OECD warns against steel overcapacity

Global steel overcapacity could reach 700mn t this year, according to the OECD steel committee.

Steelmaking capacity could increase to 2.45bn t/yr in 2020. Together with production decreases because of the Covid-19 pandemic, this could see surplus production reach 700mn t this year, the organisation said.

The committee also noted investment projects in the Middle East and Asia coming on line this year, which will add 16mn t/yr and 16.4mn t/yr of capacity, respectively, aggravating the problem. There are concerns that such projects were commissioned on the premise of expected growth in demand, which may not materialise in the current market.

The divergence of China from global steelmaking trends has added to these concerns. While most major steel-producing economies have experienced production declines because of Covid-19, Chinese production has emerged from the pandemic relatively unscathed. Chinese crude steel production between January and August was 688mn t, up by 3.7pc on a year earlier. Chinese inventories also increased on last year to historically high levels, a trend delegates fear will exacerbate global imbalances resulting from the Covid-19 global demand shocks.

Delegates at the 88th session of the OECD's steel committee also criticised what they viewed as "market-distorting" government support measures and subsidies. The committee claimed such policies place the long-run viability of producers at risk and impede the structural adjustment necessary to clear global overcapacity. On this point, the steel committee recognised that the work of the global forum on steel excess capacity is becoming increasingly important.

By Sam Angell