Statement by Mr Ulf Zumkley, Chairman of the OECD Steel Committee
90th session of the Steel Committee, 22-24 September 2021
Despite the current worldwide economic rebound, which has prompted a recent recovery in global steel markets, the steel industry still faces structural issues that will need to be resolved to ensure the industry’s long-term health and balanced growth. At its 90th session held on 22-24 September 2021, the OECD Steel Committee held in-depth discussions regarding the global steel market situation and its outlook. The Committee expressed concerns that the significant and persistent non-market structural overcapacity, with recent indicators showing an estimated global capacity-production gap of 478 million metric tonnes in 2021 (based on information as of June), may trigger sharp downturns in the future when steel demand growth loses momentum. The Committee discussed policy approaches to ensure a level playing field for a healthy global steel industry as market-distorting government interventions have been feeding much of the additions to capacity in many economies. The Committee advanced work to build a comprehensive database for subsidies and government support measures provided to steel firms that paves the way for evidence-based analyses and policy recommendations. The Committee also advanced its work on state-owned enterprises and their role in world steel markets, and reviewed new analytical work aimed at developing a framework for identifying suspicious patterns of trade consistent with circumvention and other schemes designed to undermine trade measures on steel products.
Delegates of the Steel Committee:
The COVID-19 pandemic negatively impacted the global economy and world steel markets severely in 2020. The economic rebound has prompted a recovery in global steel demand, and steel producers are currently benefitting from a stronger-than-expected improvement in market conditions. In its September 2021 Interim Economic Outlook, the OECD forecast world GDP to rebound by 5.7% in 2021 and 4.5% in 2022. In some jurisdictions, GDP has already surpassed its pre-pandemic level. The recovery has been uneven, and considerable heterogeneity in near-term developments is likely to persist, both between advanced and emerging-market economies and across wider regions. Steel prices have quickly responded to strong steel demand, but given the simultaneous increase in commodity prices in general and in steel raw material prices in particular, this has not translated into any meaningful increase of steel firms’ average profit margins. A significant number of steel firms are still facing challenging financial conditions.
Global steel demand is expected to recover in 2021 from the slump of 2020, but global growth expectations are currently less buoyant as compared to this spring reflecting weaker prospects in China and several other emerging markets. A number of risks weigh on the outlook. Excess capacity remains high and steel demand growth is expected to remain modest in the long term. Reigning in growing global excess capacity driven by harmful government interventions, such as government subsidies and investment policies remains a key priority. Those structural risks should be addressed urgently, as they could lead to a severe market downturn when steel demand growth begins to moderate from the current post-pandemic recovery phase. In this context, the Steel Committee recognised that the work of Global Forum on Steel Excess Capacity (GFSEC) is as relevant as ever, and welcomed the upcoming GFSEC Ministerial Meeting to be held on 1 October.
The latest available data from the OECD show that global steelmaking capacity could increase from 2452.7 mmt in 2020 to 2485.8 mmt in 2021, following growth in capacity which began in 2019. Delegates expressed their concerns that current OECD data on investments show that as much as 55.6 mmt of steelmaking capacity are in the planning stages for the next three years (2022-24), while 47.9 mmt are currently underway for completion. This is the case particularly for the Middle East and some Asian emerging market economies. The Committee was concerned that some of these new capacity projects are funded by overseas investments, many of which are publicly supported and assisted investments driven more by policy considerations than market forces. In this context, the Committee underscored the need to engage with all relevant stakeholders to foster a better understanding of those developments and address their risks, reiterating the need for all jurisdictions to allow market principles and forces to drive steel investment to ensure a balanced and sustainable growth of the steel industry worldwide.
Following the significant moderation in global steel trade last year, a strong rebound in trade took place in early 2021, with world aggregate exports increasing by 10.3% compared to 2020 annualised figures. The Committee also took note of recent trade policy measures in the area of steel and steelmaking raw materials. While recognising the fundamental role of legitimate trade defence instruments, the Committee constructively discussed the motivations that led to – as well as the effects of – these trade measures on members’ economies. Participants reiterated their support to enhance efforts to ensure that trade in steel remains as unrestricted and free of distortion as possible, and reducing trade barriers on steel products and related materials, on both the import and export side.
The Committee also discussed new empirical work by the OECD in the area of duty circumvention in the steel sector and, in particular, methodologies aimed at identifying patterns of trade that may point to possible occurrences of this trade practice. Participants welcomed future work in this area.
The Committee reviewed a new study on cross-border investments by state-owned enterprises, noting that certain characteristics of those investments were of concern. In particular, state support to state-owned enterprises engaged in cross-border investment may create domestic and international market distortions. Moreover, the new capacity growth generated from these investments, if not in accordance with demand, can fuel steel exports from the host jurisdictions and contribute to global excess capacity.
Members expressed their commitment to advance the Committee’s important work on building a comprehensive database of subsidies and government support measures provided to steel firms in large steel-producing jurisdictions and in jurisdictions that are experiencing rapid capacity growth. Such a database is a fundamental area of work in the Committee’s programme of work, and paves the way towards data-driven analyses that will inform policy recommendations regarding the use of subsidies and government support to the steel sector. Further work on these issues will contribute to policy discussions on levelling the playing field in steel and reducing structural excess capacity.