Has G20 meet just given steel sector a reason to celebrate?
Tata Steel might finally see some better days ahead for its European units as world’s top economies seem to have had enough of China’s domination in the steel market.
In a meeting of G20 finance ministers and central bank governors in China’s city of Chengdu, it was decided by the world's top economies that they will work to tackle excess production capacity in steel and some other industries.
Tata Steel is among the many steel companies affected globally on account of rampant exports from China. Within a decade, China has increased its share in global steel market from one-third to over half. Last year alone, China produced 803.8 million tonnes on a capacity of 1,130 million tonnes and exported nearly 112 million tonnes.
Now, the exported figure does not look much, but considering the fact that it is equivalent to the output of Japan, the second largest steel producer in the world, then the figure looks big.
The stance taken by the G20 members is critical for global steel industry simply because of the size of China. The over-capacity in China is more than the installed capacity of the next three producers in world – Japan, India and USA. Amidst slowdown, imports have started affecting domestic production in most of the G20 member countries.
Tata Steel is the latest and perhaps the most high-profile company because of its UK acquisition that had announced a shutdown on account of cheap imports from China. Closed units and layoffs have finally shaken up politicians to take action.
The key issue is will China abide by the decision of other players. China has been saying that it’s not the high production but low demand which is the main culprit for the glut in steel industry. Since the financial meltdown, global economies have barely been able to keep their head above the water. China too has been affected by a slowdown in its domestic economy that has contributed to excess exports.
Many countries including India responded to China’s dumping by imposing anti-dumping duties on steel leaving their ports. But China’s steel seems to be finding a new market. In the first half of 2016 China has touched record exports of 57.12 million tonnes.
As has been seen in the past China cannot be taken on face value. The country had announced that it has shut steel capacity of 90 million tonnes over the last five years but analysts found out that 160 million tonnes of capacity had been revived in Tangshan, in the Hebei province. In 2016 alone the country was expected to shut 45 million tonnes of production but only 13 million tonnes were actually done. China has given a commitment that it will be cutting 100-150 million tonnes of steel capacity by 2020. But given the job loss of nearly 500,000 labours and the likely unrest many doubt if China can really cut down production.
Chinese government have been accused of subsidising their steel plants and providing other supports for exporting steel companies who have disrupted the global market.
G20 members want China to abide by the rules and compete on equal terms. But if history is any indication, then China is not one of those countries that can be made to do what it is told. The world has already seen this in the recent South China Sea issue.
There is, however, a ray of hope for the steel industry. China is striving to get a ‘market economy’ status from the World Trade Organisation despite repeated complaints of being a subsidised economy. This status will prevent other countries from imposing anti-dumping duties on exports from China. The country might just try to behave itself by cutting steel production till it gets the status.