China denies steel dumping charge

Chinese Ambassador Liu Xiaoming has said the British steel industry is paying the price for the country's shift to the services sector

It is common with people of once colonial powers to recall past achievements even though these might not have any political or economic significance. No wonder, then, that some British commentators are invoking 19th century innovator Henry Bessemer as their country's much-shrunken steel industry is facing an existential crisis. The Bessemer converter, which allows blowing of oxygen through pig iron to remove impurities such as carbon and silicon, was the first inexpensive process of steel-making on a commercial scale.

Betraying pain, some are recalling the time in the the late 19th century when Britain had about 40 per cent share of world production. Our own IISCO plant at Burnpur, now comprehensively rebuilt, hosted the last vestiges of Bessemer converters into the 1990s. Since the invention of the process, much water has flown down the Thames, the Chinese Yangtze and rivers in other steel-producing countries, including India. The economics editor of Sky News, Ed Conway, has put the scene in perspective by saying the 1.6 billion tonnes (bt) of steel the UK has produced since the Bessemer breakthrough equals China's production in the past two years.

Most industry officials, union leaders and politicians in Britain, now much in focus because of Tata Steel's decision to sell all its UK operations if buyers are found or otherwise go for wholesale closure, are holding Chinese imports largely responsible for the crisis. As the chorus of protests against China grows in Britain, where around 24,000 jobs, including 15,000 at Tata Steel UK plants, are on the line, China is finally in the field to say it should not be made a scapegoat for the deepening crisis in the British industry. In a fairly strongly-worded article published in The Daily Telegraph aimed at rebutting the criticism of imports as the prime cause of the British steel meltdown, the Chinese ambassador Liu Xiaoming said the irrefutable fact is producers in the UK are "less competitive and less profitable" in low value steel products. The Conservative government and the Buckingham Palace went out in an unprecedented kowtowing to President Xi Jinping when he visited the UK in October 2015 for $46 billion of Chinese investment and deals. But, the red carpet was laid out when the British steel industry was said to be cowering under imports, particularly from China.

This provoked a Labour Member of Parliament to say British trade policy was in "hock to China". The British disposition led China specialist James McGregor to say "if you act like a panting puppy, the object of your attention is going to think they have got you on a leash." It is only to be expected that the Chinese diplomat will deny dumping allegations even while the European Union initiated three anti-dumping allegations into Chinese products in February. The US also put preliminary anti-dumping duties on imports of cold-rolled steel from China and other countries. Luckily for China, not everyone in Britain is supportive of high tariff walls to ward off steel dumping. Like The Economist writes: "In general, anti-dumping duties are unwise because they penalise consumers and lead to tit-for-tat protection." Taking the argument further, it suggests that steel being a globally traded commodity, stopping China would not help as the material would still come from other places.

Arguing along the same lines, Liu says the cost competitiveness of British automobile manufacturers has improved because of use of imported steel. Will it, then, make sense for the UK to punish a vibrant automobile industry to save jobs in a decaying steel industry? According to Liu, British steel makers are paying the price for the country's shift to the services sector, leading to a fall in metal demand from the manufacturing industry.

Unlike the steel industry in some other high-cost regions, producers in Britain have not migrated from commodity to specialised products. The fact is, by paying high wages, electricity bill and taxes prevailing in Britain, producers of commodity steel will only see losses mounting. Tata Steel's UK operations made a loss of $1.2 billion on a turnover of $5.94 billion in 2014-15. The pain of making commodity steel when prices stay low over a long period is excruciating. Very large surplus world capacity in a slow demand growth situation has done great damage to the steel economy.