Chi­nese at cen­tre of price ac­tion

The Weekend Australian - Review - - Rear View - Robin Bromby

STEEL prices ris­ing in China, de­mand and prices fall­ing in the US. These are un­cer­tain days for the metal. The ground is shift­ing un­der steel de­mand and prices and, as with many other met­als and met­als prod­ucts, it is the Chi­nese that are at the cen­tre of the ac­tion. Just as Bei­jing has sought to dampen ex­ports of met­als as part of its pol­icy of lift­ing the econ­omy to a higher level, so it is now at­tempt­ing to curb steel ex­ports.

Its re­cent de­ci­sion to crack down on molyb­de­num and in­dium ex­ports were, apart from con­serv­ing the na­tion’s re­sources of those met­als, aimed at hav­ing a greater pro­por­tion of what is mined in China be­ing pro­cessed and value- added within the Chi­nese in­dus­trial sec­tor rather than pro­vid­ing raw ma­te­ri­als to com­peti­tors abroad. So it is with steel: bet­ter to make cars and ex­port them than just ex­port the steel.

In late May, Bei­jing an­nounced it was dou­bling the ex­port tax to 10 per cent on 83 types of semi- fin­ished steel prod­ucts. The steel­mak­ers in China had, none­the­less, seen this com­ing and the first five months of 2007 wit­nessed these com­pa­nies ex­port­ing as much steel as they could; over that pe­riod to May 31, China’s steel ex­ports soared 116.7 per cent com­pared with the same pe­riod in 2006.

This was all the more ex­tra­or­di­nary in that China be­came a net ex­porter of fin­ished steel prod­ucts only 18 months ago. And this rush to ex­port has led to con­se­quences in for­eign mar­kets as other coun­tries started to be­come con­cerned about the abil­ity of China to swamp the world with prod­uct if it set its mind to it. Whether the in­crease in the ex­port tax has any sig­nif­i­cant ef­fect re­mains to be seen. Some an­a­lysts, in­clud­ing Bear Stearns, sees Chi­nese com­pa­nies con­tin­u­ing to seek more sales abroad.

This very is­sue arose just this month. US steel­mak­ers claimed that one Chi­nese maker, Wuhan Iron & Steel, had been dump­ing on the Amer­i­can mar­ket. The six US pro­duc­ers have al­leged that Wuhan was sub­si­dis­ing welded steel pipe. These com­pa­nies be­lieve that China could be dump­ing in the US as much as $ US500 mil­lion in steel prod­ucts a year. Wuhan has branded the charges as ‘‘ un­fair’’, adding that only a small pro­por­tion of its out­put leaves China.

But the fig­ures tell a story that is grim news to the US steel in­dus­try: in 2002, the Amer­i­cans bought 10,000 tonnes of steel piping from China but in 2006 those im­ports had risen to 690,000 tonnes a year.

This all comes at a time when Amer­i­can steel­mak­ers are fac­ing a re­peat of the events of 2002 — the year when a num­ber of plants went bank­rupt in the face of cheaper im­ports.

It was that spec­tre of that dis­rup­tion to one of the back­bone in­dus­tries of US man­u­fac­tur­ing that led Pres­i­dent Ge­orge W. Bush to im­pose tar­iffs on steel im­ports, aimed at for­eign com­pa­nies un­der­cut­ting the high cost US in­dus­try. These bar­ri­ers were re­moved only af­ter protests by the World Trade Or­gan­i­sa­tion and threats of re­tal­i­a­tion from the Euro­pean Union.

Could it hap­pen again? Prob­a­bly not in the form that Bush adopted in 2002, but there may well be a more se­lec­tive form of bar­rier. There is prece­dent: as the Bloomberg agency noted when reporting on the Wuhan row, just as re­cently as March the US im­posed tar­iffs of 99.65 per cent on some Chi­nese ex­porters of coated pa­per.

Bear Stearns’s lat­est re­port on the sec­tor says US steel pro­duc­ers are start­ing to cut back on pro­duc­tion — but the Chi­nese ones had in­cen­tive to pro­duce for ex­port be­cause of gov­ern­ment re­bates.

Fewer homes are be­ing built in the US and US au­tomak­ers are switch­ing their fo­cus from gas- guz­zlers to fuel- ef­fi­cient com­pacts. Both trends mean drop­ping steel de­mand.

And it is not just im­ports that are

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