EU starts probe into Chinese steel prices

BRUSSELS: The European Union launched an investigation on Friday into whether China is illegally selling steel at prices so low they are hurting European steelmakers such as ArcelorMittal and ThyssenKrupp AG.

Steel producers complained in October, asking for a 40 per cent surcharge on soaring imports of two types of steel and claiming that China's output was "out of control".

The European Commission will now investigate imports of hot-dipped metallic coated iron or steel flat-rolled products between December 1, 2006 and November 30.

Under global trade rules, the EU has the right to impose extra charges on imports if it gathers evidence that China is illegally selling below cost. The soonest there would be any hint of trade sanctions would be late August, when officials can make a recommendation for temporary antidumping duties and EU governments can decide to take action.

Europe is now China's largest trading partner and it is importing more and more the trade gap widened by 20 per cent in the first eight months of this year.

EU officials have warned of a protectionist backlash if China does not do more to open up to European exports. They have asked Beijing to change a system that keeps the yuan undervalued, giving Chinese exporters an unfair price advantage and adding to the country's surpluses.

The European Confederation of Iron and Steel Industries, or Eurofer, "has provided evidence that imports of the product concerned from the People's Republic of China have increased overall in absolute terms and in terms of market share," the EU executive said in an official notice.

"It is alleged that the volumes and the prices of the imported product concerned have ... had a negative impact on the market share held, the quantities sold and the level of prices charged," it said.

Eurofer told the media in October that imports have increased from virtually nothing prior to 2004 to 12 million metric tons last year and European companies risked making cutbacks that would shed European jobs if this went on.

Its evidence showed that hot-dipped metallic coated sheet and strip steel from China used in construction at prices 25 to 30 per cent below the European average.

It blamed the "economically irrational growth" of Chinese steel output which produces far more steel than China can use claiming this was driven by "pervasive state intervention."

The industry group warned that it may file complaints about other types of steel in the near future. The EU executive has not yet opened an investigation into Eurofer's other claim that stainless steel cold-rolled flat products from China, South Korea and Taiwan for building and engineering products are also being dumped.

The EU does not recognize China as a market economy because it suspects government subsidies may make usual business costs such as rent much cheaper than in other parts of the world. This puts the onus on Chinese steelmakers to prove that they operate in normal market conditions.

Recent EU statistics bear out Eurofer's complaints: Steel imports from China during January to September 2007 grew 137 percent from the same period last year, to 8.9 million metric tons.

Eurofer's members include the world's largest steel maker, ArcelorMittal, which said in August that cheap Chinese imports were threatening the European market by holding down prices. The group also represents Britain's Corus Group PLC and German steel makers ThyssenKrupp AG and Salzgitter AG.

All of Eurofer's member companies employ 372,000 people in Europe, turning out 200 million metric tons of steel a year and making a combined turnover of euro138.5 billion ($199.2 billion).