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China Dumping Steel Is a Cause for concern

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China Dumping Steel Is a Cause for concern

Following on from my previous blog where I passed on the concerns of the executives from Arcelor Mittal, it now appears the US, the world’s second-biggest steel consumer, is seeking political support for tariffs on imported steel.

To recap, at a forecast 825 million tonnes in 2015, China produces as much steel as the rest of the world combined (and more than four times the peak of the US production in the 1970s), however China’s apparent steel consumption is running at 720 million tonnes. The Arcelor Mittal executives are forecasting China’s steel exports to reach 130 million tonnes in 2015, up 60 per cent from 82 million tonnes in 2014.

Chief executives of leading American steel producers are expected to launch at least one anti-dumping complaint with the International Trade commission. “Dumping” or selling overseas below the cost of production to gain market share is illegal under World Trade Organisation law and is punishable with tariffs. With China’s exports to the US in January 2015 jumping 40 percent from a year earlier, the benchmark “hot-rolled coil” index has declined 18 per cent from US$600 to US$492 per tonne since the beginning of January. US Steel has idled six plants since 2014 and so far in 2015 it has laid off or issued layoff warnings to 3,500 employees.

Many Chinese steel makers are government-owned or closely linked to local governments, and given their important role as employers and providers of tax revenue, the mills are unlikely to close or cut production even if running at a loss. This is the downside of being exposed to a commodity industry where a group of producers with a 50 per cent market share do not necessarily behave in a way that most would regard as economically rational.

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Chief Executive Officer of Montgomery Investment Management, David has over 30 years of industry experience. David is a deeply knowledgeable and highly experienced financial services executive. Prior to joining Montgomery in 2012, David was CEO and Executive Director of Hunter Hall for 11 years, as well as a Director at JP Morgan in Sydney and London for eight years.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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