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China Has Primary Control of the Steel Market and It’s Affecting the Global Steel Industry

China Has Primary Control of the Steel Market and It’s Affecting the Global Steel Industry

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China Has Primary Control of the Steel Market and It’s Affecting the Global Steel Industry

China Has Primary Control of the Steel Market and It’s Affecting the Global Steel Industry

By: RK Steel

Did you know that China currently produces almost half the world’s steel? According to The Street, this is a large increase from the 10% they produced a decade ago. At that time, the U.S. was producing 14% of the world’s steel; now we only produce 4%.

For the past two decades, China has needed an abundance of steel for urbanization; constructing bridges, buildings and rail lines for its immense population. However, with China’s economic growth slowing down, its need for steel has followed suit. Similarly, the rest of the world’s demand for steel slowed due to a diminished global economy.

In an effort to keep its position as the top steel producer, China is now overproducing. In a single month, China produces enough steel for all of the cars made in the world last year. Nine out of the ten largest steel producers in China are state-owned. While these companies are selling steel at a loss, the Chinese government is subsidizing steel production and is demanding state-owned banks to regularly refinance the debt. This subsidy allows Chinese steel producers to export at lower prices than other countries, also known as dumping. Steel dumping has caused U.S. steel prices to drop by nearly half from 2014 to 2015.

While lower steel prices are good for buyers, they’re not good for producers. Dumping has impaired the steel industry worldwide. In recent years, many steel plants have been forced to close around the globe. The largest steel company in the U.S., U.S. Steel Corp., lost over a billion dollars in 2015 and reduced its workforce by a quarter.

There is no doubt that the U.S. steel industry has also been hurt by imports of steel from China. The U.S. passed a trade enforcement bill in March that resulted in a 266% tariff on steel imports from China. These tariffs have made Chinese steel too costly for U.S. buyers, resulting in less demand. However, these tariffs do offer a great benefit to U.S. steel producers who can now raise their own prices.

According to the Wall Street Journal, shares of U.S. Steel Corp. have more than doubled this year as domestic prices and mill utilization have climbed while imports of steel goods from trading partners have dropped by 34% this year.

Some argue that U.S. mills are taking advantage of the tight market and that the price hikes are too high and have happened too quickly. This is putting pressure on other industries within the U.S. who use steel to produce goods. Diminished inventories are now affecting the supply chain. Average delivery times have increased from 3 ½ weeks earlier this year to over 6 weeks. As a result, manufacturers that buy steel from U.S. mills say they are scrambling for steel to meet project deadlines.

America’s top two steel companies argue that prices have merely returned to normal, where they should be when steel is fairly traded.

The majority of materials that RK Steel purchases and utilizes are domestic-made. While our vendors do import some materials for miscellaneous and odd-sized items, they typically source their materials from mills within the U.S.

Our team of experts wants to know what you think! Are the U.S. imposed tariffs good for the overall U.S. economy? Contact RK Steel today at RKSteel@rkmi.com to further the discussion.

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