Flood of cheap Chinese steel fuels global backlash

Exports of Chinese steel have risen 33% in the past year as the country’s enormous producers try to unload their wares abroad now that construction at home has dried up. (File Photo: AFP) / China Out
Exports of Chinese steel have risen 33% in the past year as the country’s enormous producers try to unload their wares abroad now that construction at home has dried up. (File Photo: AFP) / China Out

Summary

The country’s property bust has saddled its steelmakers with a glut of unsold metal that they are now shipping overseas at knockdown prices.

SINGAPORE—China’s epic property bust has saddled its steelmakers with a glut of unsold metal. They are now shipping it overseas at knockdown prices—and the U.S. isn’t the only country pushing back.

President Biden on Wednesday asked U.S. trade officials to hit imports of Chinese steel with heftier tariffs, the latest move in a broader campaign against cheap Chinese exports that Washington says are swamping U.S. and global markets.

Exports of Chinese steel have risen 33% in the past year as the country’s enormous producers try to unload their wares abroad now that construction at home has dried up. In the 12 months through February, China exported 95 million metric tons of steel, according to Chinese customs data, a sum that exceeds estimates for total U.S. steel consumption in all of 2022.

The surge in Chinese steel exports offers a potent illustration of the growing anxiety over the prospect of a new “China shock" ripping through global trade.

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(WSJ)

Beijing is funneling investment into factories to rev up growth in an economy beset by restrained consumer spending and real-estate distress. The result is a blast of exports that is bringing back memories of the original China shock of the early 2000s when a torrent of cheap goods brought a bounty for consumers but proved an insurmountable challenge for some U.S. industries exposed to the new competition.

President Biden on Wednesday called for tripling a key tariff rate on Chinese steel to 25%, a duty that comes on top of a second 25% tariff rate applied to Chinese steel on national security grounds by the Trump administration in 2018.

Chinese data shows exports of steel to the U.S. have dwindled since the Trump-era tariffs came into effect. China exported 1.2 million metric tons of steel to the U.S. in 2018, according to Chinese customs data. By last year, that had fallen to 815,000 tons.

Instead, Chinese steel is pouring into other countries including Brazil, Vietnam, India, the U.K., the Philippines and Turkey, all of which have antidumping investigations under way.

Chinese officials have dismissed complaints the country is unfairly subsidizing its manufacturers and exporting a glut of goods onto world markets. They have called the criticism a smokescreen for the inability of Western companies to compete with Chinese rivals.

On Thursday, China urged the U.S. not to repeat what it described as mistakes by the Trump administration in raising trade barriers. The commerce ministry called the proposed tariff a protectionist measure. “We urge the United States to face up to its own problems," the ministry said.

The sharp rise in Chinese steel exports over the past 12 months echoes a similar flood in 2015. Steel exports in 2015 reached a record 112 million metric tons, 5½ times the exports notched a decade earlier.

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(WSJ)

That surge was powered by a collapse in steel demand thanks to a swooning Chinese real-estate market. By some estimates, real-estate construction in China in a typical year accounted for around 25% of global steel demand, said Frederic Neumann, chief Asia economist at HSBC.

China’s real-estate market is once again in a deep slump. Most economists expect the downturn to persist as Beijing wrings what it perceives as speculative excesses out of the system. That means steel producers can expect to be sitting on unsold metal for years unless they rein in production.

Last year, though, production increased, rising around 3% compared with 2022 to 1.2 billion metric tons.

“What is the outlet? It has to be exported," said Neumann.

Angang Steel, a Hong Kong-listed unit of Ansteel Group, the world’s third-largest steel producer, said last month that domestic sales in 2023 plunged 15% but exports rose 18% as it “actively expanded its overseas sales channels." The company swung to a net loss of 3.25 billion yuan last year, equivalent to around $449 million, blaming low prices and subdued domestic demand.

Chinese data shows that exports of steel to India in the 12 months through February were 84% higher than a year earlier, at around 3 million metric tons. Exports to Vietnam were up 78% to almost 10 million metric tons.

Over the same period, exports to Brazil were up 55%, to Turkey they were up 58%, and to Mexico, up 14%.

In Brazil, some 2,000 steelworkers have been laid off or suspended over the past six months at factories owned by Brazil-based Gerdau and Luxembourg-based ArcelorMittal as producers struggle to compete with Chinese imports. Brazilian steelmakers have called for tariffs of 25% on imported steel to protect local production.

“Brazil exports iron ore to China, which manufactures it into steel and sells it back to us at a lower price than our own steelmakers can manage," said Weller Gonçalves, head of one of the country’s largest steelworkers’ unions. “Competition from China today is much worse than we’ve seen in previous years," he said.

Brazilian authorities in March opened antidumping probes into certain carbon steel sheets and prepainted steel from China. Mexico in September began an investigation into steel nails from China that are used in concrete. Vietnam is looking at steel strands, the U.K. at steel ropes and the Philippines at steel cylinders.

The Biden administration said it plans to work with Mexico to ensure its southern neighbor isn’t used as a conduit for Chinese steel to enter the U.S. market, reflecting concerns that the country’s producers are seeking ways to circumvent tariffs. The Trump administration in 2018 accused Vietnam, Malaysia and Thailand of being hubs for such transshipment.

The White House said trade officials are also launching antidumping investigations centered on China’s shipbuilding, maritime and logistics industries. The broadside comes ahead of a presidential election in which trade with China is expected to be a key issue.

In contrast with the early 2000s, when China was mostly manufacturing low-end goods, China today is competing against industries all over the world, whether steel, textiles or ceramics in emerging markets, or semiconductors, electric vehicles and other high-tech equipment in advanced economies.

U.S. Treasury Secretary Janet Yellen, on a recent trip to Beijing, warned that China is now simply too large for the rest of the world to absorb its ballooning industrial output, which U.S. officials say is supported by lavish subsidies and state-directed loans.

“When the global market is flooded by artificially cheap Chinese products, the viability of American and other foreign firms is put into question," Yellen said.

Xiao Xiao in Beijing, Samantha Pearson in São Paulo and Clarence Leong in Singapore contributed to this article.

Write to Jason Douglas at jason.douglas@wsj.com

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