China Steel Overcapacity and its Influence on Manufacturing

Published on: October 25, 2019

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China has the highest steel making capacity in the world. It is estimated at 10 times that of the United States. They recently shut down over 50 million tons to reduce pollution but are still the predominant entity that fuels the steel industry. According to Investopedia, China is the highest producer of steel and also the highest consumer. It is no wonder China fuels the steel manufacturing industry. Although these are facts, there have been some dilemma in the steel industry and most of it is affected by the steel overcapacity in China.

In a research by Lukas C. Brun, he estimated the China steel manufacturing expansion to be 2,300 million metric tons which is 800 million tons in excess of what is expected to reach global standards. This has proven a problem in the steel industry because China seems to dominate and overshadow other manufacturers in steel. The steel industry doesn’t seem a profitable one for others. They have also been accused of in-flowing cheap steel onto the steel market to beat out competitors. China currently makes up about 24% of the world’s steel export making them the highest exporters of steel.

While China is the world highest exporter of steel, the United States is one of the highest importer of steel alongside Germany. Given that the US is one of the top producers of steel, manufacturing a sum of 116 tons of steel in 2017, this doesn’t come close to the steel manufacturing capacity of China. In that same year, China produced a sum of 831 million metric tons of steel. This gives China the upper hand when it comes to influencing the steel industry.

One question that may come up from this is, “does China’s overcapacity pose a problem to the world steel manufacturing industry?”. This may come with an indefinite answer. When you look at the world production of steel in comparison to that of China, you can’t help but wonder that “if China withdraws their quota from the steel manufacturing market, would the remaining world manufacturers meet up to the 1,500 million metric tons needed to meet global needs?”. Withdrawal may not necessarily be deliberate. If the Chinese economy dwindles, how bad would the impact on the steel industry be? China may be at the top of the steel manufacturing industry but it cannot be denied that they meet to the availability of steel around the world.

With these findings, the world steel manufacturing output has been making progress because they have come to realize the detriment of the world steel sector relying on the Chinese economy. According to the World Steel Association, the global steel production made a 5.8% increase in production as at July 2018 and a 13% increase that same year. With this increase, the global steel market is taking shape again and steel prices are increasing. However, China still has so much influence that they can pump more cheap steel into the market and reduce the prices should demand decrease due to steel price.

 

Brun, Lukas. Overcapacity in Steel: China’s Role in a Global Problem. Sept. 2016, https://www.researchgate.net/publication/307559458_Overcapacity_in_Steel_China’s_Role_in_a_Global_Problem.
Seth, Shobhit. “How China Impacts the Global Steel Industry.” Investopedia, Investopedia, 26 July 2019, https://www.investopedia.com/articles/investing/021716/how-china-impacts-global-steel-industry.asp.

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