World steel glut and China\'s role

Sayed Kamaluddin | Published: April 20, 2016 19:28:46 | Updated: October 22, 2017 13:21:42


As the world's second largest economy and the largest exporter of goods, China has once again hit the headlines in the world media - both print and electronic. Of course, China's hogging global media headlines is no longer news, but this time it is being backed by both positive and negative factors.
For example, for the first time in nine months, China's exports surged last month (March 2016) and fuelled both hopes and speculations that perhaps the slowdown of China's growth is bottoming out. The global media has variously described China as the 'world's biggest trader of goods'' a crucial 'puller of global trading pattern' and the like. This has prompted the British news agency Reuters to report that investors welcomed the good news sending the Shanghai benchmark composite index up 1.4 per cent and Hong Kong's Hangseng index up 3.19 per cent.
Interestingly, before the China trade figures were released, the French news agency AFP issued a forecast based on the first-quarter (Jan-March, 2016) gross domestic products (GDP) showing that economic expansion had weakened further. However, the report quoting customs said, exports increased 11.5 per cent on year-on-year to $160.8 billion, beating the 10 per cent rise economists predicted in a Bloomberg survey and snapping   an eight-month streak of declines caused by diminishing global demand. Exports in February plunged more than 25 per cent.
The report, however, quoting analysts pointed out that the latest figures were helped by having a low basis of comparison, after exports plunged 15 per cent year-on-year in March 2015.
Zhao Yang of Japan's Nomura in a note said that shipments rose mainly because of the "low base and calendar effect" due to seasonal distortions around the Lunar New Year holidays and warned that "external demand has not improved as much as the number may suggest.
THE GLOBAL STEEL GLUT: Meanwhile, this piece of relative good news was literally drowned in the cacophonies of helpless cries caused by the global economic slowdown leaving tens of thousands of steel workers on the verge of losing their jobs around the world. China produces about 1.1 billion tons of steel or half the world's total production capacity and exported about 110 million tons in 2015
India's Tata Steel has decided to sell its heavily losing British steel venture and blamed flood of cheap steel imports including from China, putting 15,000 jobs at risk. In another story from London, Reuters claimed that having failed to find a ready buyer, Tata has hired a team of bankers from Standard Chartered Bank to avoid an outright "closure of one of its biggest manufacturing operations."  Reuters said: "The steel business in Britain was put up for sale on March 30, but failed to attract attention of most major investment bankers."     
In a similar development, over 40,000 German steel workers came out on the street on April 11 to protest against what they called "steel dumping from China", among other issues such as industry consolidation that they fear will cost them their jobs. On the same day, the US Presidential candidate Hillary Clinton, while busy in campaign, conveniently added her voice, saying she would "impose consequences of when China breaks the rules by dumping its cheap products in our market." The convenient whipping boy is becoming handy.    
What is going to happen in the near future is very much in confusion. For example, the China Iron and Steel Association (CISA) and senior people connected with it have predicted that steel exports will come down during 2016. However, figures quoted by analysts from the customs suggest that steel shipments in March rose by 30 per cent.
Chinese Prime Minister Li Keqiang, according to Reuters, said on April 11 that Beijing intended to quicken steps to tackle the surplus (steel) production. Earlier in February, hopes were raised when China had pledged to reduce 100 to 150 million tons of production capacity in the old mills.  But informed sources said the production is likely to remain high because the attempts to minimize job losses and avoid social disruptions may interfere. Chinese leaders are conscious of it.
Besides, the provincial governments apparently are trying to resist the centre's decision apprehending mass unemployment and spiralling debt burden of the steel firms. This is actually becoming counterproductive. The government of course is in a very difficult situation as to how they can come out of this predicament and announcement of new plans from time to time for tackling this hapless situation actually tended to suggest that they too want a change but are rather unclear about the way.  
Analysts say that the production capacity of the steel firms was developed during 2009 when China had injected over $625 billion (four trillion yuan) into the economy to ward off the global financial crisis. It did help stimulate the economy in creating jobs and exports but the big debt-ridden firms used it up to develop greater production capacity. Despite this temporary change, the continuing global slowdown has also negatively affected China's economic productivity and growth.
PRESSURES BUILDING UP: Meanwhile, AFP reported from Brussels on April 17 that the key players of the world's struggling steel industry gathered there to try to persuade China scaling back its steel overproduction which has already caused havoc in many countries. Britain's business minister Sajid Javid will join counterparts from Belgium and France to make the case to China that will be represented by Assistant Trade Minister Ji Zhang
Concerned officials of the world industrialised countries grouped in the OECD (Organisation for Economic Cooperation and Development), plans to issue a joint statement at the end of the Brussels talks, but the AFP report quoting inside informants said divisions within the group made any positive outcome uncertain. In fact the EU currently has dozens of anti-dumping measures in place against China, several involving the steel industry, but critics argue these are not enough!
China, however, made no official announcement before the talks, but an editorial in the official Xinhua news agency accused the Western governments of embracing protectionism which will damage the global economy.
The editorial said: "Blaming other countries is always an easy, sure-fire way for politicians to whip up storm over domestic economic woes, but finger-pointing and protectionism are counterproductive."


sayed.kamaluddin@gmail.com
 

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