China seen as root cause of global steel industry crisis

The global steel community met in Paris this month for a fresh attempt to resolve the crisis facing the steel industry worldwide.

Steel producers in Europe and in other regions are hurting because of the over-production of the metal, mostly by Chinese mills.

The UAE is also seeing its own steel manufacturing businesses hit by the flood of cheap steel from China and also from Turkey.

However, local producers still forecast good demand in the next couple of years, particularly from the ongoing projects related to infrastructure to host the World Expo 2020 in Dubai and the Fifa World Cup in Qatar in 2022.

The UAE’s Council of Ministers is encouraging the construction sector to use "Made in UAE" products through pricing rules for Government procurement projects which favour local products.

For workers in the United Kingsom, the Paris meeting came a year since the closure of the Redcar works in the north-east of England, one of the country’s most deprived regions.

The closure of Redcar, which was owned by Thailand’s SSI, sparked the start of the UK’s latest steel crisis. Since March this year, steel workers at plants owned by India’s Tata Steel have been waiting to hear what will happen to their jobs after the company admitted that its plants were heavily loss making and that it wanted to sell its operations.

British steel experts are concerned that not enough is being done to address the problem of steel dumping. Last week they urged government and industry officials from G20 countries to move fast to prevent more steel plant closures.

In the 12 months since the closure of Redcar, with the loss of 2,000 jobs, the United States and the European Union have erected trade barriers in an effort to prevent unfairly traded Chinese steel, made and sold at below the cost of production, flooding markets and distorting competition.

However, according to UK Steel, these measures have had little impact. The source of the problem has remained stubbornly familiar: China.

While China pledged to close mills and reduce capacity, experts on the ground believe it has merely closed so-called "zombie" plants and continued to open larger more efficient new mills.

"The Global Forum for Steel must … ensure China is cutting its net steel-making capacity. And we need a clear system for demonstrating both the pace and extent of this," says Gareth Stace, the director of UK Steel.

China promised to cut 45 million tonnes in capacity this year, but even official Chinese figures concede it has reached less than half of this target. "A real cut in steel capacity, most notably in China, is necessary as opposed to the closing of so called zombie sites, while at the same time opening bigger facilities elsewhere that actually add to total capacity and exacerbate the current crisis," Mr Stace says.

Back in the UK, steel production is set to fall by 30 per cent in 2016 – 7.6 million tonnes compared with 10.9 million tonnes in 2015. Demand for steel is likely to remain stable at 10.4 million tonnes, meaning that the UK will have to rely on imports to fulfill its needs.

"This is capacity, communities, skills and livelihoods that will struggle to recover. Government must ensure that this worrying trend comes to a halt and that it uses all the tools at its disposal to give this strategically vital industry a positive long-term future," says Mr Stace.

China now accounts for more than 50 per cent of the world’s production of steel, up from more a third in 2008. The industry receives, according to other producing countries, unfair assistance in terms of land donated for operations, dispensation from environmental legislation and huge loans from the Chinese state.

If the sector was genuinely in private hands, it would trigger a huge debt crisis, experts say.

Mr Stace worries that politicians’ attention is already moving on from steel to other issues. Steel prices are up slightly, as commodity prices have risen, allowing producers to push through small increasesIN WHAT??, albeit from a very low base. Mr Stace is concerned that the UK sector could "slide back to the deeper crisis we saw only a few short months ago. As fundamentally … we know that very little has changed in terms of the causes of the global problem.

"Global utilisation still stands at 70 per cent or below and we are no seeing any significant rise in demand."