AISI’s Gibson: China Must Get Out of the Steel Business

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American Iron and Steel Institute President and CEO Thomas Gibson said in a recent media conference call that the U.S. and other nations continue to experience economic impacts from the Chinese steel oversupply largely produced by China’s state-sponsored companies. He said policymakers must address the “root cause” of the problem.

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“We believe that the Chinese government has to get out of the steel business,” Gibson said, “and let its steel industry operate according to market principles.”

Gibson spoke July 13 on a conference call with the press.

In 2015, China’s production of crude steel fell 2.3% from 2014, according to the World Steel Association, but its share of the world’s production grew slightly to 49.5%. Gibson said China’s oversupply of steel reached 112 million metric tons in 2015 and added that some reports estimated excess production would increase this year. U.S. steel companies’ production fell 10.5% last year and approximately 10% of the workforce has been laid off.

Gibson said that nine of the 10 largest steel producers in China are state-owned. While these firms may be selling steel at a loss, China is directing state-owned banks to “continually refinance the debt” and also sweep the debts off the books and this is what’s keeping “zombie mills” open.

In an effort to address declining domestic demand, China announced that it would reduce steel production as much as 150 mmt over the next five years. Gibson said these promises are often empty as China made similar commitments in the past and “each time capacity has actually increased in China.”

Speaking a day after the press phone call to the Senate Banking Committee, Gibson said, “the surge in imports is a result of foreign government interventionist policies that have fueled global overcapacity in steel, more than half of which is located in China… While China is not the only source of the problem, the overcapacity in China is the greatest challenge facing the global steel industry today.”

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Gibson said China’s major steel firms reportedly lost more than $15.5 billion last year while still producing so much excess steel.

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