In Commodity News 07/01/2016
Amid a global oversupply of steel, industrialized countries plan to urge China to address its excessive production capacity.
The 34 members of the Organization for Economic Cooperation and Development, which includes Japan, the U.S. and European nations, plan to convene an emergency ministerial-level meeting in April. China is not a member but is expected to attend.
The countries hope to draw up guidelines for China to reduce excess steel mills. They may also look into whether China is subsidizing uncompetitive steelmakers and devise necessary steps to address the problem.
Putting teeth in these guidelines will be difficult, so OECD members will consider bringing a case before a World Trade Organization dispute settlement panel if China is in clear violation of the rules. But their hope is that the Chinese will embark on structural reforms in response to external pressure.
Global crude steel production capacity totaled 2.3 billion tons in 2015 — a level estimated to top global demand by more than 50%. China is thought to have roughly 400 million tons in excess capacity and has been exporting low-priced steel, prompting emerging countries to levy high tariffs on imports.
India has stepped up protectionist measures to cope with the influx of cheap Chinese steel. The South Asian country raised tariffs on mainline hot-rolled coil and hot-rolled sheet by 20% in September and December. But these measures apply to all imports, meaning that tariffs also rose on Japanese-made steel for automobiles and other products.
The tariffs have had a significant effect on Japanese steelmakers, which export more than 140 billion yen ($1.16 billion) worth of steel to India every year. U.S. and European steelmakers have also taken direct hits from the influx of Chinese products.
