28.Whilst the Government has now begun to take steps to help the UK steel industry to compete on a more equal basis with other European countries, the global competitiveness of European steel against the over-production in China remains an issue. Indeed, it represents a far more significant long term threat to both UK and European competitiveness. Since 2009, total steel exports from China have quadrupled; and in that period the EU has seen a 50% increase in steel imports from that country.
Figure 8: Chinese steel exports 2009–14
Source: EEF / UK Steel Annual Review
29.In the rebar (wire rod) market, Chinese share of the UK market increased from zero at the start of 2013 to 37% by the end of 2014. The overall increase of Chinese steel production has been described by UK Steel as a “massive surge”. As a consequence, the price of steel dropped by 45% in 12 months, from $500 a tonne to about $280 in September 2015. The industry argues that most Chinese producers are state owned and are able to operate at a loss by receiving state subsidies. As a result, Chinese producers have been accused of dumping steel—selling below the domestic cost price—on European markets. The scale of the problem should not be underestimated. Even if the Government was able to deliver on all the other asks outlined in the previous chapter, the future of the industry would remain in doubt unless effective action at an international level is taken to level the playing field in terms of trade practices and global pressures.
30.We heard two key messages relating to unfair global trade practices: that the EU needed to do better at responding to dumping complaints and that the UK needed to address its vulnerability to these practices.
31.The EU is capable of taking action against dumping and has already introduced a number of measures against various steel products from China and Taiwan. For example, protective measures taken on wire and rod imports from China have been in place since 2009 and recently renewed. We heard that the UK has normally opposed protectionist measures when they come before the Council of Ministers. However, the Minister for Small Business, Industry and Enterprise told us that, shortly after taking up her current role, in July 2015, she succeeded in changing the UK’s stance to voting in favour of the extension in relation to wire rod.We applaud this action, which sends a signal as to the Government’s commitment to fair trade, and we commend the Minister for taking this step. We believe that UK Ministers should have actively promoted EU action in support of European steel at a much earlier stage, and urge Ministers to pursue an EU-wide response to illegal trade practices.
32.In May 2015 the Commission announced an investigation into the latest dumping allegations, but we understand that these investigations can usually be expected to take between nine and fifteen months. The Secretary of State pursued this issue at an additional meeting of the EU Competitiveness Council, on 9 November 2015. At this meeting, it was agreed that action should be taken to speed up the current investigation and to provide resources for the investigation of new cases. Discussions with key steel producing countries, including China, would be “intensified”. Following requests from industry, the Prime Minister raised the issue of steel supply with the Chinese President on his visit to London in October 2015. We were told that President Xi reported that China also faced pressures on its steel industry and “had plans to reduce capacity of its steel production.” We acknowledge that the Government has raised the issue of the over-production of Chinese steel on a bilateral basis and at an EU level. But no tangible action or agreement has come out of it. We are therefore concerned that this is merely talking with no improvement for the UK or European steel industry; much more sustained pressure is required.
33.In contrast, other global competitors appear far more agile and active in maintaining their domestic steel capacity and capability. In the US, the process for reaching a decision on illegal dumping can take less than two months, for example. Tor Farquhar of Tata Steel Europe, told us that “the US have very effectively put up barriers to unfair trade”. If the EU is unable to act swiftly to combat dumping from other countries, notably China, steel companies operating in Europe are likely to face a very difficult future in the medium term. This action is not about advocating protectionism, but about being proactive and dynamic in tackling unfair trade practices which are at odds with international trade standards. Whilst we recognise that Member States may take whatever steps they can to protect domestic industry—and UK governments may not have done as much as some—we believe that it should not be left to individual Member States to take action against unfair competition. Successive governments should have done much more to press for accelerated action at an EU level. We recommend that the Government now uses its influence to seek the early completion of investigations by the Commission into dumping in order to enable effective action to be taken as early as possible. It should further seek to reform the bureaucratic procedures that prevents the EU reacting to allegations of dumping with the speed of its main international competitors.
34.Secondly, we heard concerning reports that the UK was somehow more vulnerable than other EU producers to the effects of this dumping. In 2014 the UK imported 687,000 tonnes of steel from China, compared to 303,000 tonnes the year before. Luis Sanz, Celsa Steel UK, explained the impact of Chinese dumping on the UK as follows:
[…] obviously globally there is an oversupply, and we can analyse this and get to the conclusion that out of the oversupply, more than 50% of the problem is coming from China, and these are the numbers. […] China, in 2013, of the products that we produce, which is the reinforcing bar and the wire rod, imported 4,000 tons per month to the European Union, and all the 4,000 tons were coming into the UK, so that is less than 50,000 a year. In 2015, during the first seven months, China has imported to the European Union, for these products, 26,000 tons per month. That is more than a 500% increase in two years. They have taken 40% of the UK market share in two years. Of these 26,000 tons that have gone into the European Union, 24,500 have come to the UK, which is 94%. The other 6% has gone to Ireland. The rest of the countries have taken nil.
35.We find these figures extraordinary. By way of explanation, we heard that other EU countries are taking action to protect their national industries “with and without EU permission” by “interpreting European law in the way that best suits their industry”. If these statistics are accurate, it would appear that the UK is uniquely and alarmingly vulnerable to imports of cheap steel from China. It must be the responsibility of the industry itself to predict and respond to long term trends in global production and consequently prices. The consequences of the recent increase in steel production in China is something which UK producers should have been alert to, and we have not explored in this inquiry the extent to which this was the case. But industry is entitled to expect that action will be taken against unfair trading practices and that the UK Government will provide similar support to that provided by other European competitors.
36.The evidence we have heard about the level of dumping in the UK is extremely worrying and should be a serious cause for concern for the Government. We recommend that, as a matter of urgency, the Government investigates what steps other European countries take to protect themselves against dumping and explore the reasons behind the high proportion of imports from China into the UK. The results of this investigation should be set out in the Government’s response to this Report.
39 EEF/UK Steel, (May 2015), p 7
40 EEF/UK Steel, (May 2015), p 7
42 UK steel industry: statistics and policy, Standard Note , House of Commons Library, October 2015
43 EEF / UK Steel briefing for round table meetings [not published]
45 Q66 [Anna Soubry] and Department of Business, Innovation and Skills
46 Reuters, 30 April 2015
47 Department of Business, Innovation and Skills
48 Department of Business, Innovation and Skills
49 United States International Trade Commission, , accessed 15 December 2015
Prepared 18 December 2015