Lesser duty rule key to impact on China EU steel exports, says Fitch

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A European Commission proposal that would allow it to ignore the “lesser duty rule” when setting anti-dumping tariffs on steel imports could materially reduce Chinese steel exports to the region, Fitch Ratings said.

But any impact may be negated if the EU grants China Market Economy Status (MES), as this would effectively limit the level at which the EU could impose tariffs, it said in a statement, adding that the use of non-market-economy methodologies has generally led to higher anti-dumping duties in past trade investigations,

The Commission last week urged member states to swiftly adopt proposals from 2013 to modernise trade defence instruments. These proposals include removing the lesser duty rule where the market of the exporting country is subject to significant distortions, which would probably include the Chinese steel sector. The rule states authorities must calculate a dumping margin (the amount by which the normal value exceeds the export price) and an injury margin (the margin adequate to remove injury to the domestic industry) and requires anti-dumping duties to be set at the lower of the two levels.

“We believe removing the rule would have a significant impact on Chinese imports in particular, because the injury margin calculated on these imports is much smaller than the dumping margin, Fitch said.

Duties imposed by the Commission on Chinese cold-rolled flat steel products last month were 13.4 percent-16 percent. This will probably make exports to Europe unprofitable, but Fitch said it believes some Chinese exporters are likely to be willing to accept losses rather than significantly scale back production, at least in the near term, despite the government’s recent announcements on limited capacity rationalisation. This is because many producers in the Chinese steel industry remain under state influence and the government is likely to want to limit large job losses in the short term, it said.

But if the lesser duty rule had not been in force the duties imposed would have been 52.7 percent-59.1 percent.

“We believe Chinese firms would be much less likely to accept duties at that level even over the relatively short term and would either cut production or seek to move volumes to other regions. In isolation this would be positive for the EU steel market and for large rated producers such as ArcelorMittal (BB+/Negative) and ThyssenKrupp (BB+/Stable) due to our expectation of positive demand growth from key steel-consuming sectors in the EU in 2016,” Fitch said.

 

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