China risks global ‘steel war’ as tempers flare

China is on a collision course with the world’s leading powers over excess steel output after it refused to sign up to an emergency global plan to cut capacity and eliminate subsidies.

The clash comes as fresh data confirms fears that China is still cranking up production and even reopening shuttered plants supposedly due for closure, despite the massive glut on the world market. Chinese mills produced a record 70.65m tonnes in March, 51pc of global output and five times as much as the whole EU.

“Just words from China are no longer good enough. It is now clear to everybody that the Chinese have no intention at all of changing the structure of their steel industry,” said Axel Eggert, head of the European steel federation Eurofer.

“They refused even to accept basic principles. They don’t recognise the problem, and they are not looking for a compromise,” he said.

The world’s steel-making powers, led by the US, Japan and the EU, agreed to joint steps to tackle the crisis at special OECD summit in Brussels on Monday, but China’s name was conspicuously absent when the final document was released later.

This renders the plan meaningless since China’s excesses capacity alone is 400m tonnes, greater than the entire production of Europe and North America. Officials were shocked by the tone of the encounter with the Chinese delegation. “It was eye-opening,” said one source.

“The scale of the emergency in the sector means it is now life or death for many companies,” said Cecilia Malmstrom, the EU trade commissioner.

Brussels has been slow to roll out anti-dumping sanctions, partly due to pressure from Britain and other states courting China for their own political reasons. While the US has imposed penalties of 266pc on Chinese cold-rolled steel, the EU has acted more slowly and stopped at 13pc.

But the mood is shifting. Mrs Malmstrom said there is no doubt that the surge in Chinese exports is the reason why steel prices have crashed by 40pc this year, insisting that it is imperative to “act quickly” before the crisis asphyxiates European industry.

“The situation is putting hundreds of thousands of jobs in the EU at risk. It’s also undermining a strategic sector with importance for the wider economy,” she said.

Emmanuel Macron, the French economy minister, said Europe can no longer tolerate the flood of Chinese supply. “You do not respect the rules of world trade. Your steel output is subsidised, and the excess capacity is dumped below cost. It is destroying our productive capacity, and it is unacceptable,” he said.

Anger is also rising on Capitol Hill, with mounting calls from the US Congress for a much tougher stand, a theme echoed daily on the presidential campaign trail.

“The American steel industry faces the greatest import crisis in modern history,” said Tim Murphy, head of the Congressional steel caucus. “We’re at the tipping point, with US mills averaging only 70pc of capacity utilisation, a level that is simply not sustainable. We are in real danger of losing this industry and becoming dependent on foreign countries. We can’t let that happen.”

The caucus accused China of systematic “cheating” and violation of trade principles, with opaque subsidies from cheap bank financing and energy. When the giant state-group Sinosteel went bankrupt, it was kept afloat.

China has vowed to slash capacity by up to 150,000 tonnes over the next five years but the details are vague. “Nobody knows what this means. Is it a real reduction or are they just getting rid of obsolete plants?” said Mr Eggert.

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