EU steel faces new problems from trade actions

A S Firoz

European Union (EU) has started getting steel from quite unlikely sources. According to a statement of the Eurofer, the Confederation of the European Iron and Steel Industry, in the first half of the year, imports from Egypt were up more than 50 per cent over the same period last year, at 40,000 tonnes a month. The average monthly imports from Libya rose 150 per cent to about 25,000 tonnes a month.

There are two possibilities. One, there could be transhipment through these countries with the countries of origin different. Although the chances of that happening are less as the same can be tracked with relative ease, the same may not also be ruled out theoretically. The other more obvious reason for that and the more probable one is the fact that after imports were blocked from most major countries with trade actions, the lesser known steel-makers from relatively low profile steel-making countries found opportunities to exploit in a relatively prosperous market.

The EU has witnessed rise even from Iran and South Africa. Both the cases are interesting. Iran, from where imports have risen 120 per cent to 20,000 tonnes a month, was taken out of the anti-dumping action on HR coils on the grounds that the imports from it were marginal. As for South Africa, already under a 37.8 per cent anti-dumping duty on HR coils, notching a 200 per cent increase to 20,000 tonnes a month is alarming.

It is worth recalling that in the late seventies, when the US had imposed quotas on steel through voluntary(?) restraint agreement, the country saw its shores getting hit by steel from Bhutan and Cayman Islands! And many more places like these. These countries did not have the capacity to produce an ounce of steel! These were cases of pure transhipment. Perhaps some competitive steel producing countries found this as the most intelligent way to circumvent the imposed quotas. Even if this is not the case, by imposing anti-dumping duties, you manage only to push the competitive out of the market. Its place is invariably taken over by the lesser ones. The result? Imports did not drop to the extent looked for. Had there been no anti-dumping case on Japanese HR coils, could anyone have thought of steel from other Asian countries flooding the US market? Even the relatively inefficient and lesser known mills in the region got a share of the market vacated by the Japanese or for that matter most other countries slapped with trade actions.

This was was expressed by this column earlier. Instead of looking at the merits of trade cases, the response of the European industry has again been on predictable lines. The industry plans to initiate cases against all the countries named above plus Turkey on imports of HR coils. Similarly, they are reportedly preparing cases against heavy plates from the Czech Republic, Indonesia, Macedonia and Poland.

In the process, the region, well known for its open door policies, will find fewer countries left outside the realm of trade actions. What else will this be called then but simple protectionism, whatever be the compulsions on them ? It will follow the US track. After finding no country really left for trade action, the US industry and the Administration have leaned on the highly avoidable, controversial and unjustified Section 201 safeguard case. Today, the European industry is opposed to it, but, at the current rate, it may not be very far if it also demands similar action from the government. The European steel-makers are faced with two additional problems. One, the slowdown in the US has actually brought more offshore steel into their ports. Two, with the Euro gaining strength, particularly against the US dollar, the market may turn out to be quite attractive for foreign companies.

While another round of protectionist actions is on the card, with even several developing countries taking part in it, the world steel pricing outlook is going from bad to worse. Getting hit by this dangerous price trends, Iran has increased import duties on steel. Thailand is planning to devise a combination of tariff and non-tariff actions to curb imports of HR coils. With more markets closed, fewer buyers and less tonnages to sell, the international steel prices will only fall. The US mills refuse to accept this hard reality. Even when the imports are down nearly 30 per cent, their prices have not improved. They are still talking about low priced imports, as if anyone in the world would be able to sell steel at higher prices today.

(The author is chief economist at the Economic Research Unit, JPC and the views expressed here are his own)