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G20 summit’s protectionist slant a risk for emerging market steel producers

LiveMint logoLiveMint 10-07-2017 Ravi Ananthanarayanan

A growing trend of protectionism, especially in the rich world, is a concern for the developing world. The US stunned the world with its plan to invoke national security to curb steel imports. The group of 20, or G20, summit’s call for action to global steel industry probably seeks to prevent this move, but could end up hurting steel producers in emerging markets.

The summit’s closing statement called upon major steel-producing countries to fulfil their commitment to provide information by August, and have an action plan to lower overcapacity by November. It also calls for removal of subsidies that distort markets and other support provided by the government. The deadlines and language were a result of US pressure, according to a Bloomberg report.

Calls to lower overcapacity are nothing new and are aimed mainly at China, which produced half of global crude steel output in 2017, till May. China has said it has clamped down on polluting and unviable steel capacity, keeping up its side of the bargain. But the impact on steel production has not been much, either due to the remaining steel plants ramping up output or the extent of cuts that are needed before it begins to show.

Global crude steel output in 2017 till May shows global output rose by 4.7% but US output rose by only 2.2%. In comparison, steel output in the European Union (EU) rose by 4.1%, while that of Canada rose by 1.7%. China’s output is up by 4.4% although May saw output grow by 1.8%. Sequentially, the past two months have seen output flat although higher over a year ago.

The EU had levied anti-dumping duties on Chinese steel, and that does seem to have had an impact, with imports from China down by 32% till April, according to the European Steel Association (Eurofer). Imports from other countries stepped up and overall imports were still higher by 5%.

While the threat from imports may be less, the bigger worry for EU steel producers appears to be the threat of restricted access to the US steel market. Eurofer says they sell only 3.2 million tonnes of steel to the US and pose no threat to its national security. It fears that limited access to the US market may divert steel supplies to the EU, posing a problem for domestic producers. It prefers the EU initiative to get steel producers to lower overcapacity.

The next trigger to watch for is whether the US does decide to curb steel imports, citing national security. Its imports have been increasing, despite curbs on Chinese steel imports. In 2017 till May, US imports of steel rose by 23% according to the US Census Bureau, but it also said the increase was mainly attributable to Russia.

India’s steel industry has come to rely upon exports to support the increase in its output, as domestic demand has not kept pace with the increase in capacity. In April-June 2017, finished steel output was up by 6.7%, while exports increased by 65.9% and domestic consumption grew by only 4.6%, shows government data.

India needs ready access to global steel consuming markets and any protectionist move will put pressure on sales growth and profit growth. The next trigger should be in August, when the companies share data and develop solutions to lower capacity; and then in November, when the measures will be announced.

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