LONDON: Chinese steelmakers are preparing to flood the global market with cut-price exports as they take advantage of this week's shock devaluation of the yuan, prompting furious protests from competitors in Europe and the US.
It is the first warning sign of a deflationary wave of cheap products from China after the central bank (PBOC) abandoned its exchange rate regime, letting the currency fall in the steepest three-day drop since the country emerged as an economic powerhouse and sliding 3.3pc against the dollar.
Steel mills in the Chinese industrial hub of Hebei have already begun to trim prices of rebar mesh-wires used for building by roughly 3pc to $295, citing the devaluation as a fresh chance to offload excess stocks of steel.
Europe's steel lobby, Eurofer, warned that there would be "very real competitiveness impacts" for European steel firms, already battling for their lives with wafer-thin margins.
America's United Steelworkers union accused China of predatory practices, while the steel group Nucor called the devaluation the "latest attempt to support Chinese industry at the expense of producers in the rest of the world who have to earn their cost of capital to survive."
Indian tyre-makers have issued their own warnings, fearing a fresh rush of cheap imports from China. They are already grappling with a 100pc surge in shipments over the past year as the recession in China's car industry displaces excess supply. The anger is a foretaste of what China may face if this week's devaluation is the start of a concerted effort to gain market share in a depressed global economy. Yet it is far from clear whether Beijing really has such an intention.
The central bank yesterday insisted the drop in the yuan was a one-off effect as the country shifts to a more market-friendly exchange regime, essentially a managed float. It described the sudden drop as "irrational" and said reports of a plot to drive down the yuan by 10pc were "nonsense".
China's share of global steel output has rocketed from 10pc to 50pc over the last decade. It has installed capacity of 1.1bn tonnes a year that it cannot possibly absorb as the Chinese economy shifts away from heavy industry.
It now has 340bn of excess capacity, which has driven down global steel prices by 40pc since early 2014. "This overcapacity alone is more than double the EU's steel demand, and China is now exporting record quantities to Europe as a result," said Eurofer.
The European Commission said it was monitoring the situation closely.
It imposed anti-dumping penalties on Chinese stainless steel in March following a 200pc jump in imports from China in 2014.
It opened a parallel probe of rebar imports in April, one of a long list of anti-dumping investigations cases ranging from Chinese solar panels to silicon, aluminium foil, molybdenum wires, and aspartame.
The PBOC said China's economy was picking up after credit growth jumped to a 31-month high in July. It predicted that the currency was likely to strengthen rather than weaken over the medium-term, given the scale of China's current account surplus - a record $137bn in the second quarter.
The authorities are convinced that a fresh cycle of growth is well under way after a slump earlier this year, when the housing market hit bottom and a badly-managed fiscal crunch caused large parts of the economy to seize up.
Capital Economics said the monetary base had been surging at a 20pc rate over the last three months, implying a jump in output by three to six months.
Budget spending contracted over the winter months but is now picking up again and will reach a 14pc growth rate in the second half under the government's plans, stoked by $315bn of new bond issues by local authorities.
Markets were spooked by a fall in China's industrial output to 6pc in July (year-on-year), concluding that the economy was still deteriorating. But Chinese officials say the data are meaningless, and had nothing to do with the PBOC's decision to float the yuan.
The bad figures were chiefly due to typhoons and flooding in the South East, as well as statistical base effects. Production halved in the industrial stronghold of Zhejiang south of Shanghai as a million people were evacuated.
The PBOC said there was "no basis for a continued depreciation of the renminbi (yuan)" and reminded traders that the Chinese authorities had very deep pockets, a warning that it can and will deploy its $3.65?trillion reserves to stabilise the exchange rate.