This article is part of our special report Saving European steel.
An international meeting in Brussels over the steel crisis ended in disappointment as China denied dumping its excess production on global markets, and instead blamed terrorism and the economic slowdown for the global steel crisis.
European steelmakers hold artificially cheap Chinese imports responsible for the crisis. The EU has hit some Chinese steel products with antidumping measures – higher tariffs to protect the competitiveness of the EU industry.
Sluggish economies had hit steel demand, which was the “fundamental reason” for more steel being produced than was needed, Assistant Minister Zhang Ji told ministers from 28 countries, and the European Commission, yesterday (18 April).
“Exacerbation of geo-political conflicts and the dissemination of extremism and terrorism further deteriorates the situation,” he said at the meeting hosted by the Organisation for Economic Cooperation and Development (OECD).
EU Trade Commissioner Cecilia Malmström gave the Chinese claims about extremism short shrift at a press conference after the talks.
She said, “This is an overcapacity in sheet steel. I don’t really see the direct link to terrorism to be honest.”
The European steel association, Eurofer, says China has a domestic steel overcapacity of around 400 million tonnes, almost three times the total demand in the EU (155 million tonnes).
Ministers from countries representing 95% of global steel production and trade met yesterday in Brussels for crisis talks hosted by the OECD and Belgium.
While China said it would cut its crude steel overcapacity, the talks did not bring the level of agreement hoped for.
“There has been a massive surge in Chinese steel imports that is hitting Europe,” Malmström said.
US and Mexican trade representatives at the press conference agreed that Chinese overcapacity had caused huge problems. Mexico has also recently introduced tariffs.
“We don’t mind competition but it has to be fair competition,” Malmström told reporters. “The EU has very tough rules on state aid and it is important for us to state that governments should not grant subsidies.”
Steel represented 3% of EU EGDP and employed 330,000 skilled people, she said. Thousands of jobs have been lost in the EU, she added.
‘Not a single subsidy’
Zhang insisted, “We have never given a single subsidy to exporting steel. It doesn’t make any sense for reasonable business people to engage in money-losing trade.
“The Chinese government does not have the resources to afford such huge subsidy, even if we could, the population will not accept it.”
Deputy United States Trade Representative Robert Holleyman said limiting any discussion about subsidies to exports missed part of the problem. There were underlying conditions that were not market-driven, he added.
He said that US production had kept in line with domestic demand, while China had “greatly exceeded” its own.
Zhang countered the argument by saying the United States and European Union “are also plagued by overcapacity.” He said the US only used 69.8% of its steel capacity while the EU was at 68%.
He pointed to World Steel Association figures showing crude steel output in 2015 was 1.62 billion tons with an average usage rate of 69.7%. Capacity usage had dropped from 73.4%, which showed the crisis was getting worse.
“Blaming each other does no help to resolving problems,” he said during a speech before the press conference.
China’s steel products were mostly for domestic use, he claimed, and it was a huge market for global steel products. “While everybody is saying that china is the biggest producer of steel in world, china is also the biggest consumer in the world,” he said.
The problem was not international trade, Zhang said, adding it was wrong to take “frequent trade protectionist measures to restrict imports” .
In the next five years China will further cut its crude steel capacity by 100 million to 150 million tons, leading to 500,000 laid-off workers having to be “resettled”. 100 billion yuan had been set aside to resettle those workers.
“This challenge is felt more acutely in China where the total number of steelworkers is three million,” he said.
Zhang called for other economies to take measures, according to their development and capabilities, to cut steel production.
Malmström and Holleyman both said their industries had already undergone painful restructuring.
Swift and structural
China is the world’s biggest steel producer. It is not an OECD member but was invited to the ‘high level symposium’ in a bid to agree some broad, if not binding conclusions on how to solve the crisis.
The talks ended in disappointment with countries only able to agree that the overcapacity of steel on the global market needed to be dealt with “in a swift and structural manner”, although the crunch talks were hoped to reach broader agreement.
Malmström said the EU wanted to work towards global solutions to the crisis, including a transparency mechanism, and guidelines to minimise market distortion and incentivise market-driven restructuring.
OECD Deputy Secretary-General, and former Prime Minister of Finland, Mari KIviniemi said it was a big step to even discuss these issues but more concrete steps were needed.
“We all know that this steel crisis is a global crisis,” she said.
Belgium’s Deputy Prime Minister and Employment Minister Kris Peeters warned, “Maintaining structural surplus production capacity means everybody loses. There are no winners in a trade war.”
Holleyman said the talks were “not an academic exercise”. Real pain was being felt by “real workers and real economies.”
The news China would cut steel production was welcomed by UK Business Secretary Sajid Javid, who has been criticised for his handling of the crisis in Britain.
India’s Tata Steel said that Chinese dumping was one of the main reasons it was selling its British plants, such as Port Talbot in Wales, which could lead to the loss of thousands of jobs.
China has “absolutely recognised that it is a problem of overcapacity in their country”, Javid said. “They’re committing to do something about it and I think that’s a very positive step forward,” he said before warning there would be no “overnight solutions” to the crisis.
The European steel association, Eurofer, says China has a domestic steel overcapacity of around 400 million tonnes, almost three times the total demand in the EU (155 million tonnes). The overcapacity is largely due to persistent state intervention in the Chinese economy.
The European Commission proposed in April 2013 to limit the use of the so-called "lesser duty rule" as part of a wider package to modernise the EU's trade defence instruments. The ‘lesser duty’ rule keeps the additional tariff within the limit of what is strictly necessary to prevent an injury for EU industry.
Following the Commission’s footsteps, the Parliament adopted its position on the modernisation of the trade defence instruments in April 2014, including the limitation of the lesser duty rule.
When the steel crisis hit Europe, seven member states (Germany, Italy, the United Kingdom, France, Poland, Belgium and Luxembourg) sent a letter urging the Commission “to use every means available and take strong action" to respond to "unfair trade practices".
The initiative avoided entering into the details of the lesser duty rule, as this point was the bone of contention in 2014 to modernise the trade defence instruments as a whole.
The letter only said that the reform of these instruments should “further streamline and expedite the procedures, increase transparency, predictability, effectiveness and enforcement for all economic operators in order to enhance the protection of the European steel industry against unfair practices”.