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Global steel agreement to target Chinese policies

Japan, the U.S. and Europe will push China for more action to combat the global steel glut when ministers from 33 countries and territories meet Thursday in Berlin to forge an agreement on the oversupply issue.

Representatives from China, India, South Africa, Argentina and members of the Organization for Economic Cooperation and Development intend to devise the nonbinding agreement at the Global Forum on Steel Excess Capacity.

The agreement likely will have governments report on domestic production capacity and their operational levels two to four times yearly and ensure that corrective measures are taken against businesses with a clear excess in output. It also will urge governments to discontinue aid for domestic steelmakers, helping weed out businesses unable to survive on their own.

Following the deal, working-level officials plan to meet in March to examine progress.

The goal is to nudge China into modifying its policies. The country, blamed by many others for the global glut, has provided subsidies -- mainly through local governments -- to help compensate for losses at steelmakers. Beijing also has pushed major state-owned banks to keep lending to the businesses, and has guaranteed their corporate bonds to facilitate fundraising.

Global capacity for crude steel production grew roughly 60% over a decade to 2.38 billion tons in 2016, the OECD says. China's capacity soared 140% to 1.16 billion tons, accounting for roughly half the global tally. Yet worldwide steel consumption stands at 1.61 billion tons, just two-thirds of capacity.

As China's economic growth slowed, domestic steel consumption also lost steam after peaking in 2013. Excess output was exported in droves, loosening the international market. The price of Chinese exports averaged $556 per ton in 2016, down about half from $1,100 per ton in 2011.

Beijing has responded to the international criticism. The State Council, for instance, plans to slash steel capacity between 100 million tons and 150 million tons by 2020, with capacity having been curtailed by more than 100 million tons thus far. Mills producing illegal and substandard steel largely were shut down by the summer.

China apparently sees an opportunity to showcase its efforts by not resisting this agreement. Yet the pact will be nonbinding, with the language likely abstract, leaving the effectiveness of the deal unclear.

Source: and Metal Junction

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