The UK should strengthen its planned Carbon Border Adjustment Mechanism (CBAM) and reform its trade remedies system in order to protect the UK steel industry from overproduction, chiefly from China, according to a new report from UK Steel.
UK Steel
In the report, released today (7 October), UK Steel states that excess capacity in the steel market could effectively cancel out the government’s steel investments if they are not tackled with “bold new trade policies”.
According to UK Steel’s report, exports from China are expected to reach 100m tonnes (Mt). With China’s own economy slowing down, reducing domestic consumption of steel, it is exporting greater volumes of the product to international markets.
Other countries in Southeast Asia and the Middle East have also expanded their steel-making capabilities, with many using state funds do this.
This is leading to overproduction globally, limiting the capacity of many domestic producers to compete, and threatening the long-term viability of the industry.
Crisis
The profitability of firms in the UK is falling back to 2015-2016 levels, when steelmakers faced a period of significant economic crisis.
In 2016, at least 5,000 UK jobs were lost in Redcar, Motherwell, Hartlepool and South Wales, as several major steel companies went into liquidation following falling prices.
Research from the House of Commons found Chinese overproduction was responsible, with Chinese steel accounting for 49% of all steel produced globally in 2015.
According to today’s report, “already the import share in the UK has jumped to a shocking 68% so far in 2024, from 60% in 2023 and 55% in 2022.
“The last time these levels of Chinese exports were seen, several UK steel plants were forced to close and thousands of jobs were lost.”
‘Rising’ global capacity
UK Steel Director General, Gareth Stace, said:
“Rising global excess capacity driven and sustained by non-market forces is one of the biggest challenges of our time for the global steel industry. It has the potential to redraw the map of global steelmaking as there is no longer fair competition.
“A raft of distortive subsidies is leading to oversupply which is met with rising protectionism and trade diversion.”
International issue
Competition and trade watchdogs around the world have raised the issue that steel is being ‘dumped’ on their domestic markets, with countries such as Chile, Brazil and Malaysia all reporting issues.
Chile’s largest steel mill shut down last month, with both the national government and its parent company stating that exports were responsible for the failure of the site.
While the UK has not yet taken the same approach as many governments around the world, as it is yet to officially launch an anti-dumping investigation or introduce additional tariffs, Steel UK’s report says that the current trade remedies are not enough to deal with the issue even if they were used.
The Trade Remedies Authority (TRA) was set up after Brexit to act as a watchdog to protect UK businesses from unfair foreign competition, and investigates complaints over trade distortions and import dumping.
‘Whack-a-mole’ problem
Even where Chinese products are barred from a market, the knock-on effects of Chinese overproduction on neighbouring markets often forces those countries to also export their goods abroad.
The report argues that, currently, the UK’s anti-dumping regime places the burden of proof on domestic industry, favouring foreign importers and results in weaker measures than in other nations.
The changes being recommended include increased monitoring, expanding the role of the TRA and reversing this burden of proof.
CBAM
While the UK’s CBAM will have a role to play, UK Steel says it could have the “unintended consequence of” weakening current trade remedies, adding an extra incentive for exporters to sell at lower prices to remain competitive and making it harder to identify dumped products.
To remedy this, the report recommends placing tight controls on CBAM reporting, using verified data in the process and bringing forward the date of CBAM implementation to 2026.
CBAM is intended to level the costs for manufacturers and those outside the UK that are not subject to its policies on carbon pricing by imposing additional tariffs at the border on carbon-emitting goods.
The EU already introduced its CBAM in 2023, with the UK’s set to come into force in 2027.