China’s excess capacity is seen as one of the most significant challenges facing the global steel industry today. China accounts for approximately 50% of global steel production. Over the last decade global steel production has doubled from around 800 million tonnes to around 1.6 billion tonnes a year, mainly driven by rising output in China.
Around 2005, China designated steel as a pillar industry for the Chinese economy. This was primarily driven by the government’s plans for moderni
China has made astonishing gains in steel production and today manages to sell steel at a price cheaper than the rest of the world. Economists argue that government subsidies are responsible for China’s steel overcapacity. While clear data on this is not readily available, given the closed nature of the Chinese economy, a study commissioned by the Alliance for American Manufacturing, has found that total energy subsidies to Chinese steel just in the first half of 2007 reached $27 billion.
Chinese overproduction turned problematic to other markets in 2014, when Chinese demand plummeted with its construction boom coming to an end. China’s domestic demand sagged by 3.4% in 2014 prompting the country’s state-owned steelmakers to sell their growing surpluses in foreign markets at throwaway prices. This fall in demand also led to a sharp fall in global prices. Global steel prices have declined sharply from around US$460/tonne to around US$260/tonne in line with the glut in supply.
Recognizing the need to protect domestic steel manufacturing capability against the Chinese onslaught, globally over 400 trade actions have been taken with the majority focused on China. Countries have taken the safeguard, anti-dumping or countervailing duties (CVD) route to counter the sub-standard steel entry. The U.S. Department of Commerce has slapped CVD as high as 236% on steel from China in November, 2015. Further in December, 2015, US imposed 256% import tariff on corrosion-resistant steel.
The author is Partner, J Sagar Associates