US tariffs hit Chinese steel industry

The latest US tariffs imposed on steel from China could hurt the Chinese steel market as the sector continues to see declines in demand and is suffering from a supply glut, industry observers said.

The US Department of Commerce announced in a preliminary decision on Tuesday that it had placed tariffs on cold-rolled steel from China and several other countries. China received the most punishing tariff, 266 percent. Cold-rolled steel is used in automobile parts and appliances.

It was the second high tariff the Commerce Department has levied against China in several months, the other one a 256 percent tariff on corrosion-resistant steel, which is used in automobiles and air conditioners.

According to the Commerce Department, China exported more than 790,000 metric tons of cold-rolled steel to the US in 2014, and is the biggest exporter of the commodity among the countries with the newly imposed tariffs.

"At this point I would doubt that there would be any steel coming in from China to the United States," said John Packard, president and publisher of the trade publication Steel Market Update.

"The Chinese were already blocked from shipping hot-rolled from a past ruling from many years ago, and this will essentially stop them from being able to ship cold-rolled and [corrosion-resistant] products to the United States," he said.

Domestic steel producers in the US filed petitions accusing several international competitors of dumping their products in the US and receiving subsidies from their governments.

China was shipping from 130,000 to 275,000 metric tons of steel a month to the US, which has dropped to around 83,000 metric tons a month, according to figures compiled by Steel Market Update.

In early 2015, China was averaging about 60,000 metric tons of cold-rolled steel exports to the US monthly, but that declined to less than 40 tons in January and February 2016. "These are not insignificant numbers," Packard said.

China's steel industry is already facing a slowdown due to decline in demand that has led to large supplies of cheaply priced steel. The government announced earlier this week that roughly half a million steel workers will be laid off.

Adam Hersh, senior economist at the New York-based Roosevelt Institute, said that China has overinvested resources in steel capacity and is now cutting back, and the tariffs will pressure producers.

"What it does is that it's going to financially squeeze the producers in China who have not responded to market signals when prices were low to pull back on investments and increasing production. So they're going to find themselves with a lot of product that's worth less and less," he said.

The steel industry is also affected by the country's shift from a manufacturing-led economy to a service-based one, and a desire to curb pollution caused by heavily industrialized sectors like steel.

"Since 2010, the domestic demand for steel is declining - not shrinking in absolute terms, but growing more slowly," said Nicholas Lardy, senior fellow at the Washington-based Peterson Institute for International Economics.

"It's mostly because the property market investment has been growing more slowly. The biggest challenge in the domestic industry arises from changes in the domestic demand situation," he said.

amyhe@chinadailyusa.com