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Global Steel Industry Excess Capacity Crisis

30 May 2016

Leading national steel associations call for coordinated government actions and urge China to join the dialogue.

The global steel industry should reduce the existing excess capacity and world governments should introduce policy measures to promote structural adjustments within the industry. That was the main conclusion of the High-Level Symposium on Excess Capacity and Structural Adjustment in the Steel Sector held in Brussels by the Organization for Economic Cooperation and Development (OECD) and attended by high-ranking officials and industry representatives from nations that are major producers, consumers, traders, and suppliers of raw materials for the steel industry.

The world steel markets face very weak demand as the production capacity is increasing, which results in serious difficulties for the global steelmakers, according to a statistical report by the by World Steel Association and the OECD.

In 2015, the global nominal crude steelmaking capacity grew to 2 371 million tons while the steel prices in specific product categories lost 20% during the same period, the OECD said. The current market conditions resulted in rising pressure on profitability while most other manufacturing industries perform better than the steel industry. The overall production of crude steel decreased in 2015 and the capacity utilization rate of the world producers fell to 67.5% in the past year, compared to 70.9% in 2014.

The global steel industry is facing further challenges following the steady growth of imported products in some markets, which led to introduction of antidumping and safeguarding measures preventing the free trade and complicating the overall trade process.

Former European Commissioner for Industrial Affairs and Energy Étienne Davignon suggested the world steel industry could learn from the policy decisions made by the EU in the 1970s and 1980s, a period when Europe introduced restructuring measures aimed at reducing the production capacity and improving competitiveness. He also pointed out that the global steel industry could follow the example of Europe to deal with the layoffs of workforce caused by the current market situation. For their part, some industry representatives asked for multilateral introduction of long-term industrial strategies that would involve stakeholders representing the governments and the steel industry, as well as implementation of processes and procedures ensuring that only those steel producers that show steady financial results would withstand the current crisis.

Another key measure would be the introduction of an objective monitoring system to register and evaluate the dynamics of net capacity, steel industry representatives said. Such a system could be supervised by an independent organization such as the OECD, experts suggested.

“The steel market is in a state of crisis resulting, primarily, from massive global excess capacity, much of which has stemmed from trade distortive government policies and actions… Most of these countries - many of them major steel producers –- share the view that excess capacity, and government measures that give rise to it, underlie the current crisis.”, Penny Pritzker, U.S. Secretary of Commerce, said after the meeting.

According to most of the high-ranking government officials, their respective governments should introduce measures to maintain the competitiveness and sustainability of their national steel industry, which on average contribute a significant portion of their nation’s gross domestic product. The government representatives agreed that the current crisis is temporary and is caused by cyclical and structural factors. Étienne Davignon highlighted that Europe’s steel industry crisis in the 1970s and 1980s also had been temporary while the timely and appropriate restructuring measures introduced in that period resulted in positive outcomes for the industry as a whole.

Government officials and steel industry representatives from Canada, the European Union, Japan, Mexico, the Republic of Korea, Switzerland, Turkey, and the U.S. agreed that effective solutions are required to solve the issue of the excess capacity. On the other hand, the industry is not prepared to accept increased government intervention on the market and instead is asking for market-based restructuring and implementation of mechanisms that allow better exchange of information. Some industry delegates warned against the use of subsidies as a tool for market correction, while government representatives called for convening a high-level forum of all important steel-producing economies in September 2016 where further measures to be discussed.

“We believe that continued multilateral engagement towards meaningful action to address the causes of the current excess capacity problem is crucial to achieving stability in the sector,” commented Joseph Galimberti, President, Canadian Steel Producers Association.

Following the Brussels meeting, a number of high government officials issued statements on the measures required to solve the current excess capacity crisis. U.S. Secretary of Commerce Penny Pritzker and U.S. Trade Representative Michael Froman asked China to intervene in her steel market and reduce excess production and capacity to avoid countermeasures by the U.S. and other major steel producers, which policies will be aimed at protecting domestic industries and workers. China did not attend the OECD meeting in Brussels but Pritzker said the U.S. would work directly with Beijing on measures and policies to strengthen the global steel industry. China’s expanding steelmaking capacity led to doubling of the global excess capacity in the past fifteen years, where the amount exceeds the combined crude steel production of the United States, the EU, Japan, and Russia.

The steel associations of the U.S., Canada, Mexico, Latin America, Brazil, Europe, Turkey, and Korea issued a joint statement urging Beijing to participate in further discussions, stating that at present China holds nearly 50% of the global steelmaking capacity. The steel industry also expressed interest in introduction of more accurate long-term forecasts on demand and supply. The Canadian Steel Producers Association (CSPA) said in their statement that a major achievement of the meeting was the agreement on the need of removing market-distorting policies and introducing higher transparency level in the steel industry by the governments.



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