OECD Steel Committee: Growing risks of recession amid declining steel prices and energy crisis

Thursday, 22 September 2022 12:22:08 (GMT+3)   |   Istanbul
       

At its 92nd session held on September 19-20, the Steel Committee of the Organization for Economic Co-operation and Development (OECD) discussed the growing risks facing the steel market outlook and ways to respond to the emergence of a steel crisis, caused by factors including rising energy costs and growing excess capacity. The committee also discussed the impact of the war between Russia and Ukraine. The OECD Committee expressed concerns about the sharp downturn in world steel markets and emphasized the need to prevent a potential exacerbated steel crisis from emerging in the short to medium term, exacerbated by rising energy prices but also a range of inflationary factors.

The committee stressed that the global steel industry is facing growing risks of recession, particularly as a consequence of the ongoing war in Ukraine. Global steel consumption has contracted significantly, while steel producers’ profitability is coming under considerable strain along with sharply declining steel prices and surging energy costs driven by the impacts of the war in Ukraine. The committee discussed the impacts of the sanctions introduced by several OECD countries, including the steep contraction of steel production in Russia, but also raised some concerns about the potential for trade circumvention of such measures. Additional negative factors for international markets include the sharp and prolonged downturn in China’s real estate sector, which is depressing steel consumption.

Adding to the oversupply pressures, there has been a rapid growth in new crude steelmaking capacity in other parts of the world, mostly in the Middle East, South Asia and Southeast Asia. The OECD Committee stated that global steelmaking capacity is expected to increase in 2022 for the fourth year in a row, rising by almost 30 million mt to 2.45 billion mt. Up to 144 million mt of additional capacity that may come on stream during 2023-25 will be a further concern. As excess capacity is expected to increase in the coming years, with weak steel demand coupled with further increases in steelmaking capacity, the committee discussed the need to refrain from measures that would exacerbate over supply pressures in markets, including subsidies and other support measures that stimulate steel production, production and capacity targets that will likely overshoot demand prospects, and restrictive trade policies on raw materials. The committee also noted that efforts should be made to ensure that policy support to encourage low-carbon steelmaking does not lead to net capacity increases that would exacerbate global excess capacity and contribute to trade frictions.


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