Playing Hot Potato With Chinese Steel

Western shift to protectionism threatens Aussie steel makers

A surge in trade protectionism in the US and Europe is threatening to push more steel into south-east Asia and depress profits for already stretched Australian producers.

Shares in BlueScope Steel have plunged 40 per cent this year in the face of weak steel prices, while Arrium is still trying to run its OneSteel business to conserve cash as the oversupply crimps margins.

Bank of America Merrill Lynch's global team of steel analysts warns that growing western hostility to foreign steel imports could put further pressure on already reduced steel margins in Asia.

"We believe the most negatively impacted region may be the rest of Asia [excluding China], which could feel the brunt of any redirected exports," BAML said in a research note.

China's steel puke is being focused into a smaller and more concentrated stream as nations move to block imports.

FT: Europe steps up fight over cheap steel imports

“China is caught with all this capacity, there’s always an incentive to keep on producing and offload the material rather than cut production and lose out to a competitor,” says Jeremy Platt, analyst at steel consultancy MEPS. “Because there’s so much excess capacity in China it’s going to take a long time to get to a normal level.”

The tariffs will probably lead to a further widening of the price difference between Chinese and European steel products. As China looks to export elsewhere, prices in those destinations will also fall.

This will mean that while Chinese imports to Europe may decline, steel from other countries could rise. When the US set anti-dumping duties on steel tubes from China in 2010, tube imports from Korea and Vietnam grew substantially “even though the latter hosted hardly any manufacturing capacity,” according to HSBC analyst Thorsten Zimmermann.

“Defending against global steel overcapacity is like a whack-a-mole game,” says Mr Rosenfeld. “You hammer it down in one place, and then it pops up in another. In one sense protectionist policy only serves to redirect steel imports from one region to another.”

Unless all the regions adopt protectionist policies.