Chinese President Xi Jinping is a small man with a big ego. And his ego problems are now killing China’s steel industry. Recently, China lifted its scrap-steel ban for steel production, which was imposed in 2018 to avoid dumping of low-grade scrap ‘waste’. This is shocking. Till now, China was a world leader in production and export of the strategic good, which is needed for almost everything from cutlery to aircraft, tankers, and surgical instruments.
But now, the paper dragon is losing its big advantage in the steel industry. Actually, Xi picked a fight with Australia, the country which supplies coal and iron ore- the main raw materials for steel production. And now, Xi’s shortsightedness is killing China’s self-sufficiency in steel manufacturing.
Last week, Chinese authorities even formalised new standards to clsssify scrap as a “recycled steel raw material”. China has also been compelled to move towards imported imported scrap steel because Xi wants to bolster China’s construction industry. The Chinese government is pumping billions of Dollars into building rail, roads and airports, across the Communist nation.
As such, China’s construction companies require lots of steel to keep building more and more infrastructure. Yet, steel availability was never supposed to be an issue for China. Till now, China used to manufacture a little more than half of the world’s steel. But now China simply doesn’t have enough coal and iron ore to power its steel mills.
First, China shot itself in the foot by imposing an unofficial ban on Australian coal. The move proved counterproductive, as the Chinese steel industry now faces a crippling shortage of coking coal- a key raw material in steel production.
Even more importantly, Xi’s desperate tariff wars against Australia, have given Canberra a huge leverage over China. Beijing never imposed any trade barriers on Australian iron ore, because the metal is indispensable for Chinese steel mills and the Xi administration cannot find any effective alternative to Australian iron ore.
Anyhow, iron ore prices have hit record highs in China. The Chinese Iron and Steel Association (CISA) has even blamed Australian miners like BHP and Rio Tinto, for slow exports and higher prices. CISA also demanded government intervention. But there is not much that Chinese steel mills can do. Chinese government has lost face and cannot ask Australian miners to speed up iron ore supply.
Also, the Scott Morrison government in Australia is unlikely to rescue Chinese steel mills in the context of ongoing Sino-Australian rivalry.
Within China, there is a growing fear that Australia could weaponise China’s iron ore dependence in order to take revenge upon Beijing. It seems that the Xi administration is itself not very certain about its capability to import sufficient iron ore for Chinese steel mills.
And then, coal availability also remains a big concern. Yet, Xi doesn’t fancy a slowdown in construction activity. So, he is turning China- a steel exporter, into an importer of scrap steel. This is what small leaders with big ego can do to a country.