 "Subsidised Chinese exports upsetting normal steel trade")
Steel Authority of India Ltd (SAIL) Chairman Chandra Shekhar Verma had said as the Chinese production juggernaut rolled on, it would, from time to time, upset normal global steel trade. A few recent developments have proved him right.
Chinese producers are under pressure to export surplus steel, as domestic demand growth is falling compared to the rise in output. Subsidised steel exports are the reason why China is having repeated brushes with the US and European countries. Now, the US commerce department is initiating countervailing duty investigation into imports of grain-oriented electrical steel (GOES) from China. The department will take such a step only if it finds merit in local steelmakers' complaints they have been hit hard by foreign products coming into the US, aided by 'countervailing subsidies' in originating countries. A K Steel Corporation and Allegheny Technologies of the US say their GOES is being priced out in the local market by Chinese product subsidised to the extent of 49.5 per cent. Concerned about further job losses in a sector that has shrunk considerably in recent years, the United Steelworkers union has made common cause with the two companies to stop subsidised imports of Chinese GOES. The US is accusing leading Chinese groups Bao Steel and Wuhan Iron.
In an unconvincing protest, Beijing says the US move is against its commitment to work with "China and other members of international community" to fight protectionism.
An Indian trade official says producing GOES calls for technology available with only a handful of steelmakers across the world; groups owning the technology will part with it on their own terms. Some steel companies here that are keen to make GOES have hit the wall in their quest for GOES technology, owing to unwillingness to concede demands of potential suppliers. Last year, US imports of GOES from China were valued at a modest $5.4 million. This, however, set off a strong reaction from local producers and steelworkers, who feared the world's largest producer would be under compulsion to export all kinds of steel in growing quantities as domestic demand plateaued.
The US concern is not unfounded. Earlier, another group of steelmakers, including ArcelorMittal and Nucor, told the commerce department China was selling carbon and alloy steel wire rod in the US at up to "110 per cent below fair market value". What lent credence to the complaints was the fact that US imports of wire rod from China leapfrogged from 144 tonnes in 2011 to 615,000 tonnes in 2013.
The US is finding it increasingly difficult to overcoming import duty barriers in selling steel products in China. It wants the World Trade Organization to intervene and ensure Beijing takes corrective steps. Independent of the controversy surrounding subsidy, the surging steel production in China ensured the metal originating in the country was traded at a discount to prices in the US and Europe. In a report, Nomura Holdings said steel available at cheaper rates elsewhere (primarily China) would lead to US imports of the metal rising 3.4 per cent this year, against two per cent in 2013. An official with leading market intelligence agency INTL FCStone says, "Spreads between US and overseas steel have reached a point when even customers who don't normally import steel can't refuse. The discount just got huge." The US steel sector, as is the case with its counterpart in Europe, has gone through a process of cost-stripping and shuttering of unviable capacity. Thanks to the shale gas boom, US steelmakers have seen cuts in energy bills. Even then, Asian steelmakers have a cost advantage over their peers in the West.
The prospect of the US market expanding four per cent and European demand increasing a more modest 2-2.5 per cent this year is no guarantee steelmakers in the two regions won't find imports destabilising. Verma says, "The global steel sector's basic problem is the significant surplus capacity primarily obtaining in China. Fortunately, India is one of the few places where much new capacity will be needed once the economy moves into high gear. Abroad, groups that rolled back capacity because of low prices due to a fall in demand will always have the temptation to revive shut mills at first hints of a demand revival. That will stand in the way of an improvement in the sector's margins."
China, which had a share of 48.5 per cent in the global production of 1.6 billion tonnes last year, is to register production growth of three-five per cent this year, even as the country's fixed asset investment growth will be the least in about a decade. This will result in subdued demand for construction steel. The country's slowing economy has ensured the growth in car sales is less than the median estimate of experts. The Chinese central bank is not ruling out the possibility of the economy growing at sub-7.5 per cent. If the forecast of Chinese steel demand growth of three per cent is correct, expect the country to be an aggressive seller of steel products in the global market. Remember, the Chinese steel sector is already holding record inventories.
Chinese producers are under pressure to export surplus steel, as domestic demand growth is falling compared to the rise in output. Subsidised steel exports are the reason why China is having repeated brushes with the US and European countries. Now, the US commerce department is initiating countervailing duty investigation into imports of grain-oriented electrical steel (GOES) from China. The department will take such a step only if it finds merit in local steelmakers' complaints they have been hit hard by foreign products coming into the US, aided by 'countervailing subsidies' in originating countries. A K Steel Corporation and Allegheny Technologies of the US say their GOES is being priced out in the local market by Chinese product subsidised to the extent of 49.5 per cent. Concerned about further job losses in a sector that has shrunk considerably in recent years, the United Steelworkers union has made common cause with the two companies to stop subsidised imports of Chinese GOES. The US is accusing leading Chinese groups Bao Steel and Wuhan Iron.
In an unconvincing protest, Beijing says the US move is against its commitment to work with "China and other members of international community" to fight protectionism.
An Indian trade official says producing GOES calls for technology available with only a handful of steelmakers across the world; groups owning the technology will part with it on their own terms. Some steel companies here that are keen to make GOES have hit the wall in their quest for GOES technology, owing to unwillingness to concede demands of potential suppliers. Last year, US imports of GOES from China were valued at a modest $5.4 million. This, however, set off a strong reaction from local producers and steelworkers, who feared the world's largest producer would be under compulsion to export all kinds of steel in growing quantities as domestic demand plateaued.
The US concern is not unfounded. Earlier, another group of steelmakers, including ArcelorMittal and Nucor, told the commerce department China was selling carbon and alloy steel wire rod in the US at up to "110 per cent below fair market value". What lent credence to the complaints was the fact that US imports of wire rod from China leapfrogged from 144 tonnes in 2011 to 615,000 tonnes in 2013.
The US is finding it increasingly difficult to overcoming import duty barriers in selling steel products in China. It wants the World Trade Organization to intervene and ensure Beijing takes corrective steps. Independent of the controversy surrounding subsidy, the surging steel production in China ensured the metal originating in the country was traded at a discount to prices in the US and Europe. In a report, Nomura Holdings said steel available at cheaper rates elsewhere (primarily China) would lead to US imports of the metal rising 3.4 per cent this year, against two per cent in 2013. An official with leading market intelligence agency INTL FCStone says, "Spreads between US and overseas steel have reached a point when even customers who don't normally import steel can't refuse. The discount just got huge." The US steel sector, as is the case with its counterpart in Europe, has gone through a process of cost-stripping and shuttering of unviable capacity. Thanks to the shale gas boom, US steelmakers have seen cuts in energy bills. Even then, Asian steelmakers have a cost advantage over their peers in the West.
The prospect of the US market expanding four per cent and European demand increasing a more modest 2-2.5 per cent this year is no guarantee steelmakers in the two regions won't find imports destabilising. Verma says, "The global steel sector's basic problem is the significant surplus capacity primarily obtaining in China. Fortunately, India is one of the few places where much new capacity will be needed once the economy moves into high gear. Abroad, groups that rolled back capacity because of low prices due to a fall in demand will always have the temptation to revive shut mills at first hints of a demand revival. That will stand in the way of an improvement in the sector's margins."
China, which had a share of 48.5 per cent in the global production of 1.6 billion tonnes last year, is to register production growth of three-five per cent this year, even as the country's fixed asset investment growth will be the least in about a decade. This will result in subdued demand for construction steel. The country's slowing economy has ensured the growth in car sales is less than the median estimate of experts. The Chinese central bank is not ruling out the possibility of the economy growing at sub-7.5 per cent. If the forecast of Chinese steel demand growth of three per cent is correct, expect the country to be an aggressive seller of steel products in the global market. Remember, the Chinese steel sector is already holding record inventories.