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Congressional Research Service (CRS)

 

China’s Steel Industry and Its Impact on the United States: Issues for Congress

Rachel Tang, Analyst in Industrial Organization and Business

September 21, 2010

http://opencrs.com/document/R41421/2010-09-21/download/1013/

[full-text, 32 pages]

 

Summary

China’s steel industry has grown significantly since the mid-1990s. China is now the world’s

largest steelmaker and steel consumer. In 2009, China produced over 567 million tons of crude

steel, nearly half of the world’s steel. That was 10 times the U.S. production.

 

The majority of Chinese steel has been used to meet domestic demand in China. However, as its

steel production continues to grow, overcapacity is becoming a major concern to Chinese

industrial policy makers, as well as steelmakers outside China. Although industry statistics

indicate that the Chinese steel industry is not export-oriented, its consistently high output keeps

U.S. steelmakers concerned that excess Chinese steel might overwhelm the global market once

domestic demand is adequately met. These concerns become increasingly acute as the United

States and the rest of the world are in the middle of a slow recovery from the economic recession

started in December 2007.

 

The Chinese steel industry is highly fragmented, with more than 1,000 steel producers, which

makes the domestic market highly competitive and difficult to control. Its growth also faces

constraints such as dependence on imported iron ore and high energy consumption. The Chinese

government has shown interest in stepping up its efforts to rein in steel overcapacity and to

consolidate and restructure the steel industry. However, it remains to be seen if the government’s

efforts and measures are to produce sufficient or meaningful results.

 

The possibility of surplus steel from Chinese steel producers; their alleged questionable, if not

illegal, trade practices; and the possibility of Chinese direct investment in the U.S. steel sector are

all of major concern to the steelmakers in the United States.

 

Steelmakers in the United States believe that China’s government subsidization of its steel (in the

form of an undervalued currency, export rebates and/or quotas, subsidized financing, relatively

weak environmental, labor, and safety regulations, etc.) is one of the key issues affecting the

health of the U.S. steel sector. There have been multiple anti-dumping and countervailing cases in

the United States against certain Chinese steel products, which suggests that U.S. steel producers

and trade officials are increasingly using trade remedies to enforce international trade laws.

 

The rise of China’s steel sector, along with other manufacturing industries, presents issues beyond

trade law enforcement. China’s quest for industrial raw materials is having considerable effect on

global demand and supply, and as a result, the prices and availability of such inputs. China’s

restrictions on exports of some raw materials, allegedly, lower the cost of such raw materials in

the home economy, while increasing global prices of these products (or diminishing global

supply), thereby producing an unfair advantage in some manufacturing industries.

 

Amid the rising trade cases against various Chinese steel imports, Congress became increasingly

concerned over alleged unfair trade competition from China. In August 2010, legislative measures

were introduced in the Senate (S. 3725), while a set of measures focusing on illegal import

practices were proposed by the U.S. Commerce Department, both aiming to continue the rigorous

and more effective enforcement of U.S. trade laws.

 

This report provides an overview of China’s steel industry and discusses the issues and

implications with regard to the U.S. steel sector.

 

Contents

Introduction ...............................................................................................................................1

Overview of China’s Steel Industry .............................................................................................2

China Becomes Top Steel Producer and Consumer ................................................................4

Steel Consumption and Capacity ...........................................................................................6

China’s Steel Industry Structure and Composition .................................................................7

Supply of Key Steel-Making Raw Materials..........................................................................8

Coal...............................................................................................................................8

China and the Global Iron Ore Market.............................................................................9

The Rio Tinto Case .......................................................................................................10

Iron Ore Trade Moves to Quarterly Prices ..................................................................... 11

China’s Quest for Iron Ore, Among Other Natural Resources ........................................12

Rare Earth Metals .........................................................................................................13

China’s Steel Industry Policies and Measures ............................................................................14

The Steel Industry Revitalization Plan.................................................................................15

State Council Facilitates Industry Consolidation and Environmental Improvement ..............16

Tax Rebate Adjustment for Steel Products ...........................................................................17

Implications for the U.S. Steel Industry: Issues for Congress .....................................................18

Chinese Steel Capacity and Exports ....................................................................................19

Steel Trade Development ....................................................................................................20

Anti-Dumping and Countervailing Case Against Chinese OCTG Imports......................20

Anti-Dumping and Countervailing Complaints Against Other Chinese Steel

Product Imports .........................................................................................................21

Chinese Steel Plate Faces Anti-Dumping Circumvention Inquiry...................................22

China’s Export Restriction of Certain Industrial Raw Materials ...........................................22

Chinese Direct Steel Investment in the United States ...........................................................23

Congressional and Legislative Reaction ....................................................................................25

Introduction of S. 3725: The Enforcing Orders and Reducing Circumvention and

Evasion Act of 2010.........................................................................................................25

U.S. Trade Law Proposal.....................................................................................................26

USW Files Trade Case with USTR......................................................................................26

Conclusion...............................................................................................................................27

Figures

Figure 1. Crude Steel Production, 1995-2009 ..............................................................................4

Figure 2. Chinese Steel Production and Consumption, 1995-2009 ...............................................6

Figure 3. Steel Exports by Country, 2009 ..................................................................................19

Tables

Table 1. World’s Top Steel Companies, 2009...............................................................................3

Table 2. Top Steel-Producing Countries, 2009 .............................................................................5

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