Renewed market weakness amid China slowdown concerns OECD

The OECD Steel Committee expressed grave concern this week about the deterioration in global steel market conditions currently being driven by growing overcapacity, softening demand for steel, and government interventions in some economies, Kallanish notes.

The gradual recovery in global steel market conditions that began earlier this year was short-lived, with China’s post-Covid economic rebound not living up to expectations. The latest data point to renewed weakness in steel market conditions. Demand is starting to falter amid growing concerns over China’s real estate crisis and the impact this will have in international steel markets, the committee chair summarised after the 94th session.

Five consecutive years of global steelmaking capacity growth have led to burgeoning over-investment in the industry, with most of this concentrated in BF/BOF steel production routes. World steelmaking capacity is swelling to a record-high level of 2.5 billion tonnes in 2023, far in excess of steel demand prospects, according to the OECD. The organisation projects global capacity to surge by 56mt in 2023 alone, taking the gap between global capacity and steel production to 612mt.

“In China, land-use rights, cash grants, cash awards, tax breaks and reduced tax rates are commonly provided by local governments to steel firms to incentivise them to relocate to other regions, modernise their equipment and increase the concentration of the domestic steel industry. This is strengthening ‘national champions’ with considerable global reach that are investing abroad and securing raw material sources and technologies, including through joint ventures,” the OECD chair observes.

“Data show that [Chinese] state involvement in steel firms often comes with much larger subsidies both in the form of cash transfers and below-market borrowing, and thus has a greater potential to worsen the global steel excess capacity issue,” the summary adds.

Growth in global steel demand is expected to decline in 2024, with forecasts being ratcheted down in the wake of lower economic growth projections and risks emanating from the downturn in Chinese demand.

While the steel industry is advanced in its pathway to decarbonisation, the Committee noted that governments still need to improve the enabling conditions to accelerate this process. This includes addressing market distorting subsidies and excess capacity which undermine the industry’s ability to address this challenge.

Another key aspect is to ensure the availability of critical raw materials for the steel industry’s green transition, including strategic inputs such as ferrous scrap. Participants emphasised the positive role that market forces play in fostering scrap supply, as well as the need to work together to ensure that government policies ensure continued open access to critical minerals, the chair’s summary concludes.

Adam Smith Poland