Australian Steel Institute (ASI) members are reporting a contraction in future construction activity, likely to cause a significant downturn in this critical sector of the economy. The underlying causes of this downturn are deteriorating liquidity and business confidence, both directly related to COVID-19 impacts. International stockpiles of steel have grown significantly during the period of disruption caused by coronavirus lockdowns and have now reached 10-year highs in China. At the same time, the Chinese Government has increased export incentives by raising the tax rebate available to exporters. This combination of conditions mean that the Australian steel industry is particularly vulnerable to injury caused by dumped steel, and therefore the ASI recommends a range of measures to prevent this from occurring. These measures include increasing resourcing available to the Anti-dumping Commission, adoption of safeguards investigations, and targeted legislative reform. The ASI further recommends immediate implementation of measures designed to strengthen the administration of the anti-dumping system.
The Australian Steel Institute is the nation's peak body representing the entire steel supply chain from the producers right through to end users in building and construction, heavy engineering and manufacturing. ASI has over 700 member businesses that include distributors, processors, design/structural engineers, fabricators, manufacturers, roll-formers, and installers. Members are reporting a contraction in future construction activity, particularly for residential building, with a significantly reduced pipeline of work once current projects are completed. This contraction is related to a combination of modified work practices in order to maintain operation under COVID-19 health requirements, and rapidly deteriorating sentiment and confidence across the industry due to reduced credit availability.
Reduced trade credit cover: ASI members have reported significant liquidity problems due to the approximately 50% reduction in ‘trade credit’ insurance by some underwriters. Trade credit is essential to help finance business working capital, and is particularly important for SME businesses to maintain cash flow.
Increased liquidated damages claims: Contractors and builders are also reporting an increased incidence of liquidated damages claims due to COVID-19 related work practices resulting in slower work rates on job sites, thereby causing delays to project completion dates.
The world’s largest steel producers have continued to produce raw steel during the coronavirus outbreak, resulting in large stockpiles due to disruptions in domestic supply chains. The significant build-up in inventory to 10-year highs is starkly demonstrated in the data from World Steel Association publication China Monthly. The protracted lack of access to export markets, combined with significantly reduced domestic demand during the extended coronavirus shutdown period has caused a large accumulation of steel inventory.
As reported by the World Steel Association, Chinese steel inventories as at late March in the warehouses of 40 major cities rose to 24.3 million tonnes. In late February, the steel inventories of 80 major mills jumped to 23.7 million tonnes. The combined total is 48 million tonnes.
Source: World Steel Association – China Monthly 156
There is a risk that at least some of this stockpile is exported to open markets including Australia. To put the scale of the stockpile in perspective, the Australian steel industry’s total annual crude steel production is typically only 6 million tonnes.
In an effort to counter the negative economic effects of the coronavirus, the Government of China increased export tax rebates on certain steel products from 9-10% to 13% from 20 March – demonstrating their desire to incentivise increased exports of steel. Quoting from the World Steel Association China Monthly reporting of this announcement, ‘This increase was decided by the Chinese government to counter the effects of the coronavirus.’
South Korean steel exporters have also reported that they will be increasing steel exports to replace their own soft domestic demand.
Sovereign production capability: Steel occupies a strategically essential role in Australia’s sovereign production capabilities, particularly at time where there is unprecedented global uncertainty in supply chains. It is a critical input across myriad aspects of Australia’s society and economy, from residential and commercial construction, manufacturing through to mining. All these essential downstream and related industries rely on steel to function.
Economic value-added industry: The domestic steel industry contributes $30 billion to the Australian economy annually. Every $1 million worth of output in the Australian steel industry generates over $700,000 worth of Gross Value Added in industrial support activities and approximately $225,300 in tax revenue.
Skilled regional employment: The steel industry occupies a critical role in Australia’s workforce. Over 110,000 people are directly employed in the Australian steel industry. For every person employed directly by the steel industry, this creates as many as six full-time jobs in related and downstream industries. The steel industry is also noteworthy in terms of having a high proportion of jobs and businesses located in regional areas or non-capital cities, where unemployment is typically higher than the national average. The industry is technically complex and requires a highly skilled workforce to support it.
It is in this context that we urge the Australian government to implement a range of short and long-term measures to defend Australia’s remaining steel manufacturing capability and capacity. Whilst legislative reform is required to strengthen the medium to long-term effectiveness of Australia’s anti-dumping system, the WTO Anti-Dumping Agreement was not designed to defend manufacturers and producers from large surges of export volumes in unforeseen emergency situations. The investigative and remedial timeframes within any WTO-compliant anti-dumping system are too long.
More timely process for investigations and determinations: The ASI recognises the importance of impartial, thorough and detailed anti-dumping investigations and we fully support the work of the Anti-Dumping Commission (ADC). In light of international travel restrictions, we are concerned that data collection and assessments will be much more difficult and time consuming, potentially leading to even longer investigation timeframes. In the case of dumping being proven, the extent of injury to the affected domestic business is directly related to the time taken to reach a determination.
For smaller businesses, such as those involved in fabrication and manufacturing of finished goods, this period of unfair competition will cause significant long-term financial damage and/or threaten viability. See Table 1 below for a summary of some recent anti-dumping actions taken by SMEs which indicates that it may take up to 18 months from initiation to the publication of findings. We therefore recommend that consideration be given to the following measures:
We further recommend that the Minister direct the Anti-dumping Commissioner to immediately implement the following practices, to strengthen the administration of the system:
Finally, in the event that import duty, GST and import charges are deferred in response to the COVID-19 crisis, we strongly recommend that any such relief does not extend to anti-dumping and/or countervailing duties on all goods entering Australia as a result of unfair trade practises confirmed by the ADC’s investigations.
Table 1. Summary of some recent anti-dumping actions undertaken by SME manufacturing businesses
Keppel Prince Engineering Pty Ltd
– EPR 405
– Wind Towers
1st January 2015 to 31st December 2016
8th June 2017
6th February 2018
Dematic Pty Ltd
– EPR 441
– Steel Pallet Racking
1st October 2016 to 30th September 2017
13th November 2017
8th May 2019
Commonwealth Steel Company Pty Ltd
– EPR 466
– Railway Wheels
1st January 2017 to 31st December 2017
18th April 2018
16th July 2019
– EPR 520
– Grinding Balls
1st July 2018 to 30th June 2019
22nd July 2019
To be advised – Final Recommendation no later than 3rd July 2020
At least 12 months