Trade sanctions have clearly strained China’s steel industry. Seamless steel tubes, Oil Country Tubular Goods (OCTG), drill pipes, steel mesh panels, wire shelves... the list of newly sanctioned Chinese steel products goes on. Among the numerous made-in-China products impacted by international trade frictions, China’s steel industry has been hit the hardest, and given the severity of these trade disputes, the consequences for China’s steel enterprises are substantial.

Price and quantity decreases

Proposed last April, the oil well pipe anti-dumping and anti-subsidies action undertaken by the US International Trade Commission will adversely affect Chinese exports of as much as USD 2.8 billion. These exports are supplied by around 200 steel mills, and these provided oil well pipes to the US during early 2008 and Q1 2009. The monetary value at stake makes this the largest steel trade dispute in US history.

The oil well pipe anti-dumping and anti-subsidies case is only a sample of the international trade sanctions that have targeted Chinese steel makers in recent years. Since 2008, the EU, the US, Russia, India and other countries have successively launched anti-dumping and anti-subsidy surveys on China’s seamless steel pipes, oil pipes, drill pipes, steel mesh panels and other steel products. As a result of the financial crisis, global market demand has rapidly declined, exacerbating ongoing trade frictions – particularly within the steel industry. According to China Customs, in December 2009 China exported 3.34 million tons of steel, which contributed to a total of 24.6 million tons for the whole year 2009. This annual figure represented a 58.5% y-o-y decline.

Of all steel goods, pipe products were the most severely affected. In 2009, China's seamless pipe exports dropped by almost 50% compared to 2008. In 2009, China's export price for oil well pipes to the US was only USD 1,600/MT, well below highs of USD 3,600/MT in 2008.

Entering new markets

Some Chinese producers have adjusted their strategies in response to the sanctions. As an example, take one of China’s major seamless steel manufacturers, whose exports accounted for 48% of total sales volume before the financial crisis. In 2009 its shipments to major regions such as North America and Europe fell by more than 70% compared to the previous year, yet its total 2009 export volume dropped by only 10%. Its secret weapon: new markets – the company’s sales in Asia increased by 30% and African sales by 100%.

Other steel mills have followed suit, successfully exploring new markets such as Southeast Asia, the Middle East and Africa, thereby weathering the decline in demand from mature markets.

Along with the shift from mature to developing markets, export product structures are also changing. Many manufacturers are shifting their focus from high value-added products such as oil well pipes to a number of oil and gas transmission pipeline products, primarily in demand in countries in Southeast Asia and Africa. These regions are without well-established steel industries, ensuring less risk of new trade frictions arising from local competition.

Expanding domestic demand

Many Chinese steel mills capitalised on the national stimulus package which enlarged the domestic market in 2009. One of China’s largest stainless steel mills stated that although their exports declined by more than 50%, domestic sales increased by 58%, causing profits to remain consistent with those of 2008.

As of November 2009, China's net exports of steel have been largely restored to earlier levels. Nevertheless, China’s steel exports are facing more difficulties as overcapacity problems mount and international protectionism becomes more severe. As a consequence, China’s steel industry may yet have to adjust again in the near future.