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Home > MEPS Steel News - 03.12.2015

ARE THE WORLD TRADE ORGANISATION'S CURRENT RULES FIT FOR PURPOSE?

The global steel industry is in crisis. It has to be said that the principal reason for the predicament is the collapse in steel prices in all parts of the world. The drop in selling values has been brought about by oversupply in the market.

Much of the excess has been created by over investment in steelmaking capacity in China, to levels way beyond internal demand. This oversupply was translated into significant quantities of the excess material being exported, in recent years, at highly competitive prices. As a result, the MEPS world average, US dollar denominated, steel price has declined by 28 percent over the past twelve months.

In the current climate, with very few exceptions, the steelmakers across the globe are in a lossmaking situation. Many of them have already closed and more will follow in the near term. For most carbon grades, the Chinese export landed price has become the benchmark selling figure in many domestic markets around the world. Such selling values are not tenable in the long term for any steel manufacturer.

The dynamics of global steel trade has changed dramatically over the past ten years. In 2005, China’s exports and imports were in equilibrium. In 2010, the country’s positive balance of trade was approximately 25 million tonnes. In 2015, this figure will have expanded to, in excess of, 100 million tonnes. This equates to 12 percent of estimated total steel consumption in the rest of the world.

It is clear that China’s steel industry has developed a dominant position in the global market. Despite numerous complaints, the World Trade Organisation (WTO) has not been in a position to influence the situation. China’s dominance could not have been achieved so easily if the industry had not been, mainly, state controlled.

It is well documented that, in the first nine months of this year, total losses by the Chinese steel sector were US$4400 million – equivalent to US$7.5 per tonne of output. The deficit for export sales would be, at least, at the same level per tonne.

The Chinese authorities have revised the previously established definitions of alloy steels to enable their steel producers to claim VAT rebates on those exports. This has given the mills better opportunities for exporting.

Had the majority of the Chinese steel industry not been state-owned, it is likely that it would have been unable to withstand the current lossmaking situation. Moreover, it is questionable whether, predominantly state-owned, industries should be afforded the same protection as privately-owned ones when issues of trade are considered by the WTO.

MEPS view is that industries, such as steel and others, which are predominantly state-owned, should be excluded from any new agreement on market status within the WTO.




Source: MEPS China Steel Review - November 2015 Edition

Also See: www.worldsteelnews.com
 

 

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