With steel plants from Wales to Australia threatened with closure, China has been accused of destroying other nations’ steel profits by propping up its domestic industry. Below is what you need to know about the country’s steel sector.
What is China’s role in the global steel industry?
China is both the largest producer and consumer of the metal. Of its crude steel output of 803m tonnes — half the world total last year, according to the World Steel Association — 112m tonnes was exported, according to figures from the China Iron and Steel Association.
China’s construction boom during its years of breakneck economic growth drove the global steel industry. Its 2014 consumption was more than six times higher than that of the US, the next biggest consumer.
Now China’s economy is slowing and turning away from infrastructure, its demand for steel has weakened, contributing to steel prices worldwide slumping to a 10-year low.
How many people are affected?
Steel workers around the world are suffering under the global steel downturn. The Chinese government has announced about half a million steel workers will be made redundant as a result of reforms to “overcapacity” sectors over the next five years.
What are the accusations being levelled against China?
China has been accused of granting unfair subsidies to its steel sector, making its output cheaper than that of competitors, and of “dumping” its steel on world markets.
What kind of subsidies does China grant its steel sector?
China subsidises its energy sector, which passes on lower prices to power-hungry steel producers.
Subsidies are also given directly to companies: Baotou Iron and Steel Group, which produced an eighth of China’s steel last year, took Rmb580m ($89bn) in government subsidies in the same period, according to Tomas Gutierrez, an analyst at Kallanish Commodities.
The amount varies by company. Hebei Iron & Steel Group, the world’s second-largest steel producer by volume, reported industry-specific government subsidies of Rmb7.19m in its 2014 annual report, and additional government subsidies of almost Rmb50m, of which the largest portion was labelled as “environmental awards”. Taken together, these subsidies came to just 0.1 per cent of Hebei Iron & Steel’s Rmb50bn revenues.
China also imposes steel export tariffs. For example, steel billets (long bars) face export taxes of 20 per cent. These tariffs were cut at the start of this year, in a move some commentators decried as encouraging steel exports.
What is dumping?
Dumping is defined by the World Trade Organisation as a situation in which a good is sold internationally for less than its “normal” value.
How to determine that value is highly controversial.
WTO member countries agree to abide by a general schedule of caps on import tariffs, except in the case of “anti-dumping” duties.
Can countries continue to impose anti-dumping duties on China?
The provision that makes it easy for WTO members to impose anti-dumping tariffs on China will expire in December, when the country marks its 15th anniversary as a WTO member and its status as a “non-market economy” is due to be upgraded.
To prove that a “market economy” is dumping goods, the usual method is to show that the price of the good sold domestically, or the benchmark price, is lower than the export price. China’s domestic steel price is not used as a benchmark, because of its non-market economy status. Instead, benchmarks are compiled using comparator countries, whose domestic prices tend to be higher than China’s.
However, once China receives “market economy” status, the domestic price will be the default comparison used to determine dumping. This would make it harder to prove dumping, so EU steel and solar industry groups have lobbied against China being granted market economy status. But the Ifo Institute for Economic Research, which has produced a report advising the European Commission on China’s WTO status, says the issue has been “partly exaggerated by European lobby groups”, and that the increase in imports from China following the granting of market economy status would not be as dramatic as sometimes claimed.
Source:FT.com