China, Which Has a Steel Overcapacity Problem, Leaves Forum on Steel Overcapacity

Matthew McMullan

Matthew McMullan Communications Manager, Alliance for American Manufacturing

Last week we noted how an international group of steel industry associations had released a statement, calling on their governments to figure out a way to reduce steel production overcapacity – the difference between an industry’s potential output and current production.

They released it ahead of a meeting of the G20 Global Forum on Steel Excess Capacity, which convened in Japan over the weekend. That forum was created in 2016 to find some international consensus on how to fix the overcapacity problem, which is (not entirely but) mostly a problem created by China’s massive steel industry.

The Chinese government might dismiss that as an outsider’s biased opinion, but consider the context in which China’s steel industry grew. In the early 90s it became a “strategic” industry in government planning documents. According to an analysis of the industry produced a few years ago at AAM’s behest by Duke University, “state direction, supplemented by state subsidies, incentives, and strong internal demand for steel, had an important role in developing China’s steelmaking capacity.”

And so it went from responsible for a fraction of global production in 2000, when it produced 129 million metric tons (MMT), to approximately half of production in 2015, when it produced 804 MMT. While most of that Chinese steel was consumed in China – the country spends a lot on infrastructure as a form of economic stimulus, and infrastructure requires steel – its considerable excess spilled out into the international market, depressing prices and triggering bankruptcies and layoffs. This was essentially the preamble to the import tariffs the Trump administration finally raised on steel in 2018.

So back to this weekend’s G20 steel forum: Was any news created during this meeting? Anything of note?

The answer is: Yes. China announced it will no longer participate in the forum. Its membership will lapse in December and it will just kinda peace out. The South China Morning Post writes:

China’s Ministry of Commerce said in a statement on Saturday evening that China had made “the greatest and most outstanding” contribution to global efforts to reduce excessive steel capacity as it was the only country that had imposed a mandatory target upon itself.

“China has slashed total steel production capacity by more than 150 million tonnes since 2016, or 114 per cent of the global steel capacity cut … and China has redeployed 280,000 steel workers, which is more than the combined deployed number of steel workers in the US, the EU and Japan,” according to the ministry.

That is a huge amount of production capacity, to be sure. But, again, context is important: China may have taken 150 million tons worth of annual production offline and “redeployed” 280,000 workers, but the American steel industry – still one of the largest steel producers by volume in the world – only produced 116 million metric tons of during the entirety of 2017, while China produced 831 MMT. Even after China shut down steel mills capable of producing 150 million tons annually, it’s still by a huge margin the world’s largest steelmaker with the world’s largest steel production capacity.    

Anyway, the Chinese government this weekend also argued that overcapacity in the steel industry was ultimately the result of a “demand slump following the financial crisis of 2008” and the burden on addressing it shouldn’t be entirely China’s problem.

But that diagnosis is convenient and only tells half the story. The other half of it is the heavy involvement of the government in the direction of the Chinese steel industry, which created this mess in the first place, and its inability to rein in production by mills that aren’t state-owned.

A story from Nikkei last month recounted the detainment of the general manager of a large, state-owned steel mill in the industrial city of Tangshan near Beijing. The mill had been ordered to halve its production because of environmental concerns.

“But the company reportedly ignored it and continued to boost production,” Nikkei writes:

(The company) has made a show of complying with the mandate. Following the manager's arrest, digital signage outside the mill's entrance displayed the words "Blast Furnace 2 suspended."

While the authorities "may have shown their degree of seriousness when they went after a major player, there is almost no effort to abide by production cuts at small to midsize companies," a steel market insider said.

As such, Chinese steel production is actually increasingreports Reuters:

In the first eight months of 2019, the world’s top steelmaker churned out 665 million tonnes of crude steel, up 9.1% on the year.

Production by members registered with the China Iron and Steel Association (CISA), mostly state-owned firms, grew at 5.9% year-on-year during that period. Production by non-members, mostly private firms, surged 19.4%, according to CISA.

And Platts points out that even as China shutters older, slower, dirtier mills, it is replacing them with mills that are much more efficient. That, and discrepancies in accounting for offline mills toward its capacity total mean that Chinese steelmaking capacity is indeed increasing. And it won’t be ending anytime soon:

It is considered unlikely that Beijing will order another round of capacity elimination as Chinese steel works are mostly equipped with up-to-date technology and meet environmental protection standards.

So China is tipping out of the steel overcapacity forum, but make no mistake: This is a problem of China’s making.

***

Reposted from AAM

 
Posted In: Allied Approaches, From Alliance for American Manufacturing

Union Matters

The Big Drip

From the USW

From tumbledown bridges to decrepit roads and failing water systems, crumbling infrastructure undermines America’s safety and prosperity. In coming weeks, Union Matters will delve into this neglect and the urgent need for a rebuilding campaign that creates jobs, fuels economic growth and revitalizes communities. 

A rash of water main breaks in West Berkeley, Calif., and neighboring cities last month flooded streets and left at least 300 residents without water. Routine pressure adjustments in response to water demand likely caused more than a dozen pipes, some made of clay and more than 100 years old, to rupture.

West Berkeley’s brittle mains are not unique. Decades of neglect left aging pipes susceptible to breaks in communities across the U.S., wasting two trillion gallons of treated water each year as these systems near collapse.

Comprehensive upgrades to the nation’s crumbling water systems would stanch the flow and ensure all Americans have reliable access to clean water.

Nationwide, water main breaks increased 27 percent between 2012 and 2018, according to a Utah State University study.  

These breaks not only lead to service disruptions  but also flood out roads, topple trees and cause illness when drinking water becomes contaminated with bacteria.

The American Water Works Association estimated it will cost at least $1 trillion over the next 25 years to upgrade and expand water infrastructure.

Some local water utilities raised their rates to pay for system improvements, but that just hurts poor consumers who can’t pay the higher bills.

And while Congress allocates money for loans that utilities can use to fix portions of their deteriorating systems, that’s merely a drop in the bucket—a fraction of what agencies need for lasting improvements.

America can no longer afford a piecemeal approach to a systemic nationwide crisis. A major, sustained federal commitment to fixing aging pipes and treatment plants would create millions of construction-related jobs while ensuring all Americans have safe, affordable drinking water.

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