Steel protectionism goes global as few can survive low price
From the US to India, regulators around the world are pushing harder than ever to shield local steel industries from foreign competition.
Nations imposed 85 new duties and other taxes on steel imports in the first half, according to the Russian Steel Association, which counted preliminary and permanent measures. That’s 49 per cent more than a year earlier.
The trade frictions are the result of a saturated steel market and record exports from China, where producers are looking for new customers as the economy moves away from manufacturing. The cheap imports make it harder for US and European steelmakers to make money, leading to job losses and pressuring politicians to defend their local industry.
“The world is turning into a global trading war in steel because demand is weak, while the industry is in overcapacity crisis,” said Kirill Chuyko, a strategist at BCS Global Markets, Moscow’s largest brokerage. Russia is targeted by tariffs because it’s the lowest cost producer and the weak ruble is seen as an “unbeatable advantage,” he said.
Data from China on Friday showed that mills were still churning out supplies. Output in July was higher than the same month a year earlier, and over the first seven months of 2017, nationwide production was down just 0.5 per cent. The country accounts for about half of worldwide output.
The World Trade Organization said in July that it has seen a “significant increase” in trade-restrictive measures generally, calling it “the last thing the global economy needs,” in an online statement. Complainants have accused exporters of selling steel below cost, a practice known as dumping, to push competitors out of business and grab market share.
It’s a theme that’s gaining political traction. Donald Trump, the Republican nominee for US president, vowed his administration would ensure “American steel for American infrastructure” in a June speech outside of Pittsburgh, known as Steel City before the industry collapsed decades ago.
Earlier this month, Chinese and Russian producers of non-stainless cold rolled steels were hit by the European Union with five-year tariffs as high as 36.1 per cent after the EU found that imports from the two countries unfairly undercut manufacturers. The US has also imposed duties on certain hot-rolled steel flat products from seven countries including Australia, Brazil and Japan.
There’s some evidence that the tariffs are working, according to ArcelorMittal, the top producer in Europe and the US. It said last month that steel prices recovered in those regions after trade measures were implemented and the company reported its best quarterly profit since 2014.
Steel Sweet Spot
“The US steel companies have clearly been in a very sweet spot with tariffs,” said Alon Olsha, an analyst at Macquarie Group Ltd in London. “The tariffs in Europe pale in comparison, but there’s a lot of positive sentiment around the impact these tariffs could have.”
Chinese producers won’t be hurt by more tariffs in developed countries because the majority of exports are going to nearby Asian countries and they’re seeking new business in Africa and the Middle East, said Kevin Bai, a Beijing-based analyst at consultants CRU Group.
For Russian producers, low production costs mean they’re able to make money despite tariffs because they can reroute shipments to more distant markets, according to Chuyko.
However, the duties pose a risk in the long term, according to Peter Archbold, Senior Director at Fitch Ratings Ltd. If steelmaking costs increase, which could happen if the rouble strengthens and energy costs rise, then Russian producers may need to idle some production capacity that serves export markets, said Chuyko of BCS Global Markets.
“Growing protectionism is definitely worrying,” said Dmitry Kolotilov, head of trading policy at Severstal PJSC, the fourth-largest Russian steelmaker. “It limits the access to traditional markets.”
The extra duties are unfair to Russian producers and in some cases, the investigations violate WTO rules, Kolotilov said.
Severstal is using legal measures to protect its rights and has also focused on more advanced products that aren’t targeted by tariffs, he said.
In India, officials took extra steps this month to insulate domestic mills. Regulators added two months to a programme imposing minimum import prices and an anti-dumping tax will be levied on hot-rolled flat steel products from China, Russia, Japan, Korea, Brazil and Indonesia.
“The trade war in the global steel industry is hotting up,” according to a research report from Investec Plc.
“It is difficult to see where this will end, but former major steel producers such as the US and UK have to decide if they wish to maintain a domestic steel industry or whether they wish to become totally dependent on imported steel.”