OECD: Latin American steel industry in critical state due to growing global overcapacity
Speaking at the “Unfair Trade and its Impact on Latin America” event organized by the Latin American Steel Association (Alacero) and the National Chamber of the Iron and Steel Industry of Mexico (Canacero) held last week in Monterrey, Mexico, Anthony de Carvalho, head of the steel unit at the Organization for Economic Co-operation and Development (OECD), stated that the Latin American steel industry is in a critical state due to growing global overcapacity and market distortions both generated by subsidies from China, which are 10 times higher than in OECD member countries, and subsidies from other Southeast Asian economies.
Projecting that global overcapacity will reach 721 million mt in 2027, Carvalho said, “It could wipe out small and medium-sized steel industries in every country.” Despite that, there plans to continue adding production capacity, mainly in China, India and Southeast Asia, he noted.
The OECD official went on to state that unfair competition from China, where domestic steel demand has declined, leading the country to increase exports, not only affects the steel industry but also impacts key sectors such as automotive and household appliances. He pointed out that in 2024 China exported more than 110 million mt of finished and semi-finished steel, 14.2 million mt of which were destined for Latin America.
“Steel industries with market-based practices are suffering from the lack of a level playing field. We are experiencing overcapacity around the world. This is reflected in plant closures, thousands of layoffs, and economic disruptions. We are facing an existential crisis for the steel industry, and we must take action to preserve the viability and sustainability of the business,” Carvalho concluded.
Hydrogen should be prioritised for steel production: OECD
Hydrogen should be prioritised for steel sector decarbonisation over other possible applications, the OECD says in a new report seen by Kallanish.
It notes that steel needs to compete with other industries in securing limited hydrogen resources, despite the gas being used in the steelmaking process being considered a high value application.
The report says that given its significant potential to reduce emissions by up to 90% in the steel industry compared to other sectors, its use in the steel sector is considered important. It therefore calls for the prioritising of green hydrogen supplies to the industry.
Current hydrogen production is limited, mostly based on fossil fuels, and mostly feeding production processes in other sectors. Renewable or green hydrogen is only available in very limited quantities.
Recent OECD estimates expect excess capacity to reach 630 million tonnes by 2026. This corresponds roughly to the amount of hydrogen-based steelmaking capacity that needs to come online to achieve net-zero goals by 2050 in the most ambitious decarbonisation scenarios for hydrogen-based steelmaking developments.
OECD figures show that a total of 164mt of direct reduced iron capacity is in the planning and construction phase until 2030, of which only 15mt (9.2%) is based on hydrogen. The vast majority is based on natural gas DRI, with some gradually switching to hydrogen as it becomes available for steelmaking.
The range of estimates for carbon neutral steelmaking by 2050 assign a prominent role for hydrogen-based DRI solutions. These range between 370-873mt, corresponding to 20-40% of the estimates for total production in 2050. With subdued global demand projections, the build-up of these capacities needs to be accompanied by the exit of emission-intensive facilities to avoid furthering excess capacity.
The organisation also notes the importance of hydrogen-based projects being located where they make most sense from a market perspective and in regions that are not plagued by excess capacity. The opportunity to use hydrogen in steelmaking should be balanced against other possible decarbonisation routes for the sector, it adds.
While hydrogen-based steelmaking currently faces significant cost and competitiveness challenges, these will likely subside in the future as the technology matures. Cost constraints of green hydrogen should also reduce as access to renewable energy improves and electrolyser costs diminish, it says.
Steelmakers may adopt gradual phase-in strategies to keep up with the pace of developments in green hydrogen markets. It also notes the role governments are playing in bringing hydrogen to the market, with many highlighting the role the fuel will play for the steel sector in their national hydrogen strategies.
It also warns that while the majority of DRI projects are built under the premise of using natural gas as a transition fuel, it is key that support provided is conditional upon the adoption of green hydrogen at a certain stage to ensure that carbon is not locked in.
Carrie Bone UK
Worsening overcapacity forecast shows post-safeguard measure urgency: Eurofer
The need for EU post-safeguard measures has been amplified further by the OECD’s latest finding that excess global steel capacity will grow from 602 million tonnes in 2024 to 721mt by 2027, five times the size of EU production, warns Eurofer.
At its meeting this week, the OECD Steel Committee concluded that growing overcapacity has resulted in a surge in exports of low-priced steel that is threatening Steel Committee members’ production. Chinese steel exports have more than doubled since 2020, surging to 118mt in 2024, while the country’s steel imports plunged by almost 80% to 8.7mt. Profitability continued to decline in 2024 and a growing number of countries have taken trade action.
“Without policy adjustments in countries that are fuelling the excess capacity, or disincentives for them to export their surplus steel, global steel industry problems will intensify,” OECD Steel Committee chair Ulf Zumkley noted after the meeting. Global overcapacity growing to 721mt will put “enormous pressures on the viability of even highly competitive steelmakers”, he continued.
The reduced profitability continues to hamper the steel industry’s available capital and therefore efforts to decarbonise.
“The trends illustrated by the OECD prove that the global steel overcapacity problem not only remains unsolved but it’s constantly and significantly worsening. This unsustainable situation points to the shortcomings of the EU safeguards where the growing disconnection between imports allowed into the EU market and actual demand cannot be addressed,” Eurofer director general Axel Eggert says in a note sent to Kallanish.
As part of its Steel & Metals Action plan published last month, the European Commission said it would present by the third quarter a measure to replace the steel safeguard mechanism from 1 July 2026.
Adam Smith Poland
OECD: Tariffs threaten global economic growth
Geopolitical and policy uncertainty, plus further trade fragmentation, could harm global growth, the Organisation for Economic Co-operation and Development (OECD) warns.
The Paris-based institution says US President Donald Trump’s trade wars are “clouding the outlook” for worldwide economic growth.
“The global economy has shown some real resilience, with growth remaining steady and inflation moving downwards. However, some signs of weakness have emerged, driven by heightened policy uncertainty,” explains OECD secretary general Mathias Cormann. “Increasing trade restrictions will contribute to higher costs both for production and consumption. It remains essential to ensure a well-functioning, rules-based international trading system and to keep markets open.”
In its Interim Economic Outlook, the OECD estimates that global GDP growth should lower from 3.2% in 2024 to 3.1% in 2025 and 3% in 2026. The previous projection was for a 3.3% global GDP growth over the next two years.
With more trade barriers and higher-than-anticipated inflation, annual real GDP growth in the US is projected to “slow from its very strong recent pace” to 2.2% in 2025 and 1.6% in 2026. GDP growth will also slow in the eurozone to 1% in 2025 and 1.2% in 2026. Prospects in China will also soften in 2026 to 4.4% from 4.8% this year, Kallanish learns.
India, however, is set to continue growing, by 6.4% this year and 6.6% in 2026. Indonesia will see the second-largest GDP growth rate at 4.9% and 5%, respectively. Argentina and Germany, meanwhile, will see their GDP shrink by 0.2% and 1.8%, respectively in 2025.
Among several identified risks, the outlook highlights the escalation of trade restrictive measures. If bilateral tariffs were raised further on all non-commodity US imports, and countries retaliated with their tariffs, global output could fall by around 0.3% by the third year, and global inflation could rise by 0.4 percentage points per year on average in the first three years.
“The impact of these shocks would be magnified if policy uncertainty were to increase further or there was widespread risk repricing in financial markets. These would add to the downward pressures on corporate and household spending around the world,” the OECD adds.
To reduce output weakening in advanced and emerging economies, the institution recommends “ambitious structural reforms”. It says governments must enact reforms to improve productivity and enhance the adoption of new technologies by boosting market competition and eliminating excessive regulatory burdens on firms.
“Enhancing education and skills development and reducing constraints in labour and product markets that impede investment and labour mobility will be key. Artificial intelligence (AI) presents a unique opportunity to revive productivity,” it adds.
Resolving global excess capacity is key to steel market recovery: OECD
At the beginning of the SteelOrbis Fall 2024 Conference & 91st IREPAS meeting held in Paris on September 15-17, Luciano Giua, economist and policy analyst at the Organization for Economic and Cooperation and Development (OECD), explained why steel is so important in the worldwide economic scenario.
Since it is a widely used material in the metal industry and in construction, not to mention national defense and security, it is fundamental in the employment of a very high number of people. Mr. Giua noted, adding that this is why governments place such importance on steel and why the industry is particularly vulnerable to protectionist policies. On the negative side, he said, many steel firms that receive subsidies are inefficient and subject to overproduction and they have a very strong impact on emissions.
The OECD coordinates three bodies dedicated to addressing global market steel issues: the Global Forum on Steel Excess Capacity (GFSEC), the OECD Steel Committee, and the Climate Club. The gap between global steelmaking capacity and global steel demand is growing rapidly, Mr. Giua pointed out, stating that the gap amounted to 551 million mt in 2023 and that the forecast for 2024-26 is about 630 million mt.
Steel demand in Europe, he said, decreased last year, still affected by the ongoing repercussions of the Russian aggression against Ukraine, higher energy costs and trade issues, while on a worldwide level the decrease was 1.1 percent in 2023, but the forecast is that the steel demand will grow by 1.7 percent in 2024 and by 1.2 percent in 2025.
Mr. Giua noted that a significant factor contributing to this phenomenon is the support provided to China’s steelmakers through substantial government subsidies, particularly during periods of profit decline. State-owned enterprises (SOEs), in particular, tend to receive more subsidies per asset compared to private enterprises (POEs).
The main party responsible for this phenomenon, Mr. Guia noted, is China as the country’s steelmakers are receiving a lot of government subsidies, especially during periods of profit decline, while Chinese state-owned enterprises (SOEs) in particular receive more subsidies per asset compared to Chinese private enterprises (POEs).
The question is, Giua said, are we facing a new global steel crisis? Compared to 2014/2015, the global context is changing, he stated, with excess capacity happening in an uncertain economic and geopolitical scenario, where BOF-based capacities are growing faster than EAF-based capacities in some regions. He concluded by stating that the GFSEC and the Steel Committee are working with member countries and stakeholders to implement strategies to reduce excess capacity, which would smooth out trade relations, reduce friction among steel trading partners, and contribute to a more cooperative and prosperous global steel market.
