Recently Economic Times reported about probing of steel
dumping by China into India. (http://economictimes.indiatimes.com/industry/indl-goods/svs/steel/india-begins-probe-into-stainless-steel-dumping-by-china-korea/articleshow/34192337.cms)
While the consumer gets a bargain during dumping, it shows
stress signs at the producing country. Is China’s steel industry really under
pressure or is it a one-time event? Let us try to understand the scenario which
is playing out starting with understanding the installed capacity around the
world.
Global steel capacity:
China produces half of the steel world consumes. When did it
start to add so much capacity?
Is there really demand for it?
What are
the utilization levels?
It all started in the last decade, capacity almost doubled
in less than a decade. And most of the capacity was installed in China. See the chart below.
Since
the demand for steel is 1.2 to 1.5 times of GDP growth, demand for steel slowed
along with slower GDP growth. So utilization of at the steel mills of China too declined. (http://www.reuters.com/article/2013/11/20/china-industry-idUSB9N0I602N20131120)
Conclusion:
Large scale dumping appears to be an attempt to clear off
the inventory. But it can continue in a lesser scale, as China can always offer
lesser prices than producers in many other countries for several reasons. If there is any uptick in global economy, it would stop. In case of global steel demand softening further, China's steel companies would follow the footsteps of its solar industry, go out of business, until demand-capacity finds an equilibrium.
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