Huachipato is Chile’s sole steel mill and it will close indefinitely on September. This marks a major setback for Chile’s industrial sector.
The mill operated by CAP has struggled with the influx of cheap Chinese imports. This has led to losses in excess of $500 million over the last two years.
The closure of the mill, despite government efforts including the imposition on tariffs for Chinese steel, highlights the challenges that domestic industries face in the face global competition.
Impact of Chinese imports on Chilean steel industry
Huachipato, located in Chile’s central Bio Bio Region, has been an important part of the industrial economy of Chile for many decades.
This plant, which employs around 20,000 directly and indirectly, is an important supplier of steel to Chile’s mining industry.
The mill, however, has not been able to resist the pressure of Chinese imports that have inundated the market with cheaper substitutes.
According to CAP’s report, the influx in Chinese steel has rendered the mill’s operation economically unviable.
This situation is indicative of a wider trend in Latin America where Chinese exports at low prices have exploded across various sectors and disrupted local industries.
According to the Latin American Steel Industry Group Alacero, in 2023, the region will import a record amount of Chinese steel. This is a 44 percent increase over the previous year.
Limitations of government intervention
The Chilean government, in an effort to protect the domestic steel industry imposed temporary tariffs against Chinese steel earlier this season.
A 34% tariff was imposed on steel balls imported from China and a 25% duty on the bars that were used to make them.
The measures are intended to equalize the playing field between local producers such as CAP, Molycop and other key players in Chile’s Steel Industry.
The tariffs are not enough to mitigate the impact of Chinese competitors.
CAP stated that the market conditions prevented any significant rise in steel prices even with tariffs in place. This made it impossible for CAP to continue its operations.
This has led to criticisms from a variety of stakeholders, including the Chilean Government. The Economy Minister Nicolas Grau was upset by CAP’s “irresponsible” decision.
He criticized CAP and Molycop both for not reaching an agreement on pricing and sales that would have taken advantage of the new market conditions brought about by tariffs.
The government is continuing to try and reverse the closure of the mill, but the chances for success are slim.
Wider implications for Chile and Latin America
The closing of the Huachipato steel mill has wider implications for Chile’s economy, and its relationship with China.
China is Chile’s biggest trading partner and accounts for almost 40% of its exports. The decision to impose tariffs could have a negative impact on the economic relationship between Chile and China.
The Chinese ambassador in Santiago expressed concern that the tariffs “damaged the economic relationship between China and Chile” and had “harmed legitimate interests of Chinese companies”.
The economic climate is already difficult enough, but the diplomatic tensions only add to it.
The situation in Chile is also indicative of a wider issue that affects many countries in Latin America, Asia and Africa, where local industries struggle to compete against the influx cheaper Chinese products.
Chinese products with their aggressive pricing and abundance are putting increasing pressure on the local manufacturing industry, resulting in job losses and closures of long-standing companies.
The future industrial landscape of Chile
Huachipato’s closure leaves Chile with no domestic steel-producing facility. This raises concerns for the future of Chile’s industrial sector.
The loss of a major employer and supplier in the copper mining sector could have a ripple effect on the entire economy, especially in the Bio Bio area.
Chile may have to develop new strategies in order to revitalize and protect its industrial base as it faces these challenges.
It could be through increased government intervention, diversification in the industrial sector or investment in technology to improve competitiveness.
The outlook for Chile’s iron and steel industry may be bleak in the short term, but the response of the country to this crisis is crucial in determining its future industrial policy.
Chile must adapt to the global competition and innovate in order to maintain its key industries.
As new information becomes available, this post Chile’s Last Steel Mill to Close amid Chinese Import Competition may be updated.
