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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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  • gabrielsyme

    One hates to point out that Trump has a point here: it is the Chinese government that is propping up its steel industry, which harms more competitive mills in Europe and North America. European nations have done very little to subsidize their steel industries.

  • Jacksonian_Libertarian

    The Commodity gluts are a symptom of “Great Depression 2.0”, and are a prime cause of the economically damaging protectionism, deflationary depression’s are known for. Unlike during “Great Depression 1.0” America’s foreign trade is 20% of GDP, 4 times the 5% it was at that time. When the Smoot-Hawley Act ended almost all American foreign trade. A trade war would be much more devastating this time, as trade is 1 part in 5 of the US economy compared to the 1 part in 20 it was at the time of the last Depression 1930.
    A trade war is also totally unnecessary this time, as America has banked over $6+ Trillion in foreign held US Treasuries. These Treasuries, held in accounts at the US Federal Reserve Bank, can be paid off with the push of a button. Paying these accounts off would put $6+ Trillion in the hands of America’s trading partners, reversing 40-50 years of cheating currency manipulations on their part.
    What will they do with all those Dollars? Muwahahaha. There’s really only one place they can spend them, and that would be very very good for America and America’s exports, and would actually increase trade rather than destroy it as tariffs would.
    This would also present America with an opportunity to fix both the Social Security Ponzi Scheme, and the critically high Private Debt levels that sent the economy into a deflationary depression 8 years ago. Take the $6+ Trillion and add it to the $2+ Trillion already held by the Fed, and create individual, inheritable, and tradeable, Social Security accounts for “every naturally born citizen” of about $30,000 (immigrants should be required to fully fund their own accounts to $30,000 to become citizens). This would have the effect of increasing everyone’s net worth by $30,000, fixing the stupid Ponzi Scheme Social Security system, and putting about $9 Trillion in capital into the Stock and Bond markets. It would also devalue the Dollar on world markets for the first time in 4 decades, reversing the trade deficit into a trade surplus for the first time in many people’s lives. In addition, it would have the effect of kicking the economy out of its present destructive deflation, and back into a growing economy’s inflation. Unfavorable trade agreements could be renegotiated from a position of strength. And finally it would make America’s export sector boom, which would suck foreign investment into America, while at the same time dragging the rest of the economy out of the ditch, creating jobs.

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