Governments and industry urged to take action to ensure global steel market stability

Statement by Mr. Ulf Zumkley, Chair of the OECD Steel Committee
95th session of the Steel Committee, 25-26 March 2024, Paris

The steel industry is facing unsustainable trends. Excess capacity is enormous and growing. In an environment of limited global steel demand growth, this situation is creating instability in global steel markets and will escalate trade actions. Market-distorting government interventions in some economies continue to grow and are fueling this global overcapacity, leading to export surges of steel and downstream products, fueling unfair trade practices, and depressing the viability of the industry worldwide. These structural problems are also creating additional obstacles for the needed decarbonisation of the steel sector, which currently accounts for approximately 8% of global CO2 emissions.

At its 95th session, held at OECD Headquarters in Paris, the Steel Committee reviewed these pressing challenges and expressed its commitment to work on long-term solutions. Delegations agreed that the ongoing trends are not sustainable and need to be reversed for a more stable environment that ensures resilience, competitiveness, and alignment of the steel industry with climate goals. The Steel Committee also continued to express its solidarity with Ukraine and looks forward to supporting the eventual recovery of its important steel industry.

 Key outcomes of the meeting included:

• Agreement on the common challenges facing steel industries in different countries, including growing excess capacity combined with weaker market prospects and the urgent need for a level playing field. Global steelmaking capacity exceeded steel production by 552 million tonnes last year (more than the combined steel production of India, the Americas, EU, Japan, and Türkiye in 2023). Excess capacity is expected to increase significantly over the next three years. Around 158 million tonnes of new capacity is potentially coming on stream until 2026, while steel demand is currently growing by only around 36 million tonnes per year. Around 60% of the new capacity growth in the next three years will take place in Southeast Asia - supported by significant investment by Chinese steel companies - India and the Middle East.
  
  
• Understanding that subsidy disciplines need to be strengthened for a level playing field in steel. A new study to be published soon by the Steel Committee shows that the use of subsidies per unit of steel producing capacity in the form of cash grants has increased fivefold in non-OECD economies that are not members of the Steel Committee from 2005 to 2021, while subsidies in the form of below-market financing (soft loans) has doubled. This is in stark contrast with OECD economies where these subsidies have remained stable. Current and past subsidies create global excess capacity, with long-lasting negative effects on international steel markets. Members look forward to exchanging information on this issue, and exploring tangible solutions including in the Global Forum on Steel Excess Capacity.
  
  
• Growing concern about disruptions in steel trade. Members discussed the sudden surge in steel exports over the past year, particularly from China, where steel exports are currently running close to the peak levels seen in 2016. Indirect steel exports (steel-containing goods such as machinery and vehicles) from China are also on the rise. These developments risk triggering more instability and trade actions around the world.
  
  
• Acknowledgement that members’ trade policy tools need to be strengthened. This includes addressing steel exports that circumvent the trade measures members have in place to deal with unfair trade. The Committee agreed to furthering work in 2024 on new tools to identify potential trade circumvention and to share information and best practices on their strategies to deal with this widespread problem. The Committee will report on the outcomes of this work at its next session in November.
  
  
• All these challenges come at a time when the industry needs a stable long-term operating environment to make the costly transition to lower-carbon steel production. Although the number of low-carbon steel projects has increased substantially in member countries over the last few years, 42% of the new plants potentially coming on stream globally during 2024-2026 will be based on the relatively carbon intensive blast furnace/basic oxygen furnace route. The Committee discussed concrete ways to enhance the availability of raw materials for decarbonisation, and will continue to share best practices in this area. Members expressed interest in exploring ways to coordinate policies to support the green transition in steel in neutral ways that do not distort competition.  

Weak steel market conditions amidst persistent inflation and growing excess capacity

Global steel market conditions are deteriorating amidst significant volatility. The combined effects of inflation and weak economic growth are dampening demand for steel. Demand for steel fell by 3.3% in 2022 and recovered by only half this amount in 2023 as higher interest rates worldwide continue to depress construction activity, the largest steel consuming sector, and investment. At the same time, high and persistent inflation is reducing spending on steel-intensive durable goods and has led to higher raw material costs for steel firms since June 2023. Steel firms need to absorb those higher costs while facing weak demand and surging imports due to global excess capacity. The most recent forecasts for 2024 and 2025 discussed by the Steel Committee suggest that global steel demand growth will continue to be very sluggish.

Meanwhile, world crude steelmaking capacity in 2023 is now estimated at 2 439 million tonnes, exceeding production by 552 million tonnes. Around 23 million tonnes of potential new capacity growth in ASEAN during 2024-26 is through cross-border investments or joint venture investments. China has made significant progress in limiting the growth of its domestic crude steelmaking capacity. Still, in addition to growing Chinese investment in Southeast Asia, there is growing concern that substantial financial incentives in China, such as tax benefits, grants, and research funding, are encouraging the capacity of higher value-added steel products. This implies that excess steel production capacity is “moving up the value chain”, seen in the recent shift in the composition of exports of Chinese steel and steel-using downstream products over the last years.

Risk of escalation of trade tensions in steel

Steel trade dynamics underwent significant changes in 2023, marked by a 40% increase in China's steel exports compared to the previous year. Chinese export figures approached the peak levels of 2016, a year marked by a severe excess capacity crisis in the steel industry and characterised by low profitability rates and mass layoffs. The increase in global steel exports to 282 million tonnes is primarily driven by Chinese figures, while several smaller economies, particularly in Southeast Asia, have seen their rankings in global exports move up due to rapid capacity growth that is overshooting their domestic demand for steel. Many other major steelmaking economies have exhibited a weaker steel export performance.  

The Committee’s discussions indicated that the rise of steel excess capacity, coupled with this increase in exports, could lead to more widespread usage of trade defence instruments at a juncture already complicated by the implementation of carbon-related measures. The rise in the application of these measures, while crucial for addressing climate change, may fragment the global steel market further.

In this complex global scenario, ensuring the effectiveness of trade policy aimed at addressing unfair trade is increasingly important. Members welcomed new OECD work on the circumvention of trade policy measures, aimed at developing the empirical tools needed to identify circumvention behaviour and greater co-operation on government strategies for addressing circumvention cases.

Members working for a more level playing field…

Novel work by the Steel Committee reveals that, contrary to OECD economies, the use of subsidies per unit of steel producing capacity is on an increasing trend in non-OECD economies: a fivefold increase for cash grants from 2005 to 2021, and a doubling of below market financing in that period. This work also shows that subsidies have real impacts on capacity: each USD 1 million of subsidies through grants is associated with capacity increases of about 7-11 million tonnes in the non-OECD area. State-ownership of steel plants in non-OECD economies creates further concern. Steel state-owned enterprises (SOEs) benefit from a policy environment that grants them unfair advantages relative to their asset size compared to privately owned firms. This may be due to their prioritisation of social, political, and strategic goals, which can lead to market distortions, steel excess capacity and unfair competition. These market distortions reflect the disproportionate advantages that SOEs have in accessing credit, technology, investment, and protection from the adverse market conditions that private firms face. The Committee will accelerate dialogue and exchange on these level playing field issues, and urgently seek solutions, and could explore engagement with relevant partners to improve understanding and support reforms of the SOEs sector.

…also for supporting decarbonisation of the steel industry

Many members also noted how level playing field issues create obstacles to the needed decarbonisation of the global steel sector. Recent Committee work shows that, while many members are closing higher emitting blast furnaces/basic oxygen (BF/BOF) plants and are shifting to lower-carbon production methods, global BF/BOF capacity continues to increase rapidly, often benefitting from subsidies. Moreover, in many countries new capacity is not being met with demand at home.

The transition to a competitive low-carbon steel production can be accelerated if excess capacity and its root causes are addressed. This will also require that inputs for decarbonisation are available and affordable to the steel industry, including steel scrap, renewable energy, high-grade iron ore, hydrogen, access to R&D, innovation, and capital for investments. Attention to labour implications, education and re-skilling policies for the green transition is also required. The Committee is actively co-operating especially on the scrap availability issue, due to heightened concerns about the availability of scrap for future low-carbon steel production. A new study shows that growth of recycled steel continues to support low-carbon steel production, but at a different pace across regions. Regional supply of steel scrap may lag demand growth, while export restrictions on scrap appear to be on an increasing trend, which can dampen countries’ efforts to decarbonise their steel production. The study shows that steel produced from EAFs scrap is projected to reach 50% of world steel production by 2050. The Committee discussed ways to improve scrap recovery, quality and distribution. Future work will continue to focus on policy approaches to support decarbonisation of steel production without creating market distortions or undue competitive advantages to steel firms. The Committee noted with interest reports by international initiatives on activities for decarbonisation of the steel industry, notably the Breakthrough Agenda, steel standard principles, and the Climate Club.