Chinese steel export surge hurting other producers

China is likely to end the year with record steel exports of 85 million tonnes (mt), a rise of 40 per cent over 2013. In the first nine months of 2014, Chinese steel exports advanced 39.3 per cent to 65.34 mt on a year-on-year basis. Steel imports by China, too, rose during this period. However, the rise was only five per cent to 11 mt. Chinese imports are largely confined to very high grades of steel for which it lacks technology.

The rapidest pace of growth in steel exports since the beginning of the current decade has expectedly upset steel-producing countries. Irate steelmakers from the US to European Union to India are nudging their governments to take suitable action to ensure that Chinese steel does not get dumped in their turf, causing pain to the industry, which is working on thin margins for a number of years. As protests against the growing Chinese exports are becoming increasingly shrill, more and more countries are joining the chorus.

The other day, Arab Iron and Steel Union complained that "dumping by China is hurting sales volume and revenues of Arab steel producers. China has begun to invade Arab markets with products of very low quality". From demand contraction, the fallout of a slowing economy, to a major slide in local steel prices to servicing mounting bank debts, the woes of Chinese steelmakers are brimming over.

World steel prices are down seven per cent this year. However, steel composite price index in China has slid 13 per cent since the beginning of 2014. In their attempts to find a way out of trouble, Chinese steelmakers are pulling out all the stops to sell as much as possible in the world market to get better returns for their products. China is principally targeting Asian countries for steel exports. Among the markets targeted for exports, South Korea has received the largest amount of steel from China so far this year, followed by Vietnam and the Philippines. India and Japan figure among the top 20 export destinations of Chinese steel. From South Korea to India to Vietnam, each has voiced its concern about the market-destabilising impact of Chinese steel presence.

Financial Times makes the point that even while "most of China's exports are generally directed towards Asia rather than Europe, there is a knock-on effect on prices and global steel trade flows." Growth continues to elude the European Union. The Economist has forecast GDP growth of 0.8 per cent for stagnating Euro area in 2014 and that includes 1.5 per cent for Germany. On the other hand, improvements are seen in the US economy, which is likely to clock a growth of 2.2 per cent.

While US steelmakers are concerned that the growth in steel demand from manufacturing and construction sector is virtually usurped by imports from China, struggling mills in Europe - as Tata Steel Europe stands in evidence - have to contend with Chinese steel in a surplus market. What the US and European steelmakers find unacceptable is the alleged selling of some steel products in their regions by China at lower than production cost.

Stoutly denying all such complaints, China Iron & Steel Association (CISA) says even while the average steel export prices are down $74 a tonne in the first three quarters of 2014 to $783 a tonne, Chinese mills are still making profits. "Export prices are staying above our production costs and, therefore, the question of dumping doesn't arise," says a CISA spokesperson. In defence of export volume, he says the overseas sales by Chinese mills will amount to 10 per cent of their 2014 production, "which is relatively low compared with over 30 per cent in some other countries and regions". The argument does not, however, wash since China's 2014 projected exports are in excess of Indian steel production of 81.2 mt in 2013. Incidentally, India is the world's fourth largest steelmaker.

South Korean producers have joined the protest started by Steel Authority of India chairman Chandra Shekhar Verma that Chinese mills in their desperation to export are wrongly claiming export tax rebate by passing off ordinary steel with negligible addition of boron as value-added steel. Boron, if used in prescribed quantities, adds much strength to steel, thereby becoming a value-added product. However, the steel that comes to India or South Korea as boron-enriched steel is all sham. The suspicion of Chinese customs authorities looking the other way when ordinary steel is exported as special steel is not unfounded.

CHINESE WEIGHT
  • China expected to export 85 mt of steel this year, a 40% jump from 2013

     
  • Steel makers in the US, EU and Arab countries feel 'dumping' by China hurts their respective domestic steel industries

     
  • China Iron & Steel Association says China's export in 2014 would only be 10% of its production, lower than the 30% in some countries

     
  • China's 2014 projected exports are more than Indian steel production of 81.2 mt in 2013