The British steel industry is in crisis. That statement may come as a surprise to non-UK readers, many of whom might well be forgiven for thinking the country's steel mills had gone the way of other legacy industries such as coal mining and shipbuilding. But Britain produced 12.1 million tons of crude steel last year, making the country the fifth-largest producer in the European Union. It won't produce that much this year. The last couple of months have brought a string of closure announcements, including that of the Redcar plant in Teeside, a symbol of previous against-the-odds survival. British steel mills are struggling with UK-specific problems, particularly high energy costs that are significantly above the European average. Stung into belated action, the government is scrambling to assemble a rescue plan, albeit with one hand tied behind its back by EU state subsidy rules. But there is a much, much bigger problem roiling steel production, not just in Britain, but across the globe. China. China exported 11.25 million tonnes of steel last month. It was an all-time high and, expressed in annualized terms, was equivalent to 80 percent of the entire steel output of the 28-member European Union last year. This wave of Chinese steel is creating a global steel-making crisis, of which Britain is only a minor sub-plot. But the biggest crisis of all may yet turn out to be in China itself. Steel Leviathan With exquisitely bad political timing, Britain's steel woes erupted just before the long-planned visit to the country by Chinese President Xi Jinpeng. Xi said China was committed to eliminating surplus steel capacity with 77.8 million tonnes already shuttered and more closures planned. Overcapacity, he added, was a global problem, not just a Chinese problem. Which is true. Steel-making has been dogged for decades by structural overcapacity, a tendency to overproduction and resulting weak pricing. But this time is different, because there has never been a steel giant like China before. China's crude steel production tripled between 1980 and 2000 to 128.5 million tonnes and then went supernova in the following decade with annual growth rates of up to 30 percent. By 2014, China's production had reached 823 million tonnes. It was not just the world's largest producer, it produced more than the rest of the world combined. Underpinning that breakneck pace of growth was the country's massive investment in urban infrastructure. From new cities to new roads to new airports, it all needed massive amounts of steel, and of course the iron ore used to make the steel, generating secondary booms in key suppliers such as Australia. But now the boom is over and the world is paying the price. Boom to Bust No one thought the boom times would end quite so soon or quite so abruptly as they have. Iron ore miners such as Rio Tinto and BHP Billiton are still bringing on new capacity to feed what they thought would be many more years of Chinese demand growth. But Chinese steel production is showing every sign of peaking a decade or so ahead of expectations. National output is now falling, with run-rates down 2 percent in the first nine months of this year. This year may well be the first year of negative growth since 1981. The real problem, though, is that Chinese steel demand is falling faster, largely reflecting the bursting of a residential property bubble and the planned transition of the Chinese economy away from fixed-asset investment towards a more consumerist model. The net result is that Chinese exports of steel are surging. September's new record outflow brings the cumulative year-to-date surge to 83 million tonnes, already 18 million tonnes more than this time last year. It's that flood of metal that is displacing units and crushing profit margins everywhere else. It is also causing a building push-back in the form of multiplying anti-dumping trade actions. But the country facing the biggest steel-making challenge of all is ironically China itself. Prices Down, Profits Down, Debt Up Not only is China producing far too much of the stuff relative to what it needs, but all those years of rapid expansion have left a legacy of huge excess capacity. National steel-making capacity is thought to be around 1.25 billion tonnes, of which at least 300 million tonnes or so are surplus to requirements, even allowing for that export stream. Steel prices in China have been heading south for a long, long time under the weight of all that surplus, both active and inactive. In 2009, when the Shanghai Futures Exchange first launched its steel rebar contract <0#SRB:>, the price recorded a high of 6,903 yuan per tonne. Today the construction-grade steel is trading under 1,800 yuan, having fallen in almost a straight line over the last couple of years. Hardly anyone is making money. The country's own steel body, the China Iron and Steel Association, said the largest producers had combined losses of 28.12 billion yuan ($4.43 billion) in the first nine months of 2015. And evidence of that financial strain is accumulating: witness the scare about state-owned Sinosteel extending the redemption date for its bonds. What is happening in the smaller-capacity part of the sector is anyone's guess, including CISA, but it is probably uglier still. CISA has been vociferous in calling for production cuts and capacity closures. The government itself, as Xi told UK reporters, has been trimming what it calls outdated capacity but up to now it has been using a scalpel when it should have been wielding an ax. But then again, no one wants to see their local steel mill close with all the resulting collateral damage in terms of jobs, taxation revenues and associated industries. Chinese local authorities are no different from those in Britain in this respect. But the added complication is the opaque debt structure underpinning the Chinese steel industry. Closing a loss-making mill means someone has to take the debt write-off, whether it be the local bank, the local government or a combination of the two in the form of an off-balance-sheet financing vehicle. And that's China's Catch 22. The longer it defers closing steel capacity, the weaker the market, both in China and everywhere else, and the bigger the debt mountain. But forcing closures, particularly among state-owned producers, comes with the risk of unpredictable debt events and social backlash. China has created a steel monster, which is now devouring the rest of the world. But the real worry is what it might do to China itself.