At Brussels Meet, Countries Spar Over Steel Crisis' Causes, Solutions

21 April 2016

The state of the international steel market took centre stage this week at a high-level meeting in Brussels, with government officials and industry representatives debating over what steps to take in order to curb the burgeoning global crisis.

The highly-anticipated symposium on 18 April was organised by the Organisation for Economic Co-operation and Development’s (OECD) Steel Committee, together with the Government of Belgium, and brought together ministers, vice ministers, and other high-ranking officials from countries involved in the steel sector.

The goal of the talks, according to a summary released by the meeting’s co-chairs afterward, was “to seek possible solutions” to the difficulties of the steel factor in light of the “pronounced” effects on industry from steel overcapacity.

Along with the imbalance between steel supply and demand, steel prices have also seen a massive drop, while trade flows “have changed significantly” – sparking growing tensions between countries, as well as a sharp rise in trade remedy cases, now at “historically high levels.”

“The primary objective of the discussions was to exchange views on the policy actions that would help reduce steel excess capacity,” the summary notes. “Another objective was to strengthen efforts to increase transparency through information sharing about measures being taken to address excess capacity and promote structural adjustment in the steel industry.”

The summary does not, however, note any agreement on ways forward, besides referring to a proposal from various governments to continue talks, such as through a high-level meet scheduled for this coming September.

One option on the table, the co-chairs said, was setting up a “platform for global dialogue,” which will be on the agenda for the September gathering.

Heated debate

In recent months, China has come under increasingly heavy scrutiny in light of the global steel situation, given its role as the world’s top supplier of the metal, providing over half of the overall supply. How much reform Beijing should undertake compared to other major steel-producing nations – and ultimately what exact factors have caused the current supply-demand imbalance and whether trade remedy action is needed – have been the subject of heated discussion.

Earlier this month, the Office of the US Trade Representative (USTR) issued a statement on behalf of the governments of the US, Canada, and Mexico, warning about the ramifications of excess steel capacity on their respective countries, and calling for the world’s top steel producers “to make immediate and strong commitments” to resolve the issue.

“Globally, excess steel capacity has more than doubled from 2000 to 2014, led by unsustainable expansion in China,” the USTR statement said.

OECD figures confirm that global steel capacity has seen a massive uptick over that period, reaching 2.3 billion metric tonnes last year, a 126 percent increase from the year 2000. Meanwhile, demand for steel took a hard hit in the wake of the 2008 financial crisis, and once again suffered last year despite earlier seeing some signs of improvement.

According to an OECD background note prepared for the 18 April meeting, global crude steel demand in 2014 was at 1.663 million metric tonnes – over 600 million metric tonnes below the capacity that year.

“The capacity-demand gap… is expected to have widened significantly in 2015, to a level in excess of 700 [million metric tonnes],” the note says.

Froman, Priztker: Trade actions possible

Following the Brussels meet, US Trade Representative Michael Froman and Commerce Secretary Penny Pritzker issued a joint statement that criticised harshly the failure to reach a shared stance on addressing the steel problem.

“Most of these countries [at the meeting] – many of them major steel producers – share the view that excess capacity, and government measures that give rise to it, underlie the current crisis,” the US officials said.

“These countries came to Brussels prepared to deal seriously with these issues. Unfortunately, other countries – China among them – were not prepared to do so, preventing broad consensus,” they added.

Froman and Pritzker further warned that a failure by Beijing to “take timely and concrete actions” to both curb its steel production and capacity, as well as to cooperate others to avoid a repeat of the current crisis, would leave “affected governments” such as the US with “no alternatives other than trade action to avoid harm to their domestic industries and workers.”

At a hearing in Washington last week, Froman also noted that while the steel problem “is not limited to China,” the Asian economy is, in Washington’s view, a large factor. Furthermore, he warned that the situation has implications for various sectors outside steel, such as aluminium and solar panels.

Malmström: “Life or death” for EU firms

The EU has warned about similar struggles, with the European Commission announcing last month a series of steps – both current and planned – aimed at supporting its own steel sector, which is the second largest in the world. (See Bridges Weekly, 17 March 2016)

“State involvement, not market needs, particularly in China, has created incentives to invest more, and therefore overproduce,” said EU Trade Commissioner Cecilia Malmström at the Brussels meeting. “Most of the expansion has happened in China, making it now the world’s largest steel producer.”

While recognising the reforms China has made to its domestic steel sector so far, the EU trade chief warned that more must be done – particularly given the ramifications of China’s steel production on companies and people elsewhere.

“The scale of the emergency in the sector means it’s now life or death for many companies,” she said, outlining the specific difficulties facing EU firms.

The EU’s executive arm currently has several investigations underway into alleged dumping of Chinese-made steel, with the latest one launched in February. On Monday, Malmström credited some of the import surge seen in the European Union of steel being sold in the bloc “under conditions which can only be classified as dumping,” which is when products are sold overseas at prices below their normal value. (See Bridges Weekly, 18 February 2016)

“The European Union knows that trade defence measures are not, on their own, going to solve the problem,” she noted, calling instead for continued cooperation at the global stage to ensure real reform.

Country group issues statement, recommended steps

A day after the Brussels meet, a group of countries – including Canada, the 28-nation EU, Japan, Mexico, South Korea, Switzerland, and the United States – issued a joint statement outlining a number of steps which, they argued, could serve to address the challenges in the sector.

These included, for example, ensuring that “governments and government-supported institutions do not provide subsidies or other support that i) sustain uneconomic or consistently loss-making steel plants, ii) encourage investment in additional steelmaking capacity which would otherwise not be built or iii) otherwise distort competition,.”

Other possible steps include making sure government actions, implemented either by governments or government-supported bodies, “do not encourage the net expansion of steel capacity” and allow for steel enterprises making regular losses to shut down; collaborating on developing policies that address the negative ramifications of steel plant closures on workers and their communities; improving information sharing; and making sure state-owned companies “do not receive special benefits that distort competition.”

The statement also calls for a global forum to be developed by the OECD, along with partners and countries that are big players in steel production, in order to take on “further work on global restructuring issues in steel.”

The joint document was published by the US Commerce Department. In a related statement by Froman and Pritzker, the two officials suggested that these countries have as their “shared goal” that China and other economies “recognise the value of these actions and will join our collective effort to address the causes of the current excess capacity problem.”

They also claimed that China was among those countries who “prevented a broad consensus in support of commitments” that would address the steel overcapacity problem, while not naming those other nations.

Washington pledged to continue talks with Beijing and others on the same subject, according to the US trade and commerce chiefs.

China’s Xinhua paper warns against “finger-pointing”

Beijing has countered that the steel capacity issue is a global problem and that it is seeking to work together with other international partners to resolve it, with officials noting in Brussels this week the production cuts already being made to the sector.

“China has already done more than enough. What more do you want us to do?” said Chinese Commerce Ministry spokesperson Shen Danyang to reporters, according to comments reported by Reuters.

The Chinese official noted that much of the problem actually relates more to a lack of demand from countries that usually are major steel consumers, which in turn gives the impression of over-supply.

“Steel is the food of industry, the food of economic development. At present, the major problem is that countries that need food have a poor appetite so it looks like there’s too much food,” the ministry spokesperson said.

Furthermore, an op-ed published the same day by the state-run Xinhua news outlet warned against “finger-pointing and protectionism,” suggesting that this would be “counter-productive.”

“It seems understandable to think of China, the world’s largest steel producer and consumer, as the source of global market woes. Upon closer inspection, however, it’s just a lame and lazy excuse for protectionism,” said the piece.

The article also claimed that much of Chinese steel production goes toward domestic consumption, and that cheap exports abroad are actually helpful for EU firms that use it for producing downstream goods. Furthermore, it said, the difficulties plaguing the world economy has made the steel situation a global problem, and that Beijing is “one of the most hard-hit.”

“The last thing the world needs is a trade war over this issue. Far more jobs will be lost than gained if protectionism prevails,” said the Xinhua article.

ICTSD reporting; “Major steel producers fail to reach deal on overcapacity, U.S. chides China,” REUTERS, 19 April 2016; “Commentary: Finger-pointing, protectionism won’t solve global steel woes,” XINHUA, 18 April 2016. 

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