Global deal to stop steel dumping
A deal struck by the G20 steel ministers in Berlin may mean better days for India’s steel sector that has been at the centre of the country’s massive bad loan problem, disrupting both the banking sector as well as industrial recovery.
The G20 deal by a body, called the Global Forum on Steel Excess Capacity, has promised countries will phase out subsidies and cut over-capacity, a move aimed at China which is found to be guilty on both counts. The move could also help to curb dumping by Korea and Japan.
The deal negotiated in the eleventh hour despite a row between the US, the largest importer of steel, and China, the biggest exporter, on Saturday will be presented at the WTO meet in Beunos Aires later this month.
However, Indian officials who were part of the conclave said the deal was more a statement of intent and fell short on actual deliverables as China resisted US pressure to take on more responsibility for market distorting trade.
However, the Europeans, who were leading the efforts to strike the deal seemed satisfied.
EU commissioner for trade Cecilia Malmstrom said, “The problem of excess capacity of steel has real effects on people’s lives – especially those who became unemployed. Wide-ranging policy solutions will help create a level-playing field and support growth and jobs.”
China and the US nevertheless remained at loggerheads with Beijing insisting it had done enough to manage the global overcapacity, while Washington threatened more counter-measures to protect itself from what it sees as unfairly traded steel.
The US has already come out with policies to encourage the use of local steel as well as anti-dumping measures.
“The only real positive takeaway other than the promised reduction in subsidy and over-capacity was that the forum agreed to meet at least thrice a year to review progress,” Indian officials said.
As China’s economy slows down, its demand for steel has been shrinking, producing huge over-capacity. This in turn has forced its steel makers to increasingly push sales to the rest of the world, often at below realistic prices, allege critics.
The World Steel Association has said China’s demand dropped 3.5 per cent in 2015 and will shrink another 7 per cent over two years – 2016 and 2017 – taking it to about 626 million tonnes (mt). China, which has the capacity to make about 803mt, plans to cut as much as 150mt capacity over five years as part of its supply-side reforms.
However the Chinese complain they cannot be solely held responsible for the global problem and other countries will have to chip in.
Assistant Chinese commerce minister Li Chenggang warned against a situation where his country made “painful efforts” to reduce capacity “while the rest of the world just watches”.
India’s steel industry has been hit by low demand and dumping by foreign rivals. Several steel companies figure prominently in the RBI’s list of top loan defaulters, including Monnet Ispat, Bhushan and Essar Steel. The three alone account for over Rs 1 lakh crore in bad debt. Even blue chip steel maker SAIL reported a loss of Rs 539 crore in the second quarter of this year despite a 21 per cent rise in sales.
As a result, India has been trying to create a duty wall to protect its local mills against dumping by China and other east Asian and east European countries who have resorted to cheap pricing.
The government has tried to help distressed steel firms by raising the import duty and slapping additional safeguard duties, but the fact remains bad loans in steel account for as much as Rs 3 lakh crore. In terms of loans owed to banks, the industry saw the highest slippages at 7.8 per cent followed by textiles.
All this has resulted in India getting involved in trade spats with the east Asian giants over import levies and restrictions. Japan has also threatened to take India to the WTO over restrictions that nearly halved its steel exports to this country over the past year.