States continue to encourage steel overcapacity: OECD panellists

Trade barriers are leaky, subsidies difficult to counter, and excess steelmaking capacity is growing again, according to a session of the Global Forum on Steel Excess Capacity (GFSEC) held by the OECD this week and moderated by Kallanish.

Panellists at the Paris event also noted there remain incentives to locate steel capacity in the wrong areas and with the wrong technologies, and that new capacity would be difficult to replace.

Subsidies are continuing to distort steelmaking capacity, warned Alan Price, partner at Wiley Rein. There is a risk that subsidies are justified for being “green” and distort markets further. He noted that in China, support for steelmakers often has an environmental angle, even if it results in an expansion of polluting capacity. In order to be justified, subsidies should only be used for pre-commercial technologies such as hydrogen, and not for established technologies such as scrap-EAF or even DRI plants, he argued.

Martin Theuringer, managing director of German steel association WV Stahl, said that both subsidies and trade protection were often misaligned and not enough to carry out the steel industry’s transition to a greener model.

Trade measures such as the Carbon Border Adjustment Mechanism (CBAM) could only make the cost of producing steel through polluting methods equal, and could risk incentivising less green capacity to remain in production.

The German steel industry is meanwhile is pressing ahead with the transition away from traditional blast furnace-basic oxygen furnace steelmaking despite the blow of high energy prices and a lack of sufficient policy support, Theuringer added.

Meanwhile, in Southeast Asia, the steel industry is transitioning to a more carbon-intensive model, warned Yeoh Wee Jin, secretary general of the South East Asian Iron and Steel Institute (Seaisi). The region is seeing surging BF-BoF steelmaking capacity, driven largely by Chinese firms which have been rewarded for closing capacity in mainland China.

This is going to result in both overcapacity and in a surge in carbon emissions from the industry, he noted. The only way to overcome this is for local governments to become stricter in assessing investments, and insisting on new and greener technologies being used.

The efficacy of trade measures in ensuring a level playing field was meanwhile questioned by James Campbell, principal analyst at CRU. “Trade will find a way,” he noted. Whatever barriers are in place, trading companies are very creative in getting around. Sometimes this could be pushing the boundaries of trading norms, but sometimes this could be as simple as redirecting trade from new suppliers.

All panellists agreed that the problem of overcapacity is likely to remain for some time.

Tomas Gutierrez UK