Chinese steel is sinking Latin America’s steel industry

The commercialization of Chinese steel has plunged Latin America into a deep crisis. The steel industry is facing a challenging situation, mainly due to unfair competition from Chinese steel, which arrives in the region at prices up to 40% lower, as a result of subsidies and dumping. This week the country’s main steelmaker, Huachipato, closed down in Chile.

In response, several governments have taken protectionist measures. Brazil has imposed additional tariffs of up to 25% on steel imports, while Colombia is working on reactivation projects such as the creation of a flat steel plant and the promotion of green steel. However, more efforts are needed to protect the local industry from excess Chinese production.

Countries such as Brazil, Mexico, Argentina, Chile, Colombia, Ecuador and Peru planned at the beginning of the 21st century to transform their economies through manufacturing, with steel as a fundamental pillar to drive this industrialization. However, the outlook has not been as expected.

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The impact of Chinese steel on Latin America’s production

In 2000, Latin America produced approximately 56 million tons of steel, a figure that increased slightly to 61.7 million tons in 2010. However, since then, production has been declining, reaching only 62.8 million in 2022. Meanwhile, China has increased its steel production by 700%, from accounting for 15% of global steel in 2000 to 54% in 2023, according to the Latin American Steel Association (Alacero).

China’s excess steel production, fueled by government subsidies and extremely low production costs, has flooded world markets, including those of Latin America. The consequences for the region have been devastating. Huachipato, Chile’s leading steel producer, closed indefinitely, leaving 2,700 direct workers and contractors without jobs. Similarly, steel companies in Brazil and Colombia are finding it very difficult to compete.

Dumping as the main cause of the crisis

Dumping, a practice whereby China sells its steel below the cost of production in international markets, has been one of the main problems for Latin American producers.

In 2000, Latin America exported 160,000 tons of steel to China and imported around 80,000 tons. However, by 2023, Latin American exports to China fell by 94%, while Chinese steel imports increased by a staggering 8,690%.

Today, around 10 million tons of Chinese steel enter the region every year, triggering a process of deindustrialization. Countries that had bet on developing a competitive local industry have been forced to retreat. The situation is even more alarming when one considers that Chinese imports have affected not only steel production, but also other industrial sectors that depend on steel.

The effects on the domestic industry

The closure of Huachipato is a clear example of the difficulties faced by steel companies in the region. The Chilean company, which had been a symbol of the country’s industrialization, was forced to stop its operations due to the inability to compete with Chinese steel, which arrives to the Chilean market 40% cheaper. This closure affected not only the 2,700 direct workers, but also more than 20,000 people indirectly linked to the company.

In Colombia, the situation is not very different. According to data from the National Administrative Department of Statistics (DANE), in 2023 imports of iron and steel products reached US$2,261 million, while domestic production fell by 3% compared to the previous year.

Despite the Colombian government’s measures (such as the imposition of tariffs on Chinese imports), domestic steelmakers have called for greater protections to be able to compete on equal terms.

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Protective measures: a lifeline for the steel industry

In response to the growing crisis, several Latin American countries have implemented protectionist measures to defend their local industries. In Brazil, the government has decided to impose an additional 25% tariff on imports of 11 steel products, mainly from China. This measure seeks to reduce unfair competition and protect local jobs. However, these actions may not be enough to counteract the huge excess of steel produced by China, which may still lower its prices.

Colombia has also taken steps in this direction. A recent meeting between representatives of the steel sector and the government, led by President Gustavo Petro, agreed on the creation of a new flat steel plant and additional measures to support the local industry.

In addition, the production of “green steel”, a more sustainable alternative with a lower carbon footprint, is being promoted in the hope that this approach can give Colombian producers a competitive advantage in the international market.

The future of Latin America’s steel industry

Despite protection efforts, the future of Latin America’s steel industry remains uncertain. The ability of countries in the region to compete with Chinese steel will depend not only on protectionist measures, but also on their ability to innovate and adapt to the new demands of the global market. “Green steel” is an opportunity, but it will require significant investment and sustained commitment from both the private sector and governments.

The fight against Chinese dumping is not only an economic issue, but also a matter of industrial sovereignty for many Latin American countries. As the region seeks to diversify its economies and reduce its dependence on raw materials, revitalizing the steel industry becomes a crucial objective.

Trade war between the U.S. and China with no end in sight