Global Commodities Collapse
Amid Steel Glut and Weak Demand, China Refuses to Curb Output

The United States and the EU led a consortium of countries in a call for efforts to address steel overcapacity. Deutsche Welle:

In a move that’s likely to anger European steelworkers’ unions, the eight countries said that market driven industry restructuring was imperative and that national governments shouldn’t prop up failing plants or encourage additional capacity.

The call was made in a joint statement released by the US Department of Commerce a day after major steel-producing countries failed to agree on measures to tackle an industry crisis.

Urgent talks were held in Brussels on Monday, with ministers and trade officials from more than 30 countries attending. But delegates could only agree that overcapacity had to be dealt with in a swift and structural way.

Many countries blame China for the crisis, accusing the country of “dumping” steel on the global market. Washington warned Beijing that it needed to cut overcapacity or face possible trade action from other countries.

Chinese officials argued that they were already taking sufficient steps to restructure the steel sector, and several analysts warned that significant overcapacity would remain. That would likely mean further plant closures elsewhere in the world and thousands of job losses, they added.

As we have seen with persistently low oil prices, there’s a mismatch between supply and demand these days that isn’t correcting itself. A big cause of the oil glut is geopolitics: Saudi Arabia hasn’t cut production because it hopes to suffocate Iran. In steel markets, the big problem is domestic politics—European unions desperately want to avoid the restructuring which is almost certainly necessary, and China is trying to limit the damage of laying off potentially millions of workers.

Beijing has been pumping enormous amounts of stimulus into its heavy industry while slowly winding down only some of its underperforming factories. Uncertainty and market interventions have wreaked havoc on global commodities markets: Japanese steel stocks, for instance, were down 7% at one point yesterday. The woes of the steel industry are a reminder that despite recent investor optimism, there are still some big questions about the fundamental health of the global economy.

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