Not just China: Japan, South Korea push cheap steel as world reels

As the world reels from a
flood of cheap Chinese steel, other countries including Japan
and South Korea are selling products overseas at prices as much
as a third lower than in their home markets, according to
industry data and officials.

The underpricing by the world’s second and third biggest
steel exporting countries underscores the pressure facing
steelmakers around the globe as the industry grapples with
chronic oversupply and sluggish demand.

India’s Tata Steel has blamed a flood of cheap
steel imports for a decision to pull out of Britain, putting
15,000 jobs at risk, while one of Australia’s only two
steelmakers, Arrium Ltd has been placed in
administration, a form of bankruptcy.

Top producer China has taken much of the blame for plant
closures but other steelmakers are similarly fighting to stay in
business.

Japanese companies are selling steel overseas cheaper than
in the domestic market partly to compete with China, said an
official at a Japanese steel producer, declining to be named
because he didn’t want to discuss pricing strategies publicly.

The price is also higher locally to cover the “extras” that
steelmakers provide clients such as specific delivery times and
services including product quality that make it easier for
customers to process them, the producer said.

“That’s something many foreign makers cannot offer,” he
said.

MARGINAL COSTING

H-beam, used in construction, is sold in Tokyo at 69,000 yen
($629) per tonne and is exported at $470 a tonne,
free-on-board, according to data from Japanese and Chinese
agencies that track the prices.

“As far as the importing country is concerned, it is nothing
but dumping from these countries,” said Seshagiri Rao, joint
managing director at India’s JSW Steel Ltd.

Japan and South Korea export steel at prices that are 35
percent lower than their domestic prices, said Rao.

“If they are making money in the domestic market, by
exporting, as long as they’re able to recover some contribution
towards their fixed cost they’re pushing volume,” he said.

Countries, responding to rising imports and complaints from
local producers, are imposing protections and raising objections
through international channels.

India in February set a floor price for imports of steel
products to deter exporters from undercutting domestic mills,
having seen imports from Japan and South Korea jump by almost
half in April-February.

Japan has told India it will object to India’s minimum
import price and a safeguard duty on imports of some steel
products at a World Trade Organisation council meeting on
Friday, according to an Indian government letter seen by
Reuters.

“By doing so, we want to prevent other countries from
following India’s step,” which violates WTO rules, a Japanese
government source told Reuters.

Tokyo is asking the United States, the European Union and
Taiwan to support its proposal, he added.

India has also started investigations into possible dumping
of cheap steel products into the country by six nations
including China, Japan and South Korea following complaints from
companies such as JSW.

In Australia, Federal Industry Minister Christopher Pyne
said the government had applied 41 anti-dumping measures to
imported steel products in recent times, including 13 for China
and eight for South Korea.

On Thursday China scrapped some export subsidies on a range
of products, including some specialty steel goods, in an effort
to reduce trade frictions with the United States.

POLITICAL, EMOTIONAL INDUSTRY

Japan and South Korea sell more than 40 percent of their
steel output overseas, most of it to Asia. Last year, the two
countries shipped a combined 75 million tonnes versus 112
million tonnes from China.

Top Korean steelmaker POSCO, the world’s
fifth-largest, declined to comment on pricing of exports. South
Korea’s steel industry association said it is not aware of the
pricing strategy of individual companies.

“It is true that Japanese and South Korean steel companies
are underpricing some of their steel exports,” said Li
Xinchuang, vice-secretary general of the China Iron and Steel
Association.

Li dismissed claims Chinese steel companies were doing the
same.

But critics say China’s tax rebate system which allows steel
exporters to claim refunds by adding even minute amounts of
alloys has enabled China, already ahead of competition with
cheap labour, to undercut rivals overseas.

“We’ve been forced to be in an unfair competition,” said the
Japanese steel producer.

“Steel is such a political and emotional industry all around
the world and as such I think that there will always be
instances at the margin where various forms of assistance or
incentive become available to it, whether short or long term,
explicit or implicit,” said Matthew Watkins, principal
consultant at CRU in London.
($1 = 109.6500 yen)

(Additional reporting by Sankalp Phartiyal in New Delhi,
Hyunjoo Jin in Seoul and Jim Regan in Sydney; Editing by Lincoln
Feast)

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