BOFIT Weekly Review 2016/06
As domestic demand wanes, Chinese steel exports rise
China last year produced 800 million metric tons of steel, or about half the world’s steel output. As the construction industry is one of the biggest steel consumers, demand for steel falls when the volume of new construction declines. Last year, China produced 2 % less steel than in 2014. With the domestic steel prices nose-diving, China’s top-100 steel producers last year posted collective losses of 65 billion yuan ($10 billion).
In reaction, steel producers have sought out demand in foreign markets. Cheap Chinese steel has succeeded in gaining market share elsewhere, with steel exports nearly doubling over past two years. The rest of the world’s producers have accused the Chinese of dumping. The EU, United States and Japan have all imposed protectionist tariffs on certain Chinese steels within the framework of their WTO commitments. The EU and the US are currently considering expanding their anti-dumping tariffs to cover additional Chinese steel products.
China’s steel production capacity is about 1.170 billion tons a year and new capacity is still coming on stream. At the same time, demand for steel is expected to decline as services increasingly become the main economic engine. The government has repeatedly said that it intends to shutter mills until the industry’s overcapacity problems are under control. The current target calls for cutting output by 100–150 million tons by 2020. China’s central government has declared similar initiatives many times before with little effect because local governments fiercely defend their producers.