Statement by Mr Jai Motwane, Vice Chairman of the OECD Steel Committee
86th session of the Steel Committee, 25-26 March 2019

 

At its 86th session on 25-26 March 2019, the OECD Steel Committee held in-depth discussions on global and regional steel market conditions, steel trade policy developments, the continuing challenge of excess capacity, technological developments contributing to sustainable practices in the steel sector, and OECD work on subsidies and other forms of government support that contribute to excess capacity in the steel sector. The Steel Committee:

• expressed concerns about the low growth prospects for the global economy and global steel markets, noting that decelerating demand growth and virtually unchanged steelmaking capacity result in a persistence of severe excess capacity in the steel sector;
  
  
• overviewed recent trade measures affecting steel and steelmaking raw materials, with several delegations expressing concern about the impact of certain trade measures on steel trade flows, as well as the effect of these measures in prompting trade measures in other jurisdictions;
  
  
• reiterated the need for further capacity reductions in relevant jurisdictions and for the swift removal of subsidies and other support measures that are distorting steel markets, as the only long-term solution to the structural imbalances in steel markets; and
  
  
• discussed technologies and business practices that are being implemented to help tackle environmental challenges.

 

The outlook for steel markets faces considerable downside risks

The expansion of the global economy lost momentum in 2018. According to the OECD interim Economic Outlook released on 6 March 2019, global GDP growth forecasts were revised downward, to 3.3% for 2019 and 3.4% for 2020. Downside risks include a further increase in trade frictions, high economic policy uncertainty, and a further erosion of business and consumer confidence.

The second half of 2018 saw a marked decline in steel market conditions, with steel prices erasing their earlier gains to fall back to pre-2018 levels. Global crude steel production increased by 4.8% in 2018, while steel consumption growth has been decelerating in most of the large steel-consuming economies. Risks to the steel sector outlook are high, given the pronounced weakening of the global economy, trade frictions, and persisting structural imbalances.

 

With only minor adjustments observed in 2018, global excess capacity continues to be a major challenge for the global steel industry

The latest available data suggest that global steelmaking capacity (in nominal crude terms) remained nearly unchanged in 2018, at 2.234 billion metric tons, following declines in 2016 and 2017. Information on closures, as well as recent reports indicating that some planned investment projects were postponed, led to a slight downward adjustment in the estimate for global steelmaking capacity in 2018. The gap between steel capacity and production is therefore expected to remain high, at 425.5 million metric tons in 2018. However, many new investments continue to take place around the world and others are in the planning stages, including in regions where excess capacity is most prevalent. Should these projects be realised, global steelmaking capacity could increase by 4-5% between 2019 and 2021, in the absence of closures. The Secretariat’s monitoring work shows that foreign investors are the source of a number of these projects.

The Committee reiterated concern about persisting structural imbalances in the global steel sector, and emphasised the need to swiftly remove market-distorting policies that contribute to excess capacity.

The Committee also called for the Global Forum on Steel Excess Capacity to swiftly implement the agreed policy actions to eliminate excess capacity and the market distorting support measures that contribute to excess capacity, and expressed support for the continuation of the Forum’s work.

 

Steel trade declines in most major steel-producing economies whilst trade policy actions continue to increase

Steel trade continues to decline amidst increasing trade actions in the global steel market. Exports from most major steel-producing economies decreased significantly during January-October 2018, compared to the same period in 2017. The year 2018 has been characterised by a significant increase in the number of trade actions related to the steel sector compared to 2017. Several delegates continued to express serious concerns about the effects of trade and other policy measures on steel trade and market conditions in their economies, including the effect of certain measures in prompting trade measures in other jurisdictions.

 

Understanding how subsidies and other government support measures affect steel market outcomes

The Committee discussed its work on subsidies and government support measures directed towards steel.  The Committee is booking progress and will work further on refining the scope and modalities of the work and its content. Better data and analysis in this area could be an important part of the Committee’s work on long-term solutions to tackle excess steel-making capacity.  

 

Efforts to address environmental challenges

The Committee discussed recent technological developments that have been implemented by the steel industry to tackle environmental challenges, as well as business strategies that can contribute to sustainable practices. Delegates highlighted the benefits of exchanging information on industry good practices and examples of cleaner modes of production.