As China’s real estate industry collapses, the demand for steel in the market sharply decreases, leading Chinese steel companies to export overseas through price reductions, causing impacts on various countries. The United States and some countries in Latin America are calling for imposing additional tariffs on Chinese steel. President Biden has called for raising the existing tariff rates on Chinese steel and aluminum to three times the current level. Currently, under the “Section 301” of U.S. trade law, the average tariff on steel and aluminum is 7.5%.
On April 17, the Biden administration in the United States announced the latest measures to protect the American steel and shipbuilding industries from unfair practices of Chinese steel exports. It urged an increase in import tariffs for Chinese steel and aluminum to three times the current level. At the same time, the U.S. Trade Representative’s Office (USTR) will also investigate China’s unfair practices in the shipbuilding sector.
According to the White House statement, Biden believes that steel is the backbone of the U.S. economy and a cornerstone of national security but American steel and aluminum workers are facing significant challenges from Chinese steel and aluminum exports. China’s surplus capacity and non-market investments mean that high-quality American products have to compete with artificially low-priced alternatives with higher carbon emissions.
The statement indicated that the Biden administration recognizes China’s unfair trade practices, including flooding the market with steel below market costs, distorting the global shipbuilding market, and weakening competitiveness. Consequently, after five unions petitioned the USTR to investigate China’s behaviors, policies, and practices in the shipping, logistics, and shipbuilding industries, the government took action.
Furthermore, the U.S. Department of Commerce is taking action against countries and importers that do not comply with the rules and dump cheap products into the market. Since President Biden took office, the Department of Commerce has imposed over 30 anti-dumping and countervailing duties on steel-related products, as well as conducted nearly 27 investigations into Chinese exporters violating fair competition and evading trade rules.
Additionally, Biden has instructed a senior government team to work with Mexico to prevent Chinese steel and aluminum produced goods from entering the U.S. via Mexico to evade tariffs. The USTR is also investigating China’s unfair trade practices in the shipbuilding, shipping, and logistics sectors.
U.S. Treasury Secretary Janet Yellen, who recently visited China on April 9, had one of her main tasks as engaging in dialogue with Chinese economic officials regarding China’s industrial overcapacity issues. Yellen stated that the U.S. will not tolerate China exporting its excess capacity without restrictions as it would affect industries globally.
In fact, it’s not just the U.S., but European countries and even some developing countries are also concerned about China’s industrial overcapacity issues. Yellen mentioned that massive support from the Chinese government has led to flooded global markets with low-cost Chinese steel and aluminum, “devastating industries worldwide and in America.”
Workers in the metal industry in Latin American countries are also calling for increased steel import tariffs. With the influx of cheap Chinese steel threatening hundreds of thousands of jobs related to the industry, steel factory owners and workers in countries like Chile and Brazil are pressuring governments to raise import tariffs.
Data from the Latin American Steel Association (Alacero) shows that in 2023, the region imported a record 10 million metric tons of steel from China, a 44% increase compared to the previous year. Two decades ago, this number was only 85,000 metric tons.
Approximately 1.4 million people in Latin America are employed in the steel industry, but with Chinese steel prices 40% lower than locally produced goods, local steel plants are facing challenges, and workers’ livelihoods are increasingly at risk.
One of the victims is Chile’s largest steel plant, Huachipato. The factory has announced a halt in operations, affecting around 2,700 direct jobs and 20,000 indirect jobs. Since 2009, the plant has incurred losses exceeding $1 billion.
In a last-ditch effort, Huachipato has requested the Chilean National Price Distortion Commission (CNDP) to recommend the government impose a 25% tariff on imported steel. The recent ruling by CNDP indicated sufficient evidence of dumping by China and suggested the government impose a 15% tariff.
However, the issue lies in the fact that Chile signed a free trade agreement with China in 2006; if tariffs are imposed to protect the domestic steel industry, the Chilean government could face punitive measures.
Based on data from the Brazilian Steel Association, Brazil’s steel imports from China grew by 50% last year, while its own steel production decreased by 6.5%. One of Brazil’s largest steel producers, Gerdau, has laid off 700 workers.
Gerdau stated that the layoffs are due to the challenges posed by the “predatory imports of Chinese steel.” The Brazilian steel industry is urging the government to raise import tariffs to 25%, though specific rates vary by product.
Brazil is the largest steel producer in Latin America and the ninth largest producer in the world.
On December 28 last year, Mexico announced nearly an 80% tariff on some steel products exported from China to Mexico because local producers criticize Chinese manufacturers for limiting their production.
Mexico’s tariffs also apply to some cold-rolled steel plates exported from Vietnam unless they can prove that these materials are from countries other than China.
China is the world’s largest steel producer. According to the World Steel Association, headquartered in Belgium, China produced 1.019 billion metric tons of crude steel in 2023, accounting for about 54% of global production, surpassing the total production of all other countries in the world.
For over two decades, with the support of the Chinese government, the Chinese steel industry has rapidly expanded, with crude steel production growing by over 700%. In 2015 and 2016, China’s steel exports surpassed 100 million metric tons for two consecutive years. Last year, Chinese steel exports reached 902.64 million metric tons, the highest level since 2016.
China’s overcapacity and export dumping are impacting countries worldwide. From 2011 to 2015, a surge in Chinese steel production led to a 57% drop in global steel prices, resulting in mass unemployment worldwide.
Now, with the collapse of the Chinese real estate market and slowing infrastructure demand, domestic steel demand in China has plummeted. Therefore, China is resorting to selling excess steel overseas by lowering prices to absorb its steel production.
Data released by the Chinese General Administration of Customs on April 12 shows that China exported 25.8 million metric tons of steel in the first three months of this year, a 30.7% year-on-year increase. Among them, steel exports reached 98.88 million metric tons in March, up 37.9% from February, setting a new monthly record since July 2016.
However, while steel exports have increased, prices have been declining. According to the Chinese General Administration of Customs data, total steel exports from January to March amounted to $20.34 billion, a 12.9% year-on-year decrease. Calculated accordingly, the export unit price dropped by 33.4% year-on-year to $788.5 per ton.
In the first three months of this year, the production output of major steel enterprises in China was about 201 million metric tons, remaining relatively unchanged year-on-year. Data from the service provider “My Steel” indicates that as of March 28, accumulated steel inventories in China, including both factory and social stocks, reached 234.12 million metric tons, a 75% increase from the end of 2023. This implies that while the supply side remains relatively stable, domestic demand in China has sharply decreased.
The severe overcapacity in the Chinese steel industry is not only harming related industries in various countries but is now also undermining China itself.
In the first two months of this year, the ferrous metal smelting and processing industry that represents the Chinese steel industry reported losses of 14.61 billion yuan (approximately $2 billion), the highest loss among all industrial sectors during that period.
Many listed steel companies in China reported losses last year. According to annual reports, the most severely affected was Angang Steel, with an annual net loss of 3.257 billion yuan (about $450 million), turning from profit to loss. In addition, Chongqing Iron & Steel reported a loss of 1.494 billion yuan (about $210 million), a 47% increase in losses; Maanshan Iron & Steel reported a loss of 1.327 billion yuan (about $180 million), with a 55% expansion of losses; and Shandong Iron & Steel reported a loss of 400 million yuan (about $60 million), shifting from profit to loss.
Even profitable steel companies saw declining performance year-on-year. Key member steel enterprises of the China Iron and Steel Industry Association reported an average sales profit margin of only 1.32%, a year-on-year decrease of 0.17 percentage points.
In the face of difficulties, the steel trade segment is the first to experience impacts across the entire industry chain. The Wuhan Metal Materials Circulation Association issued a risk alert on March 4, stating that since August 2023, some steel trading enterprises in Sichuan, Jiangsu, Zhejiang, Guizhou, and other regions have experienced a series of bankruptcy incidents, with some enterprises entering the bankruptcy liquidation stage. After the Chinese New Year this year, there were again incidents of bankruptcy among steel trading enterprises in many regions.
On March 28, the China Iron and Steel Industry Association issued a proposal stating that the steel market is rapidly declining, showing a situation of high production output, high costs, high inventories, low demand, low prices, and low efficiency. It urges enterprises to guard against disruptive practices of low-price dumping in the market, avoid market confusion, prevent market volatility, and calls on steel companies to take proactive measures to reduce production intensity.