The OECD Steel Excess Capacity Forum (GFSEC) has discussed since its creation, without success, the reduction of the steel overcapacity of the global giant China, Alejandro Wagner, executive director of the Latin American Steel Association (Alacero), told SteelOrbis in an interview.
Wagner said this translates into the loss of jobs in Latin America and prevents lowering levels of global pollution. Additionally, steel production in the region takes off with green steel made in the region, Wagner said.
The problem is huge because, he said, in addition to the steel that China exports to the world, the country is more polluting due to its larger carbon footprint. In addition, because of the direct import of steel, the indirect import of steel in vehicles, appliances and other products already finished with steel from that country must also be considered, Wagner said.
This year, Wagner said at the forum in Paris, France, at the GFSEC held last June, the steel overcapacity is about 580 million metric tons (mt), “it is almost all the steel that is produced in Latin America, including Mexico and Brazil.”
However, the estimated overcapacity for 2025 of 645 million mt. “Not only does it not improve, on the contrary it gets worse every year. Capacity continues to increase and unfortunately it is concentrated in Asia and particularly in China,” Wagner said.
“In all the years that we have been talking (about overcapacity in the GFSEC), the forum is definitely [limited] because, in short, China is not in the discussion. They want to solve a problem focused on the #1 country that produces 56 percent of all the steel in the world, which has 20 to 25 percent of the world's overcapacity, which is the main exporter and importer of steel in the world. However, China is not fully in the discussion.”
The GFSEC was formally created in 2016, but concerns about oversupply were born with China's accession to the World Trade Organization (WTO) in December 2001, more than two decades ago.
Data from the American Iron and Steel Institute (AISI) shows that before China joined the WTO, gross production was 128.5 million mt in 2000 and in 2022 it was 1.02 billion mt. In 2021, China manufactured 53 percent of global steel, in 2022 it increased to 54 percent and until last July it was already producing 57 percent.
That exponential growth was achieved, the AISI said, due to massive subsidies and support from the Chinese government in violation of the commitments to the WTO. In the United States, the direct impact was the loss of more than one million manufacturing jobs between 2000 and 2007. In addition to the erosion of wages in the jobs that remain.
In Latin America, the impact is considerable, Wagner said. According to the most recent statistics, steel imports to the region from China totaled 10.7 million mt.
“It stands out that local production in the region decreased nine percent in the same period,” Wagner said. Steel exports decreased 36 percent and imports remained the same. Production was around 30 million mt.
“In Latin America we have idle capacity to produce much more and better quality steel with lower carbon emissions per ton produced,” Wagner said. “The carbon burden in the region is 1.60 tons of Co2 for every ton of steel produced and China's burden is 2.24 tons of Co2.”
Wagner said that the region has the capacity to produce and consume more Latin American steel with 30 to 40 percent lower carbon load compared to Chinese steel.
However, for the moment the negative impact is multiplied by the indirect import of steel with light vehicles, commercial trucks, appliances or machinery from China,
“There are no updated figures for this problem, but there are estimates that speak of 4 to 5 times more,” he said.
Wagner said that he sees in the recent GFSEC meeting a solution against the scourge of excessive Chinese production. After talking for a day and a half in Paris about decarbonization, that point will be vital, he said.
“It can be a solution because decarbonization is of concern to everyone now and is connected to the issue of excess capacity.”
If decarbonization is a barrier to entry, for Latin America the environment and employment will be taken care of. “Our employees will be well compensated,” he said. “So, we all have to do our homework.”
However, he emphasized that "regardless of what China does, Latin America has pending discussions country by country and also as a bloc, be it NAFTA, Mercosur, ALADI, including Mexico because it is still not clear what position we have regarding to those magnifications of China, at least in the steel sector.”
“We (Latin America) do not have a supply problem, we have a demand problem. We could have a greater demand for steel, but due to internal problems and imports from China, the expansion is limited.”
Wagner said that at the production level, the region is competitive with steel producers in Asia. However, in Latin America it is very expensive to move a ton of steel from one state to another in Brazil, Mexico and Argentina.
“The tax pressure is hellish, a higher financial cost and lower productivity of human resources, the result was worse in Latin America than in Asia,” Wagner said. “The country that suffered the least was Mexico.”
Wagner mentioned that the steel value chain must be protected. He even commented that given the region's natural resources they will play a relevant role in producing steel with a lower carbon footprint, something that other regions of the world currently lack.