Statement by Ms Sheryl Groeneweg, Vice-Chair of the OECD Steel Committee
92nd session of the Steel Committee, 19-20 September 2022
At its 92nd session held on 19-20 September 2022, the OECD Steel Committee expressed concerns about the sharp downturn in world steel markets and emphasised the need to prevent a potential exacerbated steel crisis from emerging in the short to medium term, exacerbated by rising energy prices but also a range of inflationary factors. Delegates agreed to strengthen the Committee’s role as a venue for inclusive co-operation to avoid steel crises, and to step up their efforts to understand and address structural problems in the steel sector with a view to mitigating global trade tensions in the future and supporting the decarbonisation of the global steel industry under conditions of fair and non-distortive competition.
Participants at the meeting:
The global steel market recovery from the COVID-19 downturn was unfortunately short-lived. While market conditions improved in 2021, a significant turn for the worse has occurred during the course of 2022, particularly as a consequence of the ongoing war in Ukraine. Global steel consumption has contracted significantly in the first half of this year due to the rapidly deteriorating economic environment. Steel producers’ profitability is coming under considerable strain along with sharply declining steel prices and surging energy costs driven by the impacts of the war in Ukraine, where many steel plants and related infrastructure have been destroyed by the war and/or taken offline. Lingering effects of the COVID-19 pandemic are also contributing to weakness in market conditions. Additional negative factors for international markets include the sharp and prolonged downturn in China’s real estate sector, which is depressing steel consumption in an economy that accounts for more than half of global steel demand. While excess capacity in China moderated slightly during 2016-19, since then capacity has reversed course and appears to now be stabilising at 1.15 billion tonnes.
Adding to the over-supply pressures has been sustained and rapid growth in new crude steelmaking capacity in other parts of the world. Much of the world’s capacity growth in recent years has been concentrated in the Middle East, South Asia, and Southeast Asia. Many of the new installations in Asia have been focussed on the coal-intensive steel production process. World steelmaking capacity is expected to increase in 2022 for the fourth year in a row, rising by almost 30 million tonnes to a level of 2,461 million tonnes. To put this into perspective, the increase in 2022 alone is equivalent to the current size of Iran’s or two times that of Indonesia’s production. Of further concern are up to 144 million tonnes of additional capacity that may come on stream during the 2023-25 period, representing a further 5.9% increase over the 2022 global capacity level.
Steel demand weakness coupled with further increases in steelmaking capacity over the next few years – in an environment of heightened political instability and growing risks of global recession – require enhanced co-operation between steel-producing economies to eliminate the risk of exacerbating the emerging steel crisis emerging in the future. With excess capacity expected to increase in the coming years, delegates discussed the need to refrain from measures that would exacerbate over-supply pressures in markets, including subsidies and other support measures that stimulate steel production, production and capacity targets that will likely overshoot demand prospects, and restrictive trade policies on raw materials that artificially lower the costs of steel production. Members of the Committee also called for the Global Forum on Steel Excess Capacity to continue its important work.
Delegates agreed that avoiding frictions in world steel markets in the coming years requires addressing structural problems in the industry, particularly related to subsidisation. The Steel Committee discussed its work to build transparency of subsidies and other government support measures provided in major steel-producing jurisdictions around the world, with a view to publishing the key findings of this work as soon as possible.
This work shows that steel firms located in non-OECD economies are estimated to receive 10.7 times more subsidies through cash grants, cash awards and cost refunds than steel firms in OECD countries during 2008-2020. A related study discussed by the Steel Committee showed that state-owned enterprises (SOEs) in certain economies typically receive more subsidies than their private counterparts, often through instruments that are potentially the most market distortive. Subsidisation has led to significant capacity growth of the concerned SOEs, despite their weaker financial performance and efficiency.
The work of the Steel Committee highlights the need for governments to refrain from providing undue support that leads to capacity expansion and keeps inefficient capacity in the market. In this context, delegates noted that efforts should be made to ensure that policy support to encourage low-carbon steelmaking does not lead to net capacity increases that would exacerbate global excess capacity and contribute to trade frictions. The Committee agreed that the decarbonisation of the steel sector is one of the priorities in its next programme of work, and that it aims to operate as a platform to encourage the sector’s green transition under conditions of fair and non-distortive competition. Delegations also discussed the importance of promoting a just transition of the workforce in this process of steel industry adjustment.
In view of the supply disruptions caused by Russia’s invasion of Ukraine, delegates agreed to maintain open markets and to seek alternative supplies to stabilise conditions in their steel industries. A review of trade policies suggests that trade remedy actions on steel products by Committee members have recently moderated, particularly antidumping and countervailing duty initiations, though protectionist tendencies are emerging in some economies in the area of steelmaking raw materials. Delegates took note of export restrictions on scrap as a trade challenge for the steel sector. To address these challenges, the Committee had in-depth discussions with representatives from the mining and raw material sectors with a view to raising awareness about alternative sources of raw material supplies for their steel industries, with an emphasis on sustainable raw materials. Delegations agreed to deepen their co-operation on raw material issues in the future, and discussed the possibility of establishing an observatory to continuously monitor the situation on raw material markets as a basis for developing solutions for improving supplies to their steel industries.
Several OECD countries have introduced economic sanctions vis-à-vis Russia following its large-scale aggression against Ukraine. Delegations discussed their impacts, including the steep contraction of steel production in Russia, but also raised some concerns about the potential for trade circumvention of such measures. Delegations reviewed the tools developed by the Steel Committee to identify and measure steel trade circumvention – which show that steel is often susceptible to circumvention of trade measures via rerouting to intermediary countries and/or through minor processing and modification in third economies – and discussed their possible application in the context of sanctions.
The Committee reiterated that the diverse expertise, knowledge and experience of its membership could be mobilised to help the recovery of Ukraine’s steel industry, as a practical way to support the country’s recovery process and as part of the call by the OECD Council on 8 March 2022 for the OECD to contribute to eventual recovery and reconstruction.