As we come to the end of another difficult year for the steel industry, I would like to reflect on the major developments of the industry in 2015, particularly in ASEAN.
The year kicked off with the news that the Chinese government had finally taken step to remove the export tax rebates on several boron-added steel products effective 1 January 2015. The affected products were hot rolled plate and sheet, hot rolled narrow strip, wire rod and bar.
While the news was generally well received, many quarters expressed their concern that the move would not be adequate to plug the loopholes in China’s tax rebate structure as many Chinese steel producers were reported to be working on adding other alloy elements such as chromium to the affected products so as to be able to continue to benefit from the tax rebate.
The ASEAN Iron and Steel Council (AISC), in fact, raised the above concern at a meeting with officials of the ASEAN-China FTA Joint Committee (ACFTA JC) in Beijing, China on 5 February 2015. At the meeting, besides asking the Chinese government to take immediate action to prevent further circumvention, the Council also requested China to exercise voluntary restraint on its exports of steel products and to take effective action to reduce the severe excess steel production capacity in the country. The Council also made the same representations at its annual dialogue with the China Iron and Steel Association (CISA) in Shanghai on 2 April 2015.
As it turned out, the Chinese steel producers did switch to the adding of chromium to their steel products, allowing them to continue to enjoy the tax rebate benefits. Not only that, steel export volumes from China continued to surge unabated.
AISC kept pursuing the above matters at its subsequent meeting with the ACFTA JC in Brunei on 29 July 2015. This time, AISC supplemented with several specific proposals to deal with the issues at hand.
Despite all the efforts, steel products from China continue to swamp the global market with ASEAN bearing the brunt of the flood of exports. During the period January to November 2015, China’s steel export to the world reached an all time high of 101.74 million tonnes, up 21.7% year-on-year. In the first nine months of 2015, China’s steel export to ASEAN already matched its total volume of export to the region in 2014, at 23.6 million tonnes, a huge increase of 48% year-on-year.
Arising from the intense competition from Chinese steel exports, many steel companies in ASEAN are cutting down their production. In the first half of 2015, production of hot rolled steel products in ASEAN dropped 6.3% year-on-year.
Despite the record volume of steel exports, steel producers in China are also suffering. CISA reported that medium-sized and large steelmakers in China posted a total loss of US$ 4.4 billion in the first nine months of the year. It has also been reported that many steel producers in China are selling their products in the domestic and export markets at below production cost to maintain cash flow and market share. But how long can they sustain their operations this way with losses piling up?
Already governments all over the world are stepping up their trade defences against the threat of low-priced Chinese steel exports. The OECD reported that China is the number one target for unfair trade complaints, with some 65 cases opened against it during 2013 to October 2015.
With the advent of the New Year, rumours are flying around that the Chinese government might remove the export tax rebate on chromium-added steel. Even if that were to happen, it would probably only provide a short-term relief to the steelmakers around the world. The Chinese steel producers will soon find another alloy element to enable them to continue to benefit from the export tax rebate. The long term solution lies in the ability of the Chinese government in solving the root cause of the problem, that is, the country’s chronic excess steel production capacity.
TAN AH YONG