The signing Wednesday of Phase 1 of the proposed US-China trade deal does not include any provisions to tackle excess capacity in the steel and aluminum industries, however industry organizations are pushing for these issues to be tackled in later phases.
Receive daily email alerts, subscriber notes & personalize your experience.Register Now
"We congratulate President Trump and his administration on this important first step toward a more balanced trading relationship between the US and China," Lauren Wilk, vice president of the Aluminum Association, said in a statement. "As the parties move to the next phase of negotiations, we strongly urge negotiators to focus on addressing the unfairly subsidized overcapacity that is hurting US aluminum producers – and impacting the global aluminum market."
Over the past five years, aluminum overcapacity in China has grown by 60% and increasingly that metal is being exported to third party countries, further distorting global markets, according to the Aluminum Association.
"It is essential to the long-term health of domestic aluminum manufacturers that China end the structural subsidies that make it impossible for US and global aluminum producers to compete on a level playing field," Wilk said.
Likewise for steel, China's excess capacity is not something that can be overlooked when trying to reach a more comprehensive deal, Philip Bell, president of the Steel Manufacturers Association said in a recent interview with S&P Global Platts.
"I think excess steel capacity is like the 800-pound gorilla in the room. It should always be a part of any trade discussion because I think ultimately what our trade policy is trying to fix is this persistent and structural problem with global excess steel capacity," Bell said. "I don't know if any specifics have been discussed between the parties, but I don't think any discussion about steel trade policy can take place without global excess steel capacity being front and center."
According to Platts' analysis, China's crude steel capacity will continue to increase by 14 million mt/year in 2020, after it rose by around 42 million mt/year to 1.21 billion mt/year in 2019. As a result, China's crude steel output is expected to rise by 2% year on year in 2020 to around 1 billion mt. Its crude steel output increased 7% year on year over January-November 2019 to 904.18 million mt.
More robust domestic demand led China's steel exports to fall 7.3% year on year to 64.3 million mt in 2019, and while it was the lowest level since 2014, lower-priced imports from China continued to pressure the global market.
"That continues to put pressure on the entire world steel trading system both through their direct imports, but also importantly through indirect imports, fabricated products, circumvention and all of the other ways their overcapacity is challenging world steel markets," Thomas Gibson, CEO of the American Iron and Steel Institute, told S&P Global Platts in a recent interview.