TORONTO — Canadian steel producers applauded a preliminary decision by Ottawa to slap a duty on Chinese steel imports, but reaction to a similar move by the United States indicates Canadian-Chinese trade relations could suffer as a result.
Earlier this week, the Canada Border Services Agency made a preliminary determination that certain Chinese steel products used in the oil and gas industry have been subsidized or dumped into the Canadian market and imposed a preliminary duty of up to 182 per cent.
Welland, Ont.,-based Lakeside Steel Inc. (TSXV:LS) initiated the complaint — along with Tenaris (NYSE:TS) and Evraz, two international steel producers with operations in Canada — and said it will actively participate in the ongoing investigations to ensure fair trade.
“We just feel that there are certain Chinese imports that are dumped and unfairly subsidized that are coming into the Canadian market,” said Randy Sockovie, Lakeside’s director of sales and marketing.
“The pricing is distressed and certainly it affects the volumes that we produce.”
The Chinese Embassy in Ottawa did not immediately respond to requests for comment, but similar measures in the U.S. provoked a strong rebuke from China earlier this month.
Washington said it would place levies as high as 99 per cent on some steel pipes imported from China, causing China to retaliate with an anti-dumping probe into the American auto industry.
Dumping occurs when one country exports a significant number of goods to another country at prices much lower than in the domestic market.
Earlier this week, a spokesman for the Chinese Ministry of Commerce accused the U.S. of “incorrectly judging the existence of subsidies and arbitrarily raising the anti-subsidy duty rates.”
“(The U.S.) has rejected domestic market price information provided by the Chinese government and enterprises, insisted on taking market prices in other countries as the benchmark and raised the so-called subsidy level purposefully,” Yao Jian said in a statement posted on the ministry’s website.
“The United States should live up to its promise made at the G20 summit and the consensus reached earlier by leaders of the two countries to fight trade protectionism and avoid the abuse of trade remedy measures.”
Although Canada is a far less important trading partner to China than the United States, the duties imposed by the border agency may only be the tip of the iceberg in an escalating trade dispute between the two countries, said Peter Warrian, a steel industry expert at the University of Toronto.
“There’s no doubt that all countries, including Canadian steel producers, are concerned about the Chinese steel industry and its capacity to disrupt trade,” Warrian said.
China produces some 600 million tonnes of steel a year, or approximately half of the world’s total output, and is increasing manufacturing capacity to keep up with massive infrastructure projects, Warrian said. Despite this, the country continues to import large quantities of the metal used in everything from construction to vehicles to appliances to keep up with its rapid industrialization.
However, with demand for steel escalating due to massive government stimulus spending around the world, China’s power as a steel exporter is rapidly growing.
“They’re in the position now where they could start exporting, and create trade imbalances around the world... they’re in a position to determine supply and prices,” Warrian said. “The larger issue for Canadian steel imports and steel in general is still to come.”
The border services agency is expected to issue a final determination on the dumping and subsidization accusations on Feb. 22. Any duty put in place would last for five years.
The Canadian International Trade Tribunal has also launched a related investigation to determine whether Canadian producers have been injured by dumped and subsidized Chinese imports. The CITT will issue its determination on March 23.
According to the World Steel Association, China produced 51.7 million tonnes of crude steel in October, up 42.4 per cent from a year earlier. Total global steel production was 112 million tonnes in the same period.
The European Union Chamber of Commerce in China said Thursday that China’s stimulus spending has fuelled massive over-expansion in industrial capacity that could drive a surge in low-priced exports amid weak global demand, possibly igniting a protectionist backlash abroad.
The group’s president, Joerg Wuttke, said he expects to see an upsurge in anti-dumping cases filed against Chinese companies next year.
In steel, China’s annual production capacity is 660 million tons (600 million tonnes) and mills are adding another 58 million tons, even though they sold less than 500 million tons of steel last year, according to Charles-Edouard Bouee, Asia president for Roland Berger Strategy Consultants, which conducted the study.
China faces similar problems in aluminum, cement, plastics, refining and production of wind power equipment, the group said.