Steelmakers in China Must Cut Output to Curb Crisis, Study Says

  • Wiley Rein LLP says overproduction distorting global industry
  • Steel capacity seen growing 103 million tons from 2016 to 2018

The global steel market is staring at an escalating crisis caused largely by China, and the Asian nation’s plans to deal with it will probably only make matters worse, according to a new study.

An unprecedented amount of overcapacity is distorting the market and threatening the viability of steel producers worldwide, Wiley Rein LLP, a Washington-based law firm representing U.S. steelmakers, said in a report dated April 13. The government in China, the world’s biggest producer, must take an active role to undo the excesses it has created, or else “responsible” steel producers will be forced to shutter facilities, make additional layoffs or enter bankruptcy.

“China’s various government plans and policies, while purportedly intended to reduce capacity, in fact encourage and even subsidize upgrades and continued growth,” according to the study’s authors, Alan Price, Christopher Weld, Laura El-Sabaawi and Adam Teslik. “The continuation of these policies is more likely to result in the maintenance and further expansion of Chinese steel capacity and production.”

Washington Hearings

The report was timed to be released as the office of the U.S. Trade Representative and the Commerce Department hold a two-day public hearing in Washington on the status of the global steel industry and the impact on U.S. industry, markets and overcapacity in general.

Steel prices have dropped about 24 percent since July 2013, when Wiley Rein’s first report on the issue was released, amid overproduction and, more recently, declining demand in China, which is also the world’s biggest consumer of the alloy.

“The overcapacity crisis has reached alarming new heights,” Wiley Rein wrote in the report. “In the United States, the effects of this crisis are being felt most acutely in the form of record import levels, which are having severely injurious effects on the health of the U.S. steel industry.”

From 2004 to 2014, steel production gained 57 percent globally, with China accounting for 91 percent of the increase, the study said, citing a European Chamber of Commerce report. Steelmakers plan to add additional capacity, despite the glut, with Wiley Rein forecasting capacity to increase some 103 million tons from this year to 2018.

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