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Current trends will increase the gap between global steelmaking capacity and demand further, pushing a “flood” of relatively high-carbon steel on to international markets and having a very detrimental impact on the steel industry, according to Anthony de Carvalho, head of the steel unit and senior economist at the OECD.

Excess steel capacity is getting worse as demand for steel is overall slow while capacity growth is accelerating, with most of the expansion using technologies that have higher CO2 emissions, de Carvalho told the EUROMETAL conference in Istanbul on March 5.

According to de Carvalho, capacity could increase by 158 million mt/year over the next two years, while demand is expected to increase by about 36 million mt based on the latest worldsteel forecast of a 1.8%-1.9% growth rate. The gap between capacity and demand was already more than 500 million mt in 2023.

“We see that the gap between capacity and demand is increasing further and what we notice is that the excess capacity is now very targeted on CO2 intensive production routes,” he said.

He noted that the last five years of capacity growth has seen significant expansion in developing Asian countries such as Vietnam, Iran and Indonesia as well as Iraq and other Middle Eastern countries.

“Countries that were considered relatively small steel players are getting bigger,” de Carvalho said, with the majority of the capacity growth into the blast furnace based route. “I think that accounts for about 70% or so of the Asian capacity increases.”

Most of the capacity growth is driven by foreign investments, he added. “So it’s the Chinese steel companies that are investing heavily in Southeast Asia,” he said explaining that this new capacity would be not absorbed by the countries’ domestic demand.

In contrast, capacity growth in other regions is more moderate and also more focused on the lower-emissions electric arc furnace production route.

He said that the resultant “flood” of relatively high-carbon steel on the international steel market in the next few years would have a very detrimental impact on the steel industry.

“We’re at the same low [profitability] levels that we saw when this excess capacity emerged in 2015 and 2016. It’s just not sustainable because the steel industry needs to have much higher operating profit ratios — 5% maybe higher — if it wants to reinvest in process innovations [and] product improvements, especially if it wants to shift to low-carbon steel production. So at the moment, this is just completely unsustainable,” he said.

The OECD is set to release a study on March 8 detailing how excess capacity hurts the profitability of the steel industry.

Turkish steelmakers are targeting 2024 production in line with levels last seen in 2021 on strong domestic demand and the normalization of energy prices, according to Veysel Yayan, general secretary of the Turkish Steel Producers’ Association.

Speaking to S&P Global Commodity Insights on the sidelines of the EUROMETAL event in Istanbul, Yayan was also bullish on demand growth.

In 2021 Turkish crude steel production totaled 40.4 million mt and domestic consumption 33.4 million mt. Two years later consumption had grown to 38.1 million mt, whereas production had dropped to 33.7 million mt despite an installed capacity of 59.3 million mt.

“Imports, especially flat steel imports, are too high in Turkey,” Yayan said. “In particular, the share of imports in flat steel consumption exceeded the level of 47.7% [in 2023].

“While it will take time to have safeguard practices similar to those in the EU or the US, we hope to achieve the same approach as soon as possible, in order to be in a position to utilize the demand opportunities in our domestic steel market,” he said.

Turkey’s ministry of commerce on Oct. 31 opened an antidumping investigation against imports of hot-rolled coil from China, India, Japan and Russia.

“During the second half of the year, it will be clear whether the antidumping duties will be applied or not,” Yayan said. “If applied, the antidumping duties will support steel production.”

In 2023 flat steel consumption in Turkey amounted to 19.5 million mt. Of that figure, 9.3 million mt was imported, with 3 million mt coming from China, according to the association.

Talking about the energy transition, Yayan said the EU had put Turkey on the same level as developing countries, but that since most of Turkey’s steel production is electric arc furnace-based, this should not be the case, since the EAF route produces fewer emissions. Additionally, Yayan called on the government to support companies in their energy transition goals.

“The World Bank has allocated a $560 million financing package for the green transition but this covers all sectors — this amount will not be enough,” Yayan said, adding that according to the World Bank, Turkey needs around $65 billion in resources to achieve its net-zero goals by 2050, mainly to help companies in their Scope 2-related energy use for EAFs.

During the conference, Yayan also stressed that Europe should not subject Turkey to the same safeguard systems as China, Vietnam, Taiwan and South Korea, considering its low emissions and the free trade agreement with the EU.

Author: Annalisa Villa, annalisa.villa@spglobal.com

spglobal.com

While using scrap is a key route to decarbonise the steel sector, there will not be enough of the material to produce the required amount of “green” steel in the future, industry experts have warned.

They were speaking at the Kallanish Green Steel Forum held in London this week.

“There’s just not going to be enough scrap to produce the amount of green steel that we want,” said Julian Verden, managing director Europe at Stemcor Group and EUROMETAL board member.

While the UK, for instance, produces 12 million tonnes of scrap, around 8mt of it is exported, he said. If, as planned, Tata Steel’s Port Talbot steelworks shifts from blast furnace-basic oxygen furnace steelmaking to scrap-EAF steelmaking, less scrap will be available for export. Similar changes are being seen elsewhere.

“There isn’t going to be enough scrap to move around the world,” Verden added.

Luciana Filizzola, director of sustainability and communications at GMH Gruppe, stressed the need to secure long-term scrap supply in Europe.

“We export a lot of very good scrap to Turkey, India, and to many other countries,” she said. “Why can’t we secure our scrap here in Europe? By 2030-2050 there will not be enough scrap – what are we doing exporting it? We need to keep it here.”

Germany-based GMH claims to produce green steel from almost 100% scrap melted in its electric furnace, with an ambitious target to produce CO2-neutral steel by 2039.

However, Åsa Ekdahl, head of environment and climate change at the World Steel Association, argued it is essential to use the scrap where it would be most beneficial to cut carbon emissions.

“We see the tendency that countries are wanting to restrict their exports of scrap,” Ekdahl said. “I want to make it very clear to everyone that there is no steel scrap available today that is not being used.”

“So, we have a very high collection of recycled waste, which is estimated to be about 85% – which is most of what you can find. It’s important that what we’re talking about really is moving this scrap around and we need to make sure it is used where it has the most benefit,” she concluded.

Reethu Ravi UK

kallanish.com

FIMIGroup, a leading manufacturer of metal processing machinery, today announced the acquisition of FRANCI Spa, a leading Italian manufacturer in the field of design and construction of moulds and equipment for the automotive sector, production of mechanical components for industrial plants and hydroelectric power stations as well as special mechanical processing.

Resolving cost-related challenges will be key to decarbonising the steel industry and advancing the adoption of green steel, according to panellists at the Kallanish Green Steel Forum held in London on Tuesday.

“The only way to successfully decarbonise steel is to make green steel [cost] competitive,” says Giacomo Mareschi Danieli, ceo of Danieli Group.

Luciana Filizzola, director of sustainability and communications at Germany-based GMH Gruppe notes that high electricity costs in Europe hinder investments in climate-neutral technologies. Calling electricity prices in Germany a near “nightmare,” she adds that the current prices in the country are nearly five times higher when compared to countries like the US and China.

Moreover, only around 40% of the electricity currently produced in Germany is renewable, she says, adding, “We need much more renewable energy—this is a very tough problem for us.”

“Unfortunately, when we look ahead, we see the prices will continue to be high because soon, the primary routes will need green hydrogen, [which] needs green electricity, so demand is huge,” Filizzola explains. “We have no answers yet on where the renewable energy is coming from. This is very worrying.”

Echoing similar sentiments, Julian Verden, managing director of Europe at Stemcor Group and EUROMETAL board member, highlights the disconnect between end-users’ interest in green steel and the high costs of hydrogen technology, hindering the fuel’s widespread adoption in the steel industry.

“In Europe, if the average cost today [for hot rolled coil] is around, say €700-800, the cost for a pure hydrogen green might be €1,000 more—that’s really unaffordable,” he notes.

“What we need to do is persuade governments to provide electricity subsidies but also to provide the investment so that more money can be brought into technologies, which, although advancing very well, is still not there yet,” Verden adds. “Unless we can resolve that problem [of cost], we are not going to get anywhere.”

At the same time, Åsa Ekdahl, head of environment and climate change at the World Steel Association, stresses that while hydrogen will play a major role in decarbonising the steel industry, it is important not to forget other technologies. For example, electrolysis of iron ore, which, although less developed, “will have potential in the future.”

“In some places, biomass could be important, such as in Brazil. But there are also, combinations of these technologies that you can use,” she adds.

Reethu Ravi UK

kallanish.com

At the EUROMETAL Steel Day & YISAD Flat Steel Conference held at Istanbul Marriott Hotel Asia on Tuesday, March 5, in cooperation with SteelOrbis and with nearly 300 participants, Professor Roland Döhrn, independent researcher at the University Duisburg-Essen, shared his evaluations regarding European economic and steel trends.

The macroeconomic environment

Prof. Döhrn’s assessment of the global economy painted a picture of ongoing fragility, with growth remaining below long-term averages. Notably, world trade experienced a significant decline, attributed to factors such as the in-sourcing of services, rising trade restrictions, and escalating shipping costs. Moreover, inflation is still above target in many countries, and the inflation forecast for 2024 has been revised upward steadily.

Despite some optimism surrounding the US economy, characterized by a stronger-than-expected performance and robust job growth – and the absence of recession even in a year with presidential elections – challenges persist, said Roland Döhrn, particularly in China, where issues in the real estate sector and demographic concerns loom large. Moreover, China is witnessing a re-direction of trade by major trading partners, and it can benefit less from the adaptation of technologies.

“Geopolitical risks continue to exert pressure on global economic stability, as evidenced by the Matteo-Iacoviello geopolitical risk index” commented Prof. Roland Döhrn, “but it can still experience some surprises (as happened with the Russian war in Ukraine).” Within the European Union, modest growth and a slow recovery are anticipated, with GDP projections indicating a marginal uptick after a period of decline in several member states. However, uncertainties surrounding monetary policy and lingering doubts about economic prospects remain prevalent. Therefore, forecasts for 2024 have been revised downward and currently the European Commission seems to be more optimistic than professional forecasters.

The euro area grapples with less favorable monetary conditions, marked by multiple interest rate hikes by the European Central Bank (ECB) to combat inflation. Consequently, borrowing costs have risen, contributing to declines in property prices and an uptick in bankruptcies. GDP forecasts show a positive revision for Spain, while a negative one for Italy, France and – above all – Germany.

Inflation remains, according to Prof. Döhrn, a critical issue in the current economic landscape. Despite some signs of moderation, inflation persists at an elevated level. The European Commission exhibits in this case a more skeptical outlook compared to professional forecasters, suggesting potential heightened concerns regarding price stability. High inflation is increasingly translating into higher wages, with potential implications for economic and social dynamics.

The steel demand and the steel market

In the EU, while production in steel-using sectors has experienced only a moderate decline so far, recent trends in leading indicators paint a less promising picture. The economic environment for the steel sector is expected to remain challenging, with leading indicators suggesting a continued deterioration in the first quarter of 2024, particularly in steel demand within the construction sector, which is anticipated to contract.

Moreover, Prof. Döhrn explained how the global steel market experienced a mixed start to 2024, with production declining, remarkably in China, while showing modest growth elsewhere. In the EU, trends indicate a downward trajectory in crude steel production, coupled with volatile imports and a decline in apparent consumption for the second consecutive year. EUROFER’s forecasts offer a somewhat optimistic outlook, anticipating a rebound in steel consumption, interpreting the difference between growth of steel weighted production and apparent consumption as a stock cycle, but, according to Döhrn, the change goes beyond that.

One of the key challenges facing the steel industry is the decline in specific steel consumption, attributed to various factors such as advancements in energy-saving technologies and changing production patterns among steel users. “Distinguishing between cyclical and fundamental drivers of this decline remains a subject of ongoing inquiry” concluded Prof. Döhrn, “highlighting the complexity of the current economic landscape.”

At the EUROMETAL Steel Day & YISAD Flat Steel Conference, held at Istanbul Marriott Hotel Asia on Tuesday, March 5, in cooperation with SteelOrbis Mr. Anthony de Carvalho stated that steel overcapacity is having negative effects on markets and emissions, by causing the former not to function properly – due to bad organization in terms of resources and supply – and the latter to grow uncontrollably, having implications for the climate.

Analyzing the current steel demand situation, Mr. de Carvalho stated that the global steel demand situation is weak due to the slowdown in world economic growth, high inflation, and interest rates. Although global steel demand is slowly recovering, it is still not growing fast enough to keep up with the overcapacity growth rate.

On the other hand, de Carvalho noted, steelmaking capacity keeps rising mostly in technologies that emit higher CO2 on average than others. In the meantime, current trends are widening the gap between capacity and demand, which might result in a flood of relatively high-carbon steel exports in international steel markets in the next few years, with a squeeze on steelmakers’ profitability.

The OECD’s outlook for steel capacity expansion until 2026 sees Asian countries in the first place – especially ASEAN and India – with a growth of almost 90 million mt. The negative aspect is that around 65 million mt will still be produced using very polluting BOF technologies, whereas the rest of the world’s production is becoming more and more EAF-based.

The potential increase in capacity amounts to 158 million mt in 2024-26, and the gap between capacity and demand is more than 500 million mt. Last year, the global excess capacity – with China as the major producer – was equal to 504 million mt, which is higher than the combined production of major global steel producers and the global steel trade, that involved 282 million mt. If it keeps going like this, China risks wiping out all the other countries’ production in the global market, explained De Carvalho.

Impacts of excess capacity on world steel markets

In a study released on Friday, March 1, the OECD illustrated an empirical model to study the impacts of excess steel capacity on the world steel markets, which can be summarized with a quote from Mr. de Carvalho: “Excess steel capacity is causing non-sustainable profitability levels, and the steel industry needs better operating profit ratios in order to improve low-carbon steelmaking.” In the above mentioned study, the OECD also hypothesized what would have happened if global excess capacity had not surged, concluding that utilization rates and revenues would fall at the beginning, but in the end they would be at healthy levels – higher than the actual ones.

The preliminary results of the study show that steel stock prices also fell below predicted values in most cases, indicating a negative impact on profitability.

To conclude, global excess capacity is causing steel producers to have lower aggregate domestic market shares, a decrease in domestic utilization rates, reduced revenues and profits, as well as inconclusive impacts over other countries’ steel exports.

The changing nature of excess capacity

De Carvalho explained that the carbon intensity of excess capacity is also growing and at the same time trade policies are increasingly focusing on the carbon footprint. That is why excess capacity is hitting the steel industry with a wrong timing, as the latter is trying to focus on decarbonization. This could lead to accelerating government subsidies to support green steel in impacted countries, policies aiming to boost domestic supply of raw materials, and a greater focus on raw materials on the pathway through decarbonization.

Last year, the GFSEC signed a new three-year mandate and started a substantive work aimed to handle this problem, also outreaching to non-member Asian countries who want to participate, as the overcapacity issue is affecting them as well.

In the third quarter this year, the GFSEC will hold a ministerial meeting to develop tangible options to address overcapacity.