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November 30, 2015

U.S., Chinese Trade Negotiators Recognize Excess Chinese Capacity Is A “Central Issue”

Last week, U.S. Commerce Secretary Penny Pritzker and U.S. Trade Representative Michael Froman concluded a bilateral trade meeting with China. According to Metal Miner, during the proceedings the two nations agreed to hold discussions next year to address steel capacity, production and trade issues and recognized that “China’s exports of steel and aluminum are large and growing, and are the central cause of a glut of supply on the global market.” Excess Chinese capacity is a serious issue federal lawmakers must deal with. In a paper that was also issued last week, Stewart and Stewart, an independent law firm in Washington, DC, argued excess Chinese capacity is to blame for a “major crisis” in the global steel and aluminum industries. The author, Terence P. Stewart, said:

“In the United States, the domestic steel industry is in the midst of a major crisis as they try to deal with waves of imports that seem to flow directly (i.e., imports from China) and indirectly (i.e., from other countries facing import challenges from China in their home markets and hence expanding their exports) from massive excess capacity in China and in other countries. A large number of trade remedy cases have been started in the US in 2015 on corrosion resistant steel, cold rolled sheet, hot-rolled sheet and various types of pipe and tube products. More cases seem certain to follow as problems in other parts of the steel sector are identical to those that have led to the recent rush of cases.

“The U.S. steel industry is not alone, as the sector is in crisis around much of the world. The recent closure of steel facilities in the United Kingdom has led the EU to scramble to determine how to address the problem of Chinese overcapacity despite a number of ongoing investigations. Similarly, cases on different steel mill products from various countries have been filed in the last year or two in many other countries as well (e.g., EU, Australia, Indonesia, Thailand, Russia, Canada, Mexico, Malaysia, Turkey). 

“The story is being repeated in the aluminum sector as well with many unwrought aluminum facilities being closed in the US and other western countries in recent years and some trade cases being filed. … The problem again flows from massive excess capacity in China.

“In both sectors, the underlying facts are similar. In the late 1990s, Chinese capacity amounted to 10-15% of global capacity. With massive government incentives, state ownership and support, by 2014 each industry had ballooned to have more than half of global capacity having accounted for nearly 80% of global capacity expansions. China’s excess capacity in each sector is enormous – in steel exceeding total consumption of steel in the EU and the US – with utilization rates as low as 70%.  Import surges of 50-100% have been seen in a variety of products as a result.”

Click here to read the full paper. Earlier this year, Stewart and Stewart released a paper exploring the “drivers and implications” of China’s excess capacity. That paper can be found here