The embers inside Europe’s second-largest blast furnace, at Redcar, in northeast England, will die. For 170 years this has the been world’s most storied steelworks. Plate-iron beams from Redcar undergird Sydney Harbour bridge. Now, it's become a victim of 'industrial vandalism', according to the local parliamentarian, speaking after the closure was announced at the end of September.

Blast furnace at Redcar (Photo courtesy of Flickr user Archangel12)

The UK government will be criticised for resisting a bailout. But the real perpetrator of Redcar’s demise, most think, comes from the other side of the world: Chinese exports. And all this as China’s president Xi Jinping arrived in Britain to a 'redder-than-red carpet welcome'. About Redcar, Xi’s emissary to London had this ungentle advice for his hosts: 'If you continue to stay with your old, traditional business, you're losing money and opportunities. China is making adjustments — why not Britain?'

The ambassador, renowned neither for his humility nor his anglophilism, makes a straightforward business case. But his words sit ill with many in the global steel industry. For a start, Britain is already making huge adjustments, namely laying off staff and rehabilitating rustbelts as mills close (a costly process that can take a decade).

Arguably it is China that is failing to adapt to the dismal situation in the world’s steel industry.

By OECD calculations, China already accounts for half of the 600-700 million tonne global excess capacity (Eurofer thinks more), and its surplus is rising rapidly as domestic demand peaks and recycling rates rise.

Keen to reduce pollution at home, and facing rising overseas protests over the 'China crisis', Beijing’s mandarins plan to shift their factories abroad. This is an expensive and probably unworkable idea and one that would merely relocate oversupply, not reduce it.

China’s 'adjustment' so far has been to export its excess steel. In October its net trade (it imports some specialty grades) was 11 million tonnes. Annualised, this would be more than the entire output of Japan, the world’s next largest steelmaker. In other words, after domestic China, the world’s largest steel industry is Chinese exports. Local officials have reportedly been shocked by the 'unprecedented' decline in internal demand, which could shrink by one-fifth or more as fixed asset investment peaks. Yet they show little enthusiasm for shutting capacity. Beijing itself intervened to rescue bondholders in Sinosteel, a bankrupt centrally-owned SOE. Instead, there is a race to grab export share in a 'prisoner’s dilemma' game.

There is not a single major steel mill in China making profits today, but none are closing. Bank of America reckons that at today’s 72% utilisation rate, mills in China are losing $6 for every $100 of steel they sell.

There are long-standing allegations that Chinese mills are subsidised, which means their underlying profitability is even weaker than reported. And these mills are now exporting at net prices 10% below what they sell at home, according to Metal Bulletin, ie 'dumping' in WTO vernacular. This has provoked a howling multi-front trade conflict. The US has has imposed 236% duties on Chinese stainless. India has implemented 'safeguard' duties on all hot rolled coil. Korea, Mexico and Europe have initiated action against various Chinese imports. Warehouses everywhere are stuffed full. Credit Suisse, which has long warned of the Chinese industrial challenge, gave its recent world steel report the ominous title: 'Something has to give.'

To be fair, China is not the only nation hoping to offload steel abroad. Russia, Ukraine and Turkey are also tempted to export, which becomes more viable as their currencies get pummeled. Low prices are just part of the industry’s 'cocktail of problems'. After all, iron ore prices have fallen even faster than steel product, which should help profits. Instead the industry has lacked the discipline to hold margins. Western producers are all too ready to blame foreigners so they carp that China is not ready to be accorded market economy status (the next big test for the WTO).

Yet indisputably China’s shadow looms over all. With 20% of Earth’s population it produces and consumes fully half of its steel. Just as in aluminium and countless other metals, all smelted by guzzling carbon and energy, China is swamping the world with exports while driving others to exit, not because it is advantaged competitively but because it has no better plan.

China's UK ambassador made an important point, though probably not the one he intended. Steel is fun on the way up, and China undeniably forced adjustments (some very positive) on other countries as it rose. But it is a dreadful industry to exit, as his country is about to learn. Because of the gigantic scale of China’s steel industry, it will bear the greatest burden. Other countries can and will protect whatever industries they really need to. China is the world’s overflow producer and is vulnerable as such.

Awash in red ink and facing red flags from its trading partners, dozens of China's steel-towns face a future like Redcar's.