Steel Wars: Europe and the U.S. Accuse China of Dumping

[Americanhero1]

Are Europe and the U.S. headed for a steel war with China? Brussels and Washington have long complained that China unfairly helps its steel makers. Now the recession - and the different way steel firms are responding to it - is adding to the angst.


In February the alliance of European steel manufacturers Eurofer accused China of systematically distorting steel markets through subsidies. The result, say Europe's steel makers, has been "irrational capacity extension." The European Commission has slapped duties on Chinese steel pipe imports, and is now threatening World Trade Organization action as well.


On April 8, the U.S. steel industry filed an antidumping suit with American authorities against Beijing, alleging that $2.7 billion of pipe steel was unfairly dumped onto the American market last year. Eurofer General Director Gordon Moffat calls it a "perfect storm" for a trade war. "Demand has fallen off a cliff since October," Moffat says. "We know China is simply waiting for demand to return before flooding the markets."


Steelmakers around the world have indeed been hit by falling demand from automakers, shipbuilders, construction and heavy engineering sectors. Tight credit and the need to generate cash flows have resulted in a massive drop in steel inventories industry-wide.


But where European and U.S. steel mills are cutting back on production, China seems to be expanding. Luxemburg-based ArcelorMittal, the world's biggest steelmaker, is slashing output by half, for instance. Yet state-supported Chinese steel companies are actually ramping up both capacity and output, according to Chinese government figures. The China Iron and Steel Association says that the production of crude steel has risen since December, from 1.2 million tons a day to 1.4 million. (China's annual excess production capacity is already about 100 million tons, more than the annual U.S. steel output.)


China's steel makers employ some 2.5 million people and Beijing is desperate to keep those jobs going. But U.S. and European rivals say China isn't playing fair and accuse Beijing of subsidizing steel companies, offering preferential tax rates, giving access to low-priced materials, and exempting steel firms from labor and environmental rules.


European and U.S. steel makers say those policies have artificially depressed steel prices and helped boost China's share of total E.U. steel imports from 2% in 2003 to 30% today and its share of U.S. imports from 4% in 2003 to 19% today. "The Chinese are in trouble and they must decide between allowing growth rates to fall - something that is politically very difficult - or annoying their trading partners by dumping their exports," says Paul Scott, managing consultant at London-based mining analysts CRU. "They are likely to choose the lesser of two evils, exporting their way out of the problem, and this could trigger a trade war."

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