Statement by Mr. Ulf Zumkley, Chair of the OECD Steel Committee
94th session of the Steel Committee, 25-26 September 2023
At its 94th session held on 25-26 September 2023, the OECD Steel Committee voiced grave concerns about the deterioration in global steel market conditions that is currently being driven by growing overcapacity, softening demand for steel, and government interventions in some economies that continue to distort steel markets. The challenging market environment is taking place at a time when the industry needs a stable operating environment so that it can accelerate decarbonisation. Members discussed the impact of Russia’s war of aggression against Ukraine on steel markets, and expressed the Committee’s support for the ambitious green reconstruction plans of Ukraine’s steel industry. The Committee also discussed rising international tensions on issues such as access to critical materials in supply chains, and discussed ways to foster greater availability of critical raw materials for its steel industries, including by advancing work under the recently launched OECD Steel Supply Chain Observatory. Members expressed their joint commitment to continue working closely towards a more level playing field in the steel industry, and providing an enabling environment that would help their steel industries remain competitive while supporting the transition to a low-carbon future.
Participants at the meeting:
The gradual recovery in global steel market conditions that began earlier this year was short-lived. Following sharp contractions in global steel demand, production, trade and prices in 2022, market participants expected recovery to gradually set in this year, supported by a firming of steel demand conditions in China as Covid-related constraints eased. The hard data released in recent months, however, point to renewed weakness in the steel market conditions. Global excess capacity is on the rise and steel demand is starting to falter amidst growing concerns about China’s real estate crisis and the impacts this will have in international steel markets. Steel production is also down sharply this year in many countries, particularly in Europe. Steel trade has been on a persistent downward trajectory, falling by more than 25% since 2016, despite significantly higher demand. One exception is China which is increasing exports and production despite faltering demand.
While the weakening economic global economic environment is contributing to a bleaker outlook for global steel markets, with the OECD now expecting global economic growth to decline to 2.7% in 2024 from 3% this year, sector-specific challenges are the biggest risks for the steel industry. Five consecutive years of steelmaking capacity growth have led to burgeoning over-investment in the industry, with most of this concentrated in BF/BOF steel production routes. World steelmaking capacity is swelling to a record-high level of 2.5 billion tonnes in 2023, far in excess of steel demand prospects. The OECD projects global capacity to surge by 56 million tonnes in 2023 alone, taking the gap between global capacity and steel production to 612 million tonnes. Regional developments reveal significant rates of capacity growth in Africa, ASEAN and the Middle East, while the world’s two largest steel-producing economies, China and India, are contributing significantly to the aggregate expansion given their larger size.
Unfortunately, the problem of overcapacity is expected to worsen in the future. Global steelmaking capacity is projected to increase significantly over the next three years, with 150 mmt of new capacity investments underway or in the planning stage over the 2024-26 period. Chinese steel companies are investing heavily overseas, specifically in ASEAN and other parts of Asia, Africa, and Latin America. Capacity expansions by Chinese companies in third countries, through cross-border investments, account for more than 65% of total cross-border steelmaking capacity investments taking place around the world. A significant share of the investments are also concentrated in the BF/BOF production method in countries with net zero commitments beyond 2050.
In China, land-use rights, cash grants, cash awards, tax breaks and reduced tax rates are commonly provided by local governments to steel firms to incentivise them to relocate to other regions, modernise their equipment and increase the concentration of the domestic steel industry. This is strengthening “national champions” with considerable global reach that are investing abroad and securing raw material sources and technologies, including through joint ventures. Data show that state involvement in steel firms often comes with much larger subsidies both in the form of cash transfers and below-market borrowing, and thus has a greater potential to worsen the global steel excess capacity issue.
At the same time, the Committee’s discussions with industry stakeholders indicates that growth in global steel demand is expected to decline in 2024, with forecasts being ratcheted down in the wake of lower economic growth projections and risks emanating from the downturn in Chinese steel demand. In an environment where steel demand conditions are softening, in most economies, global excess capacity can trigger deep crises in the steel industry in the future, depressing the financial prospects of the steel industry, exacerbating trade frictions, and putting the long-term viability of steel plants and the livelihoods of their workers at risk in countries affected by global excess capacity.
To ensure greater market stability, the Steel Committee will work to enhance international co-operation to increase awareness about the unsustainability of the excess capacity situation and encourage greater scrutiny of the sustainability of ongoing capacity investments. A key aim of the Committee is to foster healthier conditions for the steel industry, ensuring that it has the resources to invest in product and process innovations for a more competitive and sustainable future.
Members and industry associations noted the ambitious decarbonisation strategies of their steel companies, and the numerous low-emission steel projects currently in motion that will soon employ innovative technologies to lower emissions drastically, including the use of hydrogen in the steelmaking production process. While the steel industry is very advanced in its pathway to decarbonisation compared to many other heavy industries, the Committee noted that governments still need to improve the enabling conditions to accelerate this process, including by addressing market distorting subsidies and excess capacity which undermine the industry’s ability to address this challenge, as well as policies to address companies’ decarbonisation challenges. The crucial role of circular economy to steel decarbonisation was further highlighted, noting that targeted and sectoral policies could support the uptake of circular models in the steel sector.
Another key aspect is to ensure the availability of critical raw materials for the steel industry’s green transition, including strategic inputs such as ferrous scrap (scrap). Participants emphasised the positive role that market forces play in fostering scrap supply, as well as the need to work together to ensure that government policies ensure continued open access to critical minerals, scrap and other inputs needed for decarbonisation, including high quality ore-based metallics and hydrogen. Members endorsed the recently launched OECD Observatory on Steel Supply Chains, which will serve as a platform for strengthening the steel industry’s role in critical mineral narratives.
The steel industry needs a level playing field to address the transformational challenges that lie ahead. Members agreed to accelerate the Committee’s work to build further transparency of market-distorting subsidies and their impacts on the steel industry, and looked forward to working horizontally with other fora, in particular with the Global Forum on Steel Excess Capacity. The Committee will maintain a keen focus on monitoring developments in real time and will explore options to encourage a more level playing field and mitigate the harmful impacts of market-distorting subsidies on trading partners.