At its 89th session held virtually on March 18-19 and 22-23, the Steel Committee of the Organization for Economic Co-operation and Development (OECD) discussed the situation and the outlook of the global steel sector, the challenges facing the global steel industry including market-distorting government interventions and growing excess capacity, and policy approaches to ensure a fair playing field in the sector. The committee also discussed the impact of the coronavirus on steel markets, steel trade policy developments, and steelmaking capacity trends. The OECD expressed grave concerns about the deterioration of steel market conditions related to the coronavirus and the uncertainties associated with the timing and pace of the steel market recovery.
The committee stressed that market-distorting government interventions and support measures as well as the resulting excess capacity have contributed to significant distortions in steel trade flows and can hinder structural adjustment. These interventions contributed to trade tensions.
The latest available data from the OECD show that global steelmaking capacity increased to 2.45 billion mt in 2020. The committee stated that the gap between global steelmaking capacity and crude steel production increased to 625.4 million mt last year. The committee noted concerns that a number of planned capacity increases are premised on expectations of strong increases in future demand, with many investments being supported by governments and not driven by market considerations. Several of these investments create a significant risk of exacerbating the excess capacity situation and raise the likelihood of supply further overshooting the true needs of the market.
In the OECD’s March 2021 Economic Outlook, it is forecast that world GDP will rebound by 5.5 percent in 2021 and by four percent in 2022. Most major steel-producing economies experienced significant contractions in steel production last year due to the coronavirus. While steel prices declined in 2020, they have recently increased as steelmaking capacity idled during the height of the pandemic could not be brought online quickly enough to meet recovering steel demand and restocking activity. Global steel demand is expected to recover only partially in the near term, with the level of finished steel demand in 2021 expected to remain below pre-pandemic levels in most jurisdictions. Besides risks related to the pandemic, the main risks to the steel market outlook include the impacts of growing global excess capacity, supported by harmful government subsidies and investment policies that are putting the long-run viability of producers at risk, and should therefore be addressed urgently, according to the Steel Committee.