40 years of the OECD Steel Committee: 1978-2018

Statement by Mr Lieven Top, Chairman of the OECD Steel Committee
85th session of the Steel Committee, 17-18 September 2018

 

At its 85^th session on 17-18 September 2018, the OECD Steel Committee held in-depth discussions on global and regional steel market conditions, steel trade and trade policy developments, the continuing challenge of excess capacity, and OECD work on subsidies and other forms of government support contributing to excess capacity provided to the steel sector. The Steel Committee:

• welcomed the technical workshop on facilitating structural adjustment that took place on 17 September, and highlighted the importance of removing barriers to exit, while helping steel workers and their communities affected by closures, including the need for expanding the body of scientific research;
   
• discussed recent trade measures, with many members expressing serious concerns about the increasing number of trade actions and the effects they can have on global steel markets and steel trade;
   
• noted with concern the increase in capacity witnessed in 2018, and emphasised the common responsibility to use the current cyclical improvement in the steel market to urgently tackle excess capacity; 
   
• reiterated the need to swiftly remove market distorting subsidies and other government support measures that are contributing to excess capacity with a view to achieving long-term solutions to imbalances in the steel sector.
  
  

Steel markets in cyclical uptick, yet structural imbalances remain unaddressed

The global economy has continued its recovery in 2018, supported mainly by an accommodative monetary and fiscal policy stance. According to the latest OECD Economic Outlook (May 2018), the global GDP growth rate is projected to pick up to 3.8% in 2018 and 3.9% in 2019. Downside risks to growth include a further increase in trade frictions, high household and corporate indebtedness, and the potential effects of a tightening of fiscal and monetary stances.

In the context of a cyclical uptick, in the first five months of 2018 steel market conditions improved, with global crude steel production increasing by 4.6%, consumption recovering moderately and prices returning to 2012 levels. Nevertheless, differences in growth rates persist across regions.   Large uncertainties persist, however, as to whether this momentum will continue.   Latest forecasts for steel consumption point to a moderation in the pace of growth going forward, with long-term growth remaining at 1% levels.

 

Global steelmaking capacity to increase again in 2018, exacerbating excess capacity

Considering limited expectations of demand growth, and seizing the opportunity of the cyclical uptick, it is urgent to eliminate excess capacity, which notwithstanding drops in 2016 and 2017, persists at near-record levels of 540 mmt. This is further fuelled by increases in capacity in 2018, whose 2% growth  brings current global steelmaking capacity up to 2 291 mmt. Moreover, with a number of new investments underway primarily in Asia and the Middle East , OECD data show that global steelmaking capacity could increase by 1.6% between 2019 and 2021 in the absence of closures. The Committee welcomes preliminary work on cross-border investments and encourages the Secretariat to analyse the issue further, with a view to improve our understanding of conditions under which it compensates for domestic closures and exacerbates excess capacity.

Excess capacity remains the key challenge for the global steel industry. The Committee reiterated the need to swiftly remove market-distorting policies that contribute thereto, and held a thorough exchange of views regarding the on-going work on subsidies.

The exchanges during the workshop provided new insights on policies that can facilitate restructuring in the steel sector, including policies that help steel workers and communities affected by structural adjustments. Also the need for expanding the body of scientific research in those fields was recognised, as it existed during the last decades of the 20^th century.

The Committee also called for the Global Forum on Steel Excess Capacity (GFSEC), whose Ministerial meeting will take place on 20 September, to swiftly implement the agreed policy actions to eliminate excess capacity and the market distorting support measures that contribute to excess capacity.

Global steel trade continues to decline amidst a growing number of trade actions

Steel trade continues to decline amidst increasing trade actions in the global steel market. Global steel exports decreased by 7.9% in the first quarter of 2018 compared to the same period in 2017 Global imports continued to decrease in 2018, falling by 6.6% in the first quarter of the year compared to the same period in 2017.

The Committee discussed trade measures and many delegates expressed serious concerns about the effects these measures were having on steel trade, sustainable growth of world steel markets and market conditions in their economies.

The Chair encouraged close attention to this issue in the right fora, with the need for further monitoring by the Committee of steel trade developments trade policy measures and their impact on the economies of the members.

OECD to continue work on subsidies and other government support measures

The Committee discussed its work on subsidies and government support measures directed towards steel at length.  The Committee will define scope, modalities of the work and its content. On this basis, future work by the Committee in this area will focus on development of guidelines and a database on subsidies and other forms of government support. This work could contribute to the Committee’s discussions on long-term solutions to tackle excess steelmaking capacity.