The European Parliament has accused China of systematic distortion of its steel market, resulting in “irrational capacity extension” according to the Telegraph newspaper. The next step will quite possibly be a rash of anti dumping cases on the grounds of “artificially depressed cost levels” and export rebates, but first the Europeans are engaging the Chinese in a dialog to seek a remedy.
Despite repeated urgings by politicians around the world to avoid protectionism, since the global downturn, that is exactly what has happened. The European steel lobby, Eurofer, said India, Russia, Turkey, Egypt, Indonesia, and Vietnam had all imposed steel tariffs, seeking to protect their domestic producers by keeping out the competition. The US Buy America clause is only the mildest of non tariff moves adopted by many countries.
The European trade commissioner is quoted as saying that although steel production has been going down all over the world, it has been going up in China. China’s steel exports to the EU were 1.6m tons in 2005, 5.6m in 2006, 11.5m in 2007 and will almost certainly be higher in 2008. The problem for China is they have lost 20 million jobs since the crisis began and as we have seen with support for the aluminum industry, they will go to almost any length to keep production going, even if there isn’t a domestic market for the metal. Meanwhile, European steel mills have made production cuts of 50% and see no end this year to the drop in demand. Apart from a small boost to consumption from small car plants in parts of Germany, Italy and France, overall steel demand is still down and unlikely to pick up anytime soon.
As committed free marketers we have always supported global competition providing it is on a level playing field, the problem comes when one or more party looks to distort the rules in their favor.