Huachipato: the keys to understanding the suspension and restart of operations of the Chilean steel company

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Since last March 21, the Compañía de Aceros del Pacífico (CAP) announced the indefinite suspension of the operations of the Huachipato Steel Company, located in the port of Talcahuano, in the Biobío region, that the workers in the area, the company and the Chilean authorities were looking for a way out of the crisis that anticipated a significant economic impact for the region. This Sunday, everyone breathed easy again: the company has announced the restart of its operations, after the Anti-Distortion Commission resolved a increase in the surcharge on Chinese steel imports, in line with what was requested by the firm. EL PAÍS explains how the crisis began, the effects of the commission's first decision, the implications of the closure for the region's economy, the different positions between the organizations behind the decision to raise the tariff on Chinese firms and how the company and the Government plan to keep the Chilean steel industry afloat.

The complaint about Chinese dumping

On November 20, 2023, CAP, one of the most important companies in steel production in Chile, filed a complaint with the Anti-Distortion Commission, a technical body in charge of investigating the entry of goods into the country with distorted prices. In it they accused that Chinese companies were engaging in dumping, that is, selling their steel at prices up to 40% lower than the market values, which was causing them losses equivalent to a million dollars a day. In particular, due to the import from China of steel bars to manufacture grinding balls used in mining and already manufactured steel balls. On November 28, 2023, said commission began an investigation and on March 19, 2024, the Ministry of Economía reported that the claim had been accepted: an average provisional tax of 15.3% would be set on steel balls and 15.1% on steel bars.

The “indefinite suspension”

But the resolution of the anti-distortion body – made up of four representatives of the Government, two from the Central Bank, the national director of Customs and the national economic prosecutor – did not leave CAP happy, which had requested a 25% tariff surcharge on bar imports. Chinese steel. Two days after learning of the resolution, on March 21, CAP announced the “indefinite suspension” of its operations for three months. “Unfortunately, the defined rates are lower than those requested by the company and, furthermore, differentiated by producer and exporter,” the company said, while regretting the “painful decision” to paralyze its operations.Aerial view of the Compañía Siderúrgica Huachipato SA, the main steel producing industry in Chile, in Talcahuano, in March 2024.Javier Tapia Peña (EFE) “All the producing companies are controlled by the Chinese State and, in addition, they are large in size , so in practice all the steel that will be exported to Chile could be derived from the company to which the lowest surcharge is applied, eliminating any possibility of competing on equal terms,» ​​explained the Chilean firm.

22,000 jobs at risk

The company's announcement set off alarm bells. The closure of the Huachipato plant implies the end of one of the main productive and labor sources in the Biobío region. Local unions estimate that the cessation of operations would leave more than 22,000 people unemployed, which would worsen the unemployment crisis in that area of ​​the country, which more than two decades ago experienced a similar episode with the closure of coal mines. by Lota and Schwager. In addition, some 300 small and medium-sized companies, which are part of the value chain generated by the steel company, would be affected. A study by the Catholic University of the Santísima Concepción (UCSC) also calculates that the eventual closure of Huachipato would have a in the Regional Gross Domestic Product (GDP) of 3%. “This would trigger or impact the unemployment rate in the Biobío region by up to 1%, only considering direct jobs, an impact that will be even more significant if we evaluate the effects on local suppliers,” the document maintains.

The appeal

After announcing the indefinite closure of its operations, on April 4, Huachipato presented an appeal to the Anti-Distortion Commission to reconsider upwards the rate imposed on steel products imported from China. In it he once again insisted that only a 25% safeguard on steel bars could prevent the cessation of the industry and its effect on the nearly 30 contracting companies. “The rates defined and differentiated by producer and exporter are insufficient and do not guarantee that the field is effectively leveled and distortions are eliminated. We are not asking for subsidies or bailouts. Huachipato has the ability to be profitable in a competitive environment,” said the company's general manager, Jean Paul Sauré, on that occasion.

The new resolution and the restart of operations

Last Saturday, April 20, through the Official Gazette, the Anti-Distortion Commission announced its resolution to Huachipato's appeal. The organization decided to accept the company's request and apply a provisional tariff surcharge of 24.9% for steel bars from China. The steel company's satisfaction was immediate. “It is great news, since it allows distortions to be eliminated, the market to be balanced and national players to be able to demonstrate their capabilities in providing the best steel,” said the company, which convened an extraordinary board of directors for Sunday, after which it announced its decision to back down and restart operations in Talcahuano.Huachipato marchesWorkers at the Huachipato steel plant march against the suspension of activities, in Concepción, Chile, on March 27, 2024.Juan Gonzalez (Reuters)

Positions found in the commission

The new resolution of the Anti-Distortion Commission, however, did not have the unanimity of its members. According to the Ex Ante media, the president of the Anti-Distortion Commission, the national economic prosecutor, Jorge Grunberg, and the representatives of the Central Bank, Francisco Ruiz and Miguel Fuentes, voted against the appeal for reconsideration to raise the surcharge on Chinese steel. Among their arguments, they said that “there is not sufficient background information to preliminarily determine that the damage or threat of serious damage to the domestic industry is caused by the alleged dumping in the prices of imports of the product under investigation.” In this way, The new surtax on Chinese steel was determined by the majority of the Government representatives, in addition to the national director of Customs. After learning of the company's decision to resume its work, the Minister of Economy, Nicolás Grau, was satisfied and defended the character technical and not political of the commission. “The people who participate in the Anti-Distortion Commission, beyond the way in which its composition is defined, are people who have to make their decision based on technical elements, based on evidence and that is precisely what will be possible.” see once the minutes are reviewed,” he stated.

The future of the steel industry

The decision of the anti-distortion body is provisional, that is, it cannot exceed six months from last March 27, the date on which the original provisional measures were imposed. After this period, the commission must determine whether to maintain the surcharges and the company could present a new dumping request. In this regard, the Minister of Labor, Jeannette Jara, pointed out that «the company also has to review its production and marketing strategies to in order to be able to make it sustainable over time. From the government, the Minister of Economy will continue to accompany the process, as Nicolás Grau has led until now.”

The history of Huachipato

The Siderúrgica Huachipato was inaugurated in 1950 when CAP was a state company. During the eighties, during the dictatorship of Augusto Pinochet (1973-1990), the company and the plant passed into private hands. In its more than 70 years of existence, the plant became a financial and labor center for Talcahuano, with cultural and sports ramifications. The Huachipato Sports Club, the current champion of the Chilean soccer league, was born under the protection of the steel industry. Subscribe here to the EL PAÍS Chile newsletter and receive all the key information on current events in the country.