The Global Steel Market Under Siege
In recent years, China's steel production has consistently outstripped that of the rest of the world, producing around one billion tons annually. However, a large portion of this steel remains within China’s borders. That said, 2023 saw a significant shift, with Chinese steel exports surging to 90 million tonnes, a 35% increase from the previous year. Although this figure is still just a fraction of China’s overall output, it surpasses the annual steel production of nations such as the United States and Japan, demonstrating China's immense capacity. The sheer scale of this surge is equivalent to enough steel to construct over a thousand Golden Gate Bridges.
The steep increase in Chinese steel exports has raised alarms globally, particularly as China’s economic struggles have pushed its steelmakers to sell abroad at deeply discounted rates. This is distressing foreign competitors and governments alike, with many accusing China of flooding the global market. Japan’s leading steelmaker, Nippon Steel, has already appealed to its government for anti-dumping measures to combat cheap Chinese steel imports, as evidenced by the 11% year-on-year drop in the company’s net profit for the second quarter of 2023. In Europe, the situation is even more pronounced. ArcelorMittal, one of the continent’s largest steelmakers, reported a 73% reduction in its net profit during the same period.
Political Fallout and Economic Repercussions
The backlash from these competitors has political implications, as steel is often viewed as a cornerstone of a nation's industrial strength. The economic benefits of lower steel prices may be enjoyed by consumers globally, but the concentrated damage to domestic steel industries and workers is causing political unease. This has prompted calls for protective measures, much like those seen in the past when China’s steel exports previously surged, particularly in 2008 and 2015. Those waves of steel exports led to widespread trade barriers. Between 2008 and 2018, nations such as the United States, Britain, Canada, and the European Union implemented over 500 trade measures aimed at curbing imports of Chinese steel.
This time, however, the consequences of Chinese steel exports are likely to be even more far-reaching, largely because of the worsening state of China’s domestic economy. The country’s steel industry, which is closely tied to its property sector, has been severely impacted by the downturn in real estate. In August 2023, a mere 1% of China’s 250 steel mills reported profits, according to data from Wood Mackenzie, a consultancy firm. The price of hot-rolled coil steel, a key benchmark in the industry, has dropped by 16% over the past year. Despite these plunging prices, many Chinese steelmakers are hesitant to reduce production because shutting down a blast furnace can be a time-consuming and costly process.
With dwindling domestic demand, Chinese steelmakers have sought to compensate by increasing exports. This has reignited concerns abroad and triggered a fresh round of tariffs. In September, Canada joined other nations in imposing duties on Chinese steel. Even in the United States, where high tariffs already restrict Chinese steel imports, American producers are feeling the squeeze from falling global prices. To counteract this, the U.S. government announced in July 2023 a 25% tariff on steel imported from Mexico that had not been "melted and poured" within North America, an effort to prevent Chinese steel from entering the market via third-party countries.
The Global Reach of China’s Steel Exports
China’s steel export surge is not just affecting wealthier nations. The majority of its steel exports in 2023 went to developing nations, with nine out of the top ten destinations being in the global south. Countries like India are experiencing a boom in steel demand, driven by infrastructure projects and urbanization. India's steel consumption is expected to grow by 8% annually, a rate far above that of most developed nations. Much of China’s steel exports to these countries are facilitated by its Belt and Road Initiative (BRI), a global infrastructure project in which Chinese construction firms build major infrastructure in developing nations using Chinese steel.
However, even steelmakers in the developing world are starting to voice concerns about China’s export practices. Tata Steel, India’s largest steel manufacturer, has accused Chinese companies of engaging in "predatory pricing." Governments across the global south have responded to these complaints by imposing tariffs on Chinese steel. In August 2023, India announced tariffs of up to 30% on certain Chinese steel products. Brazil, Mexico, Thailand, Turkey, and Vietnam have all initiated similar measures. Vietnam, in particular, the largest recipient of Chinese steel exports, has launched anti-dumping investigations.
In response to both economic turmoil at home and rising protectionism abroad, the Chinese government has made moves to curb steel production and stimulate domestic demand. These steps include incentives for businesses and households to replace old machinery and appliances, as well as halting approval for new steel mills. However, these measures have not been substantial enough to significantly alter the course of the industry. According to S&P Global, China is expected to add more steel production capacity by the end of 2024 than it will shut down.
Navigating the Steel Surge: Chinese Strategies and Global Implications
With few alternatives, Chinese steelmakers continue to search for new international markets. Wood Mackenzie forecasts that China’s steel exports will reach 103 million tonnes by the end of 2023. Some Chinese steel producers are even investing in new overseas facilities. For example, China Baowu Steel, the world’s largest steelmaker, doubled its investment in a plant in Saudi Arabia in 2023. Tsingshan Group, another Chinese metal and mining company, recently began production at a steel mill in Zimbabwe. While this helps create jobs in foreign markets, it risks exacerbating the global steel glut.
Domestically, Chinese steelmakers are trying to pivot from the struggling property sector toward growing industries like electric vehicle (EV) manufacturing, which also have an eye on foreign markets to compensate for lackluster domestic demand. As James Campbell of the CRU Group, a consultancy, aptly put it, "Steel will always find a home"—whether in China or abroad. Despite global trade tensions and a glut in supply, Chinese steel is likely to continue influencing the world’s steel markets for the foreseeable future, much to the chagrin of global steelmakers and politicians alike.
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