The OECD says member countries consider excess capacity as being one of the main challenges facing the global steel sector today. A paper released by OECD examines the extent, causes, and impacts of excess capacity in the global steel industry, and provides detailed information on new investment projects that are taking place around the world in order to help governments and industry better understand the extent to which excess steelmaking capacity may evolve in the future.
The results indicate that global steelmaking capacity will continue to expand, with regions that are currently net importers of steel products expected to record the largest capacity increases. Of particular importance for governments in this context will be to work towards removing market distorting policies such as subsidies that promote the emergence of new capacity or delay the closure of failing companies. The main findings of this paper are:
- Excess capacity remains high. The global steel industry’s capacity to produce steel has more than doubled since the early 2000s to support growing construction and manufacturing activity, as well as to help build infrastructure particularly in emerging economies. Global nominal steelmaking capacity is projected to increase to 2.36 billion tonnes by 2017, up from 2.16 billion tonnes in 2013.
Non-OECD economies will continue to lead the capacity expansion in the global steel industry, with their share of world capacity expected to increase to 71.4% by 2017.
- Government interventions are contributing to global excess capacity. Specific concerns related to government steel policies include continued government subsidies (notably subsidies for the creation of new capacity or the maintenance of inefficient capacities) and continued approvals for new steel facilities. Governments have also noted that trade related measures, constraints on foreign investment, and the activities of government financial agencies are also contributing to global excess capacity and creating difficulties for the industry in addition to weak market conditions.
- Excess capacity is hurting the global steel industry. Excessive levels of steelmaking capacity have important implications for the steel industry, resulting in over-supply, low prices, weak profitability, bankruptcies and localised job losses. Given the global nature of the industry, excess capacity in one region can displace production in other regions, thus harming producers in those markets and creating risks for trade actions and government interventions to protect domestic industries. It can also lead to wasteful energy use and thus have negative environmental impacts.
- What should be done? In competitive economies, it is the responsibility of the steel companies themselves to identify ways to adapt to changing market conditions. The role of governments should be to allow market mechanisms to work properly and avoid measures that artificially support steelmaking capacity. Of particular importance for governments will be to work towards removing market distorting policies such as subsidies that promote the emergence of new capacity or delay the closure of failing companies, eliminating trade and investment barriers that slow the restructuring that is needed for the industry, allowing market-based investment decisions in the steel sector, and ensuring that new plan