Editor's VIEW - MEPS
OWNED STEELMAKERS HEADING FOR OBLIVION?
The Chinese steel industry’s attempt to
export its way out of the problem of domestic oversupply in 2015 has failed. The
solution to the industry’s problems was, and still is, to make substantial cuts
in local steelmaking capacity to bring output and demand into balance.
Despite annual exports of finished steel products from China rising from 62
million tonnes in 2013 to an estimated 115 million tonnes in 2015, the local
mills have suffered domestic selling price reductions of close to 50 percent
over the time span.
Granted, the cost of raw materials has declined during the period. However, the
main driver for the price reductions in China and globally has been the
substantial oversupply situation which was created, in part, by the rise in the
level of low-cost exports from Chinese and Russian steel producers.
The vast majority, if not all, of the manufacturers of carbon steel grades in
China are in a lossmaking situation because the decrease in raw material costs
is much smaller than the reduction in steel selling values. With a large
majority of the Chinese steel enterprises being state-owned, such a situation
can only be sustained through local and national government subsidies.
Any plan that the Chinese may have had to improve the performance of the local
steel industry has, to date, met with only limited success. Typically, over the
last twenty-four months, domestic prices for hot rolled coil in most other parts
of the world have fallen by around 40 percent but halved in China.
However, in the current situation, one in which virtually the whole of the
global steel industry is now making losses, we have noted little substantive
reaction by the governments of the countries most affected by the import growth.
The imposition of import duties has been limited so far – mainly due to
bureaucratic difficulties associated with the current trade regulations.
Low-priced exports of steel from China and Russia have proved to be successful
in restricting competition in the global market. The recent closure of several,
privately owned plants in the western world highlights this point. Several other
factories are being shuttered. Many more are cutting output and their
Are countries with state-owned steel industries to be allowed to dominate the
sector through subsidised manufacturing? Are western governments sleepwalking
into a world in which the majority of carbon steel products will be only
available from countries which are prepared to subsidise their state-owned steel
A vibrant steel industry is a prerequisite of most economies. Development of new
and sophisticated steel grades is essential for the improvement of a wide range
of industrial products required for modern living. If the steel sector in the
western world is decimated through poor profitability, choices for the
engineering companies will be limited and only available in remote locations.
Surely, this whole scenario is a betrayal of the millions of steel workers who
have lost their jobs over the last thirty years in the name of free market
conditions and the elimination of government subsidies.
China Steel Review - December 2015 Edition
Also See: www.worldsteelnews.com
Sign up for free
MEPS steel news alerts