Invariably whenever prices for commodities fall, domestic producers begin sounding the alarm bells. And those bells are ringing loud and clear when it comes to steel imports from China, according to a recent Wall Street Journal article.
The comments on that story, on the other hand, tend to center on free trade, fair markets and protectionism. They tend to support the point of view of the buying organization and not the domestic producer.
Steel Data Informs The Debate
But most commentators don’t spend the time poring through steel data to engage in an informed debate. From our vantage point, several factors should be part of any trade analysis:
- Home-country demand vs. the amount of domestic capacity. A large delta between the two tends to force foreign producers to seek export markets to deplete the surplus.
- Price trends in the home market vs. price trends in overseas markets.
- A true understanding of what it means to “dump” a product – the definition is this: domestic producers need to show that products sold into the import market are sold at below home market price levels – a challenging task to prove, to say the least.
- Actual import volumes and average prices.
To be clear, to prove anti-dumping, the domestic producers must provide evidence as in 3 above. No. 4 above helps producers determine if they believe they need to pursue 3. Why dumping occurs involves 1 and “if” it can happen applies to 2.
So let’s examine each of these four points.
US vs. Chinese Steel Production
Using World Steel Association data (probably the most recognized and credible source for steel data), China accounted for 50.2% of total 2014 global steel production, or 822.7 million metric tons. By way of comparison, the US produces 88.3 mmt.
Next, we need to examine China consumption. Here is an estimate from Ernst & Young of 2014 China steel consumption at 751 mmt. According to China’s Planning Institute of Metallurgy Industry, in a report dated Dec. 5, 2014, the industry body reported China steel consumption for 2014 of 710 mmt of steel.
That means domestic capacity exceeded demand by 112.7 mmt (more than the entire US steel production capacity).
This delta does, indeed, suggest that Chinese producers would seek to find a home for all of this excess material.
Moving to our second point, what do the price trends for flat products look like comparatively? In this case, we’ll examine China vs. the US. What we look for is an arbitrage opportunity. In other words, do the economics make sense for China to take the home prices, add shipping, packing, duty and finance etc., and successfully export by undercutting US producers?
The answer is a mixed bag. As a rule of thumb, we might expect (at a minimum) a 10-15% price delta between the two countries to justify Chinese exports. Certainly for CRC, as the table shows below, we wouldn’t theoretically expect to see much by way of imports at least from Oct–Dec 2014 and March 2015, also trending lower (e.g. or a reduced arbitrage opportunity). But we would expect to see a fair number of HRC imports for each of the past 6 months:
The cold-rolled coil data suggests China, at least based upon January numbers, has not served as a top 5 exporter to the US. However, the original Wall Street Journal article mentioned, “that US steelmakers allege a similar practice, saying that China often ships steel to South Korea for processing before it gets moved to the U.S.”
And lo and behold, Korea takes the number 1 spot for CRC imports. It might be worth examining Korean CRC prices to conduct a similar analysis.