Focus on price, not production, Japan’s trade ministry tells Chinese mills

Chinese steelmakers are doing very little to keep supply in check and help stabilise regional steel prices, according to a senior official at Japan’s Ministry of Economy, Trade and Industry (Meti).

“We were looking forward to Chinese steel producers behaving like Japanese producers and focusing on price rather than production. But up till now, there has been little evidence of this,” the official said during an interview in Tokyo.

China’s steel prices have collapsed since April this year amid a significant slowdown in China’s economy and a continued problem with oversupply. Steel exports from China were nearly 10% higher year-on-year in the second quarter this year, at about 15.1 million tonnes.

“Most Chinese mills are operating in the red, so we hope that China will be aware of their behaviour and its negative impact not only on themselves but on everybody else too,” he said.

Adding to the regional supply-demand imbalance and the collapse in steel prices has been new capacity coming on stream in South Korea as well.

“Regional steel prices really depend on Chinese and Korean production levels and we need to watch carefully what they are doing. If they do reduce output, it should provide a bottom to the market. This is very important because there are very few positives for the market without a global economic recovery,” the official continued.
“However, I cannot say I am optimistic that they will change their attitude if you look at the most recent data out of China, which shows output at record-high levels,” he added.

The issue of Chinese steel production is especially problematic for Japanese producers because they are themselves fighting for a bigger share of export markets in East Asia.

And steel companies and government officials in Japan are becoming increasingly concerned about trade friction between Japan and its major regional trading partners, and the effect this is having on the country’s steel exporters.

“Chinese and Korean steelmakers are becoming less and less afraid to threaten anti-dumping action on Japanese steel imports and this is causing export strategy problems for our mills,” the senior Meti official said.

The Chinese have already investigated possible dumping of Japanese seamless pipe, despite the fact that the type of pipe in question is not produced in China and was ordered directly by Chinese customers.

“This is a very clear message from China that they intend to carefully watch Japanese steel imports. It is worrying,” the official said.

There are also rumours that South Korean mills are getting increasingly concerned by Japanese steel imports and could ask the government to investigate, he said.
But he insisted the cause of the problem was not Japanese dumping, but the massive expansion of capacity in these countries that has led to an oversupply situation, particularly at a time when the Chinese economy is slowing and Russian steel producers are increasingly targeting the Asian markets due to the collapse in demand from its traditional European markets.

“This pressure will remain as Korean and Chinese mills continue to expand production and exports, and will continue to affect Japanese mills’ ability to fairly compete without having to fear possible dumping charges,” he said.

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