Chinese steel, the “atomic bomb” that threatens the steel industry

Ten million tons of steel chinese flooded Latin America last year, a record that threatens the regional steel industry: “Closing Huachipato would be an atomic bomb”says Carlos Ramírez, a worker at the main Chilean steel factory that is reeling from the tough competition from China.

Huachipato, in Talcahuano, 500 km south of Santiago, announced the gradual suspension of operations, overwhelmed by the avalanche of Chinese steel that fills the markets and is sold in Chile 40% cheaper than local steel.

The measure, pending a petition for the government to impose a tax on 25% to steel imports, threatens 2,700 company workers and another 20,000 people who depend on it.

In Brazil, the largest regional steel producer, there is also concern. Last year, imports from China grew fifty% and production fell 6.5%, according to the Aco Institute.

Gerdau, one of the largest steel companies in the country, has already laid off 700 workers. The last ones, in February, left the Pindamonhangaba plant, in Sao Paulo, due to the “challenging scenario faced by the Brazilian market in the face of predatory import conditions for Chinese steel”, reported the company, which declined to respond to AFP queries.

The Brazilian steel mills also demand a tax on 25%, like the one Mexico imposed on 205 types of steel products, aligning tariffs with those of the United States, its main trading partner.

Steel represents 1.4% of the Mexican GDP and generates 700,000 jobs. He 77.5% of the export goes to the United States, according to official data. – China “too present” –

Over the past two decades, China has increased its share of the global steel market. fifteen% to 54%according to the Latin American Steel Association (Alacero).

In Latin America, imports grew by a record of 2023 44%, to exceed 10 million tons. Two decades ago, China exported just 85,000 tons of steel.

“China is too present in Latin America”laments Alejandro Wagner, executive director of Alacero. “No one is against trade between countries, but there is always talk of fair trade”adds the executive to AFP.

Concern about the excess capacity of the Chinese steel industry has increased in recent years, given the lower dynamism in its construction sector, which releases products for export.

On a recent visit to China, US Treasury Secretary Janet Yellen expressed concern about “excess” Chinese production and assured that the United States “will not accept” the world being flooded with Chinese goods sold below cost.

In 2018, the United States imposed an additional tariff of 25% to Chinese steel.

Painful “social earthquake”

Closing Huachipato, from the private CAP group, would deal a severe blow to Talcahuano, a port in southern Chile that has been the main source of support for 70 years and where it plays an important social role.

Under his wing, the “Huachipato” soccer club was born, current champion of the Chilean tournament.

Ramírez is a worker linked to this company since he was a child. First, as a player in the lower divisions; then as a professional and once retired from the sport, as director of one of the firm’s unions.

“What we are experiencing is very painful,” said the 56-year-old man, who traveled to Santiago along with other leaders to expose the “social earthquake.”” that appears.

In a last-ditch effort to stay afloat – after losses of more than US$1 billion since 2009 – Huachipato asked the Chilean Anti-Distortion Commission for a tariff of 25% to imported steel.

The Commission found “sufficient evidence to support the existence of dumping” -sale of a product below cost- from China, and recommended a tax of fifteen%considered “insufficient” by Huachipato.

“We are not asking for subsidies or bailouts. “Huachipato has the ability to be profitable in a competitive environment,” stated its manager, Jean Paul Sauré.

For the government of the leftist Gabriel Boric, this is a “strategic” company. Huachipato specialized in key mining inputs: steel bars and balls for grinding copper, of which Chile is the world’s largest producer.

In pandemic, when global trade was interrupted“it was Huachipato that maintained the country’s steel supply,” Economy Minister Nicolás Grau explained to AFP.

The decision to impose protective measures is not easy. Chile signed a Free Trade Agreement with China in 2006, which exposes it to possible trade retaliation.

In Latin America, steel generates 1.4 million jobs, which are highly specialized and difficult to retrain.

The short-term impact in the region will depend on China’s adoption of measures to reduce its “excess” production and, at the local level, initiatives aimed at restricting the entry of steel, José Manuel Salazar explained to AFP. Xirinachs, executive secretary of the Economic Commission for Latin America and the Caribbean (ECLAC).