India’s steelmakers have watched with dismay as exports have tumbled and imports zoomed. Why has this suddenly happened? Call it the China Factor. The Chinese are the global steel production champions and that’s becoming a massive problem for the metal’s manufacturers worldwide.
Because as Chinese real-estate growth stalls so has the voracious domestic demand for steel needed to build multi-storey buildings and glittering new cities.
And no prizes for guessing what the Chinese are doing with all their extra steel. Yes, right first time! They’re exporting it at huge discounts to every corner of the Earth. JSW Chairman Sajjan Jindal rued the China Factor at the company’s AGM: The Chinese steel production is “now turning into a problem for the entire world.”
Looking at the figures, it’s easy to understand how China could swamp the world with its steel. In 2023, China produced 1.17-billion tonnes of steel. India is the second-largest producer but it’s a minnow at 140-million tonnes. In the last three years, China’s steel surpluses have been growing and most of that’s turned into discounted exports.
For India’s steel industry, discounted Chinese steel’s impact is being widely felt. One estimate is, in 2023-24, imports climbed to 8.3-million tonnes, outpacing our 7.5-million tonnes of steel exports. All the steel manufacturers are obviously feeling the squeeze.
India isn’t the only country feeling the brunt — in fact, it’s probably feeling it less than many others. On Monday, Canada slapped 100-per-cent duties on electric vehicles (EVs) from China and 25 per cent on steel and aluminium. Canada was following the US which announced similar tariffs a few months ago but so far it hasn’t implemented them. The US is also upping duties on semiconductors and solar cells to 50 per cent and imposing a 25 per cent tariff on lithium-ion batteries. The EU has imposed similar tariffs on the same Chinese products.
But the US and Canadian imports and tariffs could yet be reduced because of a key complicating factor. Many of the Made-in-China automobiles are Teslas manufactured at Elon Musk’s Shanghai factory.
China’s economy has slowed sharply amid trade tensions, global economic slowdowns and changing global supply chains. It’s defying all the government’s stimulus efforts including monetary easing, consumer spending incentives and infrastructure outlays, to return it to the fast-growth track.
For decades, China has been an insatiable consumer of all manner of commodities from crude oil, iron ore to coal. The Australian economy, for instance, relies heavily on China to buy its wine, barley, iron ore and coal. Underlining China’s economic weakness, its crude oil imports have fallen sharply with the result India appears to have overtaken it as the world’s biggest importer.
Head in a different direction to Brazil, which depends on its Chinese trade, exporting soybeans, sugar and coffee, and almost 200 million tonnes of iron ore to China in the last two years. So far, Brazil’s iron ore exports to China have only fallen slightly but Brazilians are holding their breath.
Manufacturing hub
There’s also the fact that China has become the manufacturing hub of the world, especially for electronic products. Nearly every global automobile company buys its electronics from China and any supply-chain slip-ups would cause slowdowns like the ones Indian auto companies faced soon after Covid. Supply-chain disruptions could lead to delays and higher costs for electronics, consumer goods and automotive companies worldwide.
A Chinese slowdown is also impacting global tourism in countries like Japan and France. That may be good for Indians as they’re now becoming sought-after tourists. The Chinese made 87 million trips abroad last year, down 40 per cent on pre-Covid years. Indian tourism, by contrast, is booming, making Asian countries give us a warmer welcome. Malaysia and Thailand offer Indians visas-on-arrival for stays of up to 15 days.
Can China pull off an economic comeback? After four decades of unstoppable growth, the market may be demonstrating it’s more powerful than all Communist theorising. The Chinese have built smooth-as-silk highways. But their real-estate companies have moved far ahead of demand and reached a stage where they’re putting the brakes on the entire economy. With China’s economy sneezing, it could be the whole world that catches cold. A lot of the impact will depend on the slowdown’s severity. Will it be moderate with growth falling to 3-4 per cent, down from 6-7 per cent levels in the past decade. Or will it be significant, falling to 1-2 per cent? Whatever the scenario, it will test the resilience of economies globally.
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