In order to help keep its economy afloat, China’s steel industry has been cranking out steel, “flooding the world with exports” and cau
sing a fear for falling steel prices. China’s ramping up the steel industry is causing steel companies around the world to loose profit and forcing some to cut down on cost, mainly workers. For example US Steel has already begun laying off 614 workers, and has idled six plants since 2014 leading to a layoffs or issues of layoff warnings to around 3,500 workers.
In January China’s steel exports have risen a whopping 63% from just last years numbers, a change of 9.2 million tons. “China produces as much steel as the rest of the world combined—more than four times the peak U.S. production in the 1970s.”
Because of this export frenzy many countries, especially those with steel industries of their own, have had many talks about possible tariffs or other political actions against these dropping prices and excess. Having said that both the US and the EU already have tariffs in place on some Chinese steel products.
“The global steel industry suffers from overcapacity in part because many countries make it a point of national pride to support a domestic steel industry.” This makes sense and shows why China’s excess sales create a very real threat. The excess causes prices of steel to decrease, which means that many companies will take it rather than the steel from the local/country’s companies. Since most countries have their own steel industry this could cause a great pain on the world as a whole. It will be interesting to see how this will affect the world economy and to see how the countries will react to help preserve their economies.
Source:http://www.wsj.com/articles/why-chinese-steel-exports-are-stirring-protests-1426466068
Interesting article, I was hoping to write on it myself. China is circumventing anti-dumping attempts by countries across the world by using middlemen to process their low quality steel and export to steel markets from there. The article mentions how Chinese steel producers, backed by the Chinese government, are dumping into steel markets at low prices to undercut domestic competition and dominate the steel market. Because the Chinese government either controls or is closely aligned with steel producers, these companies can operate at a loss and continue to produce in order to maintain a strong market foothold.
Sorry about that Moody.
Since Chinese government either controls or is closely aligned with steel producers, this could be seen as fowl play by many other countries. If this is the car and others perceive it as such we might also see ramifications and possibly discussions between other nations and China in hopes of fixing this rather than causing the tanking of steel industries around the world.
Fowl play? Foul play? … prose that’s taking a flight of fancy.
What is “dumping”? Shouldn’t it be selling below marginal cost? See the previous post, steel is a fixed cost industry, so it is not unusual to see such swings in prices, particularly as adjusting capacity is quite costly.
In any case, the export boom passes on the cost of adjustment (or failure to adjust) onto the global industry. Is such smoothing of prices and adjustment desirable? — that’s the question we need to ask as economists. Today’s China’s turn, tomorrow is …? Furthermore, what lessens the drop in prices in a recession also limits the rise in prices in an upswing.