April 25, 2016 / BBC

China’s steel industry – what’s the problem?

Chinese steel production has expanded hugely. Over the past 25 years, output has grown more than 12-fold. By comparison, the EU’s output fell by 12% while the US’s remained largely flat.

China’s steel production
Year Output (million tonnes)
1990 66.4
2000 128.5
2010 638.7
2014 822.7
Source: World Steel Association

The drive behind that stellar increase has been China’s double-digit economic growth over the past decades. That led to ever more domestic demand for steel and the government invested heavily in the industry during the boom years.

But that demand has been severely hit by the current slowdown, leaving China with more steel than it needs. It produced more than 822 million tonnes of steel in 2014 and is expected to produce even more this year, yet projected demand for its steel in 2016 is only 672 million tonnes.

Chinese steel is therefore sold on the international market at extremely low prices – critics say it’s sold at a loss. As a consequence, other countries’ steel plants find it increasingly hard to compete.

What is China’s position?

China dismisses claims that its steel is sold at a loss and says it has done what it can to curb overproduction.

Beijing’s official news agency said that blaming the country for the global steel industry’s problems was a “lame and lazy excuse for protectionism”.

In a commentary piece, Xinhua warned against the imposition of protective import tariffs (a tax on the product which ultimately makes the finished goods more expensive for the consumer).

“Blaming other countries is always an easy, sure-fire way for politicians to whip up a storm over domestic economic woes, but finger-pointing and protectionism are counter-productive,” it said.

What is China likely to do?

Very little. While other countries complain that cheaper Chinese steel is forcing their producers out of business, China is itself faced with severe problems in the industry.

The boom of past years means any substantial output cuts would lead to huge job losses, and potential social instability.

It is unlikely that China will cut output by a lot and unless domestic demand picks up, cheap exports will continue to affect global markets. Read more…

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