Related: China to Maintain Restraints on Steel Exports

             China to Eliminate Out-of-Date Steel Production Capacity

             Major Steelmakers Launch Joint Venture

             China Ups Tax on Metals, Steel Exports

             China Sets Plan for Export Permits

China's increased steel product exports are not damaging the global supply and demand balance, according to a China Chamber of Commerce of Metals Minerals and Chemicals Importers and Exporters (CCCMC) report released Tuesday. 

"The report says that China's steel product exports should not be considered a threat to the global market. Looking at China's industrial development and its growing consumption volumes and impact on the global steelmaking sector, it can be seen that China's steel product exports are not damaging the global supply and demand balance, but rather contributing to the international steel product market," a senior CCCMC official, surnamed Liu, said.

"The report highlights that the CCCMC supports the sustainable, integrated reform of China's steelmaking sector," Liu added.

Although the report manly covers the effect that China's steel product exports have on the United States, the main points can equally be applied to other countries, Liu explained.

In the past few years, China has become one of the leading steel product making countries in the world and the largest steel product importer. But China's growing demand for steel products has resulted in steel product prices increasing on the international market. Steel product prices were particularly high in 2004, when China imported large quantities of high-end steel products from Japan, Korea, and other regions, that would otherwise have supplied the United States and the global market. 

Although the price of hot-rolled carbon-steel in the United States fell to $222 per ton in 2003, prices surged to between $700 and $800 per ton at the end of 2004. China's net imports of steel products for 2003 reached 30 million tonnes, creating a tight enough supply to raise U.S. prices. 

While the United States increasingly views China as a threat to the global steelmaking sector, it often neglects China's contribution, Liu said. From 1980 to 2005, China was a major importer of steel products, importing a total of 300 million tonnes. China's steel product trade deficit stood at $16.8 billion in 2003, $12.5 billion in 2004 and $11.5 billion in 2005. Moreover, China is one of the major markets for high-end steel products.

China shifted from being a net importer of steel products to a net exporter of steel products in 2006, causing concern in other countries that China would maintain net exports in the long-run and damage the global steel product supply and demand market.

China's increased steel product exports are currently driven by strong global demand, rather than the need to dump overcapacity. The large price gap between steel products on the domestic and international markets is also prompting profit-taking Chinese steelmakers to increase exports. Currently, U.S. steelmakers import steel products from China, due to a global supply shortage, according to the report. 

While U.S. crude steel production reached approximately 96 million tonnes in 2006, apparent consumption grew to 130 million tonnes, constituting a large supply gap in the U.S. market.

However, steel product prices in importing countries have not been significantly affected by China's increased exports. For example, U.S. steel product stockpiles increased at the end of 2006 and start of 2007, temporarily weakening U.S. domestic prices. However, these figures soon recovered to high levels, which the CCCMC attributed to increased demand for steel products in the U.S. market.

Furthermore, there is no evidence that increased U.S. imports of Chinese steel products has negatively affected U.S. industrial development or led to further increased exports from China.

The Chinese government is currently engaged in a sustainable and integrated reform program for the domestic steelmaking sector. Guidelines released on March 14, last year, encourage Chinese enterprises to control new steelworks projects, to gradually phase-out overcapacity and outdated facilities, and to promote high-end steel product making.

Consolidation of the industry is also being encouraged, to the effect that top Chinese steelmakers, namely Baoshan Iron and Steel Group (Baosteel Group), Anshan Iron and Steel Group (Angang), Shoudu Iron and Steel Group (Shougang) and Wuhan Iron and Steel Group (WISCO), have already commenced various merger schemes.

The Chinese government aims to control excessive exports rather than make the steelmaking sector export orientated. 

The Ministry of Finance and the State Taxation Bureau released a joint policy on April 10, 2007, canceling the current 8% export tax rebate for the majority of steel products on April 15 with the exception of cold-rolled products, stainless steel and silicon steel, whose export tax rebates were cut to 5%.

China imposed a steel product export license system on May 20, in order to further control steel product exports, combat the growing trade surplus and restrict high resource-consuming industries.

Overseas steelmakers, including Arcelor Mittal [NYSE:MT], Nippon Steel, POSCO [NYSE:PKX] and JFE, are all actively involved in international steel-product trading and already supply the global market will large amounts of steel products.   

As China's steel product demand constitutes 30% of total global supply, balance in the global market is crucial for the domestic steelmaking sector. Chinese steelmakers, along with steelmakers from around the world, will have to cooperate in order to support and maintain balance in the global market.