US warns China on steel overcapacity

A worker at a steel pipe plant in Tangshan, China Image copyright Reuters

The US Treasury Secretary has urged China to reduce its excess steel capacity, which he says is distorting global markets.

Jack Lew was speaking in Beijing ahead of an annual meeting between the US and China to discuss trade and security.

China is the world's biggest steel producer and has been accused of selling products below market prices.

Mr Lew said the overcapacity could have a "corrosive" impact on the Chinese economy.

US officials will discuss the issue with their Chinese counterparts at the annual US-China Strategic and Economic Dialogue on Monday and Tuesday.

What's behind China's cheap steel?

"Excess capacity ultimately is corrosive of an economy's efficiency," Mr Lew said.

"It means you have misallocation of resources, it means that ultimately, the only way to clear the market is to sell things at a price that is below what the world market price would otherwise be."

'Enormous effect'

Mr Lew said excess capacity was not just a domestic issue in China, which produces more than half of the world's steel.

"The question of excess capacity is one that literally has an enormous effect on global markets for things like steel and aluminium, and we're seeing distortions in global markets because of excess capacity," he said.

Steel producers in Europe are concerned about low-cost Chinese imports flooding their markets, saying this has led to a collapse in prices.

Earlier this year, India's Tata Steel announced plans to sell its loss-making UK business, putting thousands of jobs at risk. It cited global oversupply of steel and imports to Europe as two of the factors that had "significantly impacted the long-term competitive position of the UK operation".

UK imports of Chinese steel increased from 303,000 tonnes in 2013 to 687,000 tonnes in 2014.

More on this story