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Industry and globalisation

81st Session of the OECD Steel Committee - Chair's Statement

 

Uncertain signs of steel market recovery, but urgent structural challenges remain unaddressed

 

Statement from Risaburo Nezu, Chairman of the OECD Steel Committee

81st Session of the Steel Committee- 8 September 2016

 

The Committee:

  • discussed the limited signs of recovery in the global steel market, and expressed concerns about corporate financial vulnerabilities and the unaddressed overcapacity and structural imbalances; 
  • reiterated the urgency of addressing the significant excess capacity challenge and its causes and effects in the steel industry and workers;
  • welcomed the outcomes of the G20 Leaders Summit on 4-5 September 2016, and the forthcoming discussions amongst G20 and OECD members on a Global Forum on Steel Excess Capacity on 9 September 2016; 
  • expressed concerns about steel trade barriers and distortions and their underlying causes; and
  • exchanged views on developments in raw material markets and on the effects of raw material export restrictions.

 

Limited signs of recovery in steel markets, but significant structural challenges remain unaddressed

The world economic outlook remains weak. Recent months have been characterised by subdued domestic demand and productivity growth in advanced economies amid a further growth slowdown in many emerging economies. According to the OECD’s latest Economic Outlook of 1 June 2016, world GDP growth is projected to remain weak, despite a gradual improvement from 3% in 2016 to 3.3% in 2017.

The market situation in the steel industry has improved minimally since the beginning of the year. The three-year period from 2015 to 2017 is expected to be characterised by a gradual bottoming out of global steel demand growth. Preliminary views on the steel demand outlook by the World Steel Association suggest better than expected global steel demand growth in 2016 and 2017 when compared to the outlook earlier this year, supported mainly by Asia, albeit with a lower rate of demand contraction in China. Nevertheless, growth momentum continues to be subdued and no immediate turnaround is expected. Developed economies are expected to show stable but low levels of steel demand growth and emerging economies are projected to diverge in their growth patterns. Demand growth is mostly consumption-driven as investment continues to be weak, despite the low interest rate environment. Risks to the outlook include economic growth deceleration in some regions, mounting geopolitical uncertainties, increased corporate debt, and low oil price momentum.

World steel production continued to decline sharply during the first few months of 2016, but since then the rate of decline has diminished. In July 2016, world production registered a slight increase in year-on-year terms. The gradual improvement means that world production for the first seven months of this year is 1.2% below the January-July 2015 level. In 2015, world steelmaking capacity was estimated to have reached 2, 367.7 mmt, posting average annual growth of 5.7% since 2005. However, world capacity growth slowed to approximately 2% per annum in 2014 and 2015, and should subside further in 2016-18. Most of the growth in steelmaking capacity over the last decade has occurred in non OECD economies, which accounted for 72% of global steelmaking capacity in 2015. With global demand conditions remaining relatively weak in the coming years, it is anticipated that investment activity in the steel sector will slow. Capacity in the OECD area is expected to remain roughly unchanged until 2018, with a small number of new projects being offset by capacity closures. Global steelmaking capacity is projected to increase by almost 58 mmt in the 2016-18 period, thus reaching 2, 425.5 mmt by 2018. The Committee agreed to further its work on steelmaking capacity data, namely by focussing on more comprehensive information, with a view to increasing transparency and timely dissemination of capacity developments.

Recovery in demand in most regions is minimal, with estimated demand in 2016 at only 1.5 billion tonnes, thus indicating unsustainable oversupply, with over 800 mmt of excess capacity. Relatively minor adjustments in supply with some capacity closures and mothballing of steelmaking facilities, suggest that steel markets could be bottoming out. However, it is still uncertain whether the positive momentum is robust or sustainable. Significant headwinds related to corporate financial vulnerabilities and unaddressed overcapacity further cloud the outlook. Therefore, the momentum should be used to work out the necessary structural and supply-side and policy adjustments, including, removing different types of barriers to exit, bearing in mind implications for workers while the industry restructures.

The Committee welcomed the outcomes of the G20 Leaders Summit on 4-5 September 2016, and the forthcoming discussions amongst G20 and OECD members on a Global Forum on Steel Excess Capacity on 9 September 2016.

 

Trade measures continue to increase as a reaction to unresolved market distortions and other factors

The global steel industry continues to face difficult conditions due to excess capacity, weak global demand for steel and growing trade tensions. There has been a sharp increase in steel trade actions by governments, while global steel trade remains relatively robust, with world exports of steel having averaged more than 300 mmt per year since 2014. Trade actions should respect international obligations.

 

Steelmaking raw materials markets should be kept as open as possible

The Committee discussed steelmaking raw material markets and related export policy developments. The use of export restrictions worldwide remains high despite the fact that the market balance for many steelmaking raw materials has eased and prices have fallen significantly in recent years. The Committee discussed preliminary research showing that more open raw material export policies can have positive effects throughout the steel supply chain, both domestically and internationally. The Committee also discussed the possible linkages between export restrictions and innovation in the mining sector, which is crucial for ensuring sufficient availability of raw materials in the long term, noting that the WTO allows for specific exceptions.