Sunday, September 20, 2015

More fallout from China's economic crisis

Now that China's economy is running into serious difficulties, domestic demand for its products is tanking.  That's leading major Chinese industries to try to 'dump' their excess production overseas, so as to keep their factories running, their workforces employed and their Communist Party bosses happy.  Unfortunately, that policy all too often brings hardship to the markets they target, as the Telegraph reported today.

Since its economy has started to cool, China has been infiltrating international markets with more of its low-cost offerings. Steel exports from China are said to have increased by 28pc to 43.5m tonnes in the first six months of this year, despite production falling by 2pc.

To survive, Chinese steel mills are now selling overseas at a loss in order to maintain their production lines and to empty overstocked warehouses.

Chinese imports were 2pc of UK steel demand in the first half of 2011, a figure expected to rise to 8pc this year.

. . .

The European Commission is investigating claims that both China and Russia are dumping unwanted steel on to Western markets, pushing many European metal smelters to the brink of bankruptcy.

In June, 10 steel-making associations from across Europe and America issued a joint statement calling for action to stem the flow of Chinese metal.

“There is a strong consensus against the rising tide of exports from state-owned, supported or controlled steel industries,” said the statement. “Looming over all of this is China, whose massive and increasing overcapacity in an era of slowing growth has already destabilised the global steel market and trade flows.”

Despite concerns over the strength of the global market for steel, the European Union saw a modest 3.9pc bounce in consumption last year. However, steel consumption remains around 25pc below the levels achieved in 2007 and doubts remain whether European states and institutions are willing to take on China in what could easily turn into a full-blown trade war to defend what many see as in industry in historical decline.

There's more at the link.

It's not just European steel producers who've been affected.  Chinese exports are affecting US steel mills in precisely the same way.  US producers are now calling for anti-dumping duties on Chinese steel imports.

It's a classic pattern that's been repeated many times in international trade.  Can't sell enough into your local market?  Then export the surplus for what you can get for it, to keep your factories going until business conditions improve.  If you don't, then you may not have a factory any more by the time local sales pick up.  Trouble is, such naked capitalism drives local companies out of business, so that entire national economies are disrupted for years, even decades.

I predict we're going to see a lot more of this before the world economy gets back on an even keel.



Unknown said...

It is becoming clear China in big trouble in steel industry. Previously what America faced. For more information

Will said...

I suspect that this is courtesy of the US steel mills that were shut down and sold to China. (selling the rope to hang ourselves, eh?)

Coconut said...

Bad news for foreign steel producers - great news for foreign steel users.
Unless it's garbage, but if it were garbage no-one would be worried about it.