The commodity market over the last year has been in turmoil and the steel industry has not been an exception. Prices have dropped to a 12-year low as poor economic growth, oversupply and diminishing demand are the order of the day. With China’s growth rate at its lowest in 25 years, and its stock market being unstable, international fears as to what their next step may be are mounting. As the world’s second largest economy, China is the biggest global manufacturer and therefore the largest consumer of commodities.
China is exporting steel at $50 below their marginal cost per ton due to an oversupply. When the Russian ruble devalued, the Russians cut their price by $160 a ton. The Chinese followed suit, which had the other major exporters rattled. This resulted in Nippon Steel, JFE, Posco, and Hyundai, amongst others, being forced to sell steel at extremely low prices to remain competitive.
Tata Steel has announced that it would be letting 1,200 of its workers go due to cheap Chinese imports, high electricity costs and the strong pound. Scunthorpe will be hit the hardest, losing around 900 workers, with the balance being distributed among other sites in the United Kingdom. Karl Köhler, chief executive of Tata Steel’s European operations, has stated the following.
“The European commission needs to do much more to deal with unfairly traded imports – inaction threatens the future of the entire European steel industry.”
Tata’s announcement was made shortly after SSI, the owner of the Redcar steelworks on Teeside had gone into liquidation and Caparo Industries went into administration, resulting in the joint loss of another 2,200 and 1,700 jobs respectively.
In December 2015, AK Steel reduced staff at its Ashland, Kentucky works by 600 workers, leaving less than 200 workers at the plant with an uncertain future.
In January, US Steel announced that 677 jobs would be lost at its Lone Star Tubular Operations in Texas as it plans to suspend production in march. It is uncertain as to if or when production will recommence. US Steel has blamed the 70 percent drop in oil prices over the last two years that has resulted in a slump in the oil drilling industry for the job losses. In 2015, eight of its plants suffered cutbacks.
Also in January, Republic Steel laid off 200 workers at its rolling mill in northeast Ohio, their reasons being stated as the drop in demand from the energy sector, while Shenango Inc. closed its coke plant near Pittsburgh, laying off 173 workers, this was because of the low demand from the steel industry.
In an attempt to curb the influx of steel imports, steel companies have successfully managed to get duties imposed on a number of Chinese steel products. In one case in 2015, duties were imposed on OCTG (oil country tubular goods) from South Korea. U.S. steel companies are also hoping for a favorable ruling in the the hot-rolled and cold-rolled trade cases to further hamper steel imports. Damage to the domestic steel industry has been found in the aforementioned cases by the U.S. International Trade Commission in its preliminary ruling.
Even though it would make sense economically, it does not look as if China will slow down its steel production. The political implications of the massive job losses would override the financial pitfalls, so hand-outs from the government could be expected. As it is, the Chinese government has already announced that they would be buying aluminium and zinc from domestic suppliers to support the industry. This would mean the flood of Chinese exports would continue and make life extremely difficult for other steel producing nations.
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