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Chinese Steel looking for a dumping ground

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LGL8054   Monday, 03/16/15 11:43:42 AM
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Chinese Steel looking for a dumping ground

China’s massive steel-making engine, determined to keep humming as growth cools at home, is flooding the world with exports, spurring steel producers around the globe to seek government protection from falling prices.

From the European Union to Korea and India, China’s excess metal supply is upending trade patterns and heating up turf battles among local steelmakers.

In the U.S., the world’s second-biggest steel consumer, a fresh wave of layoffs is fueling appeals for tariffs. U.S. steel producers such as U.S. Steel Corp. and Nucor Corp. are starting to seek political support for trade action.

China’s steel exports rose 63% to 9.2 million tons in January from a year earlier, a rise that puts them on pace this year to beat the 82.1 million tons China exported last year. That number increased 59% from 2013 and was the most steel ever exported by any country this century.

China produces as much steel as the rest of the world combined—more than four times the peak U.S. production in the 1970s. But as China’s growth slows, the excess steel that Chinese industry doesn’t need is washing up overseas.

Steel use in China grew by just 1% in 2014 and growth will slow further to 0.8% in 2015, according to the World Steel Association, as the country’s real-estate sector cools. China’s mills have yet to slow in lockstep. Their output is supported by a fall in the price of iron ore, the main ingredient in making steel.

Mills’ refusal to cut back despite slower demand growth is what irks steelmakers elsewhere in the world.

The state-backed China Iron and Steel Association has in the past described efforts to roll back Chinese exports as “protectionist.” But it has also said that it recognizes the problem and has encouraged Chinese steelmakers to hold down exports.

Chief executives of leading American steel producers said Thursday they would testify later this month at a Congressional Steel Caucus hearing, a move that trade lawyers said is a prelude to launching at least one anti-dumping complaint with the International Trade Commission. “Dumping,” or selling abroad below the cost of production to gain market share, is illegal under World Trade Organization law and is punishable with tariffs.

Chinese exports to the U.S., which jumped 40% in January from a year earlier, have further depressed prices already hurt by an oil-drilling slowdown and the resulting slump in demand for steel pipes and tube. The benchmark “hot-rolled coil” index has dropped 18% to $492 a ton just since Jan. 1.

European steel leaders met with European trade commissioner Cecilia Malmström last week to make their case for more tariff protection, said Robrecht Himpe, executive vice president at ArcelorMittal Europe and head of the European steel lobbying group Eurofer.

Both the U.S. and the EU already have tariffs in place on a handful of Chinese steel products, but steel companies call them insufficient.

They say what they must do to demonstrate damage from Chinese exports is too difficult. “We have to bleed before we get any relief,” said Debbie Shon, U.S. Steel vice president for international trade.

U.S. Steel last week began laying off 614 workers, in a process that will see some of its tubular plant in Lorain, Ohio, temporarily idled. U.S. Steel has idled six plants since 2014, and this year has laid off or issued layoff warnings to around 3,500 workers.

The EU has six investigations that might lead to tariffs, covering various products such as fasteners and steel wire, an EU spokesman said. Steel imports to the EU from China were 5 million tons in 2014, up 49% from 2013.

In December, Korea’s Hyundai Steel and Dongkuk Steel filed a proposal for an anti-dumping duty of 18% to 33% on Chinese steel.

Australia’s Anti-Dumping Commission is investigating about a dozen cases of alleged dumping of low-priced steel products from Asian countries, including China. Industry minister Ian Macfarlane said the allegation is that steel mills in other countries have been making minor alterations to steel products or routing them through third countries to circumvent Australia’s antidumping laws.

U.S. steelmakers allege a similar practice, saying that China often ships steel to South Korea for processing before it gets moved to the U.S.

In India, where imports of some lower-priced Chinese steel products have surged by close to 200% year-on-year between April 2014 and January 2015, some steelmakers are seeking trade measures including higher duties, said Jayant Acharya, commercial director at JSW Steel.

“There is some trade action definitely required,” said Mr. Acharya. He said that for certain steel products priced at $550 a ton in October, prices of Chinese imports have fallen by as much as $150 a ton. China’s producers doubled their exports to India last year, to 2.8 million tons, according to an ING Bank report.

The global steel industry suffers from overcapacity in part because many countries make it a point of national pride to support a domestic steel industry.

Some producers fear the worst is yet to come. Property and infrastructure construction demand in China is likely to remain under pressure following years of breakneck growth and despite a recent interest rate cut, analysts say. That would mean Chinese domestic demand for steel is unlikely to perk up soon.

Many Chinese steelmakers are government-owned or closely linked to local governments, said Jiming Zou, an analyst at Moody’s Investors Service. Given their important role as employers and providers of tax revenue, the mills are unlikely to close or cut production even if running losses, he said.

China’s steelmakers benefit from relatively low-cost labor and inputs such as coking coal. While there has been some tightening of new lending to Chinese industries that face overcapacity, Mr. Zou said, major state-owned steel makers continue to have their loans rolled over or refinanced.

Analysts pointed to the Chinese currency, as well. “The weakening renminbi was also a factor in encouraging exports,” said Xue Heping, an analyst who advises the China Iron and Steel Association.

Chinese steelmakers could also get a boost from foreign investors. Steel will be among industries opened to foreign ownership, the country’s National Development & Reform Commission, said Friday. The group’s officials have said allowing foreign investment could help calm external criticism of the industry.

China isn’t alone in facing allegations of dumping. Similar complaints have been levelled against others such as Japanese and Indian producers.

South Korean steelmakers have complained that both Chinese and Japanese companies are disrupting their market. But it is Chinese producers, with their large volumes of cheap low-grade steel, that are the main target of criticism.

“Chinese tend to be on the lower end of the price curve for exports, while Japanese mills tend to export higher grades. The real competition for South Korean mills is with China,” said Cindy Park, a Nomura analyst.

The problem of excess capacity doesn’t plague only China but can be seen across northern Asia, said Paul O’Malley, CEO of Australia’s Bluescope Steel.

—Rhiannon Hoyle contributed to this article.

Write to Biman Mukherji at biman.mukherji@wsj.com, John W. Miller at john.miller@wsj.com and Chuin-Wei Yap at chuin-wei.yap@wsj.com
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