Decarbonisation adds to ‘fragile’ EU market facing overcapacity
The “fragile” European steel market is facing a crisis more severe than the financial downturn, with margins shrinking amid growing overcapacity at a time when steelmakers are needing to fund decarbonisation plans, Kallanish learns from a recent webinar.
The webinar, organised by Eurofer and hosted by Euractiv, heard panellists urgently calling for the European Commission to take action to support the sector, which has become uncompetitive amid high energy costs and large investments required to decarbonise.
Mario Arvedi Caldonazzo, vice-president of Eurofer, and chief executive of Arvedi, said: “The European steel industry is experiencing the most severe crisis since the 2009 financial and economic downturn. It is a real existential issue now.”
Caldonazzo pointed to the spillover effects of overcapacity in China into other markets, from where imports into Europe have now surged.
“We can’t compete against the Chinese state, because the Chinese steel industry is basically state owned and is completely subsidised by the central government; this is [an] unfair practice, and we have to react immediately,” he said.
“Europe lacks competitiveness. The high energy costs, the lack of raw materials such as scrap, which is the critical and strategic raw material for guaranteed transformation, conversion for our steel industry,” he added. “On both issues, energy and raw materials, the Commission has to intervene.”
Overcapacity was also noted by Giorgio Gori, MEP and vice-chair of the ITRE Committee. “The overcapacity is a huge threat to the survival of the European steel industry and requires appropriate measures to protect our production,” he observed. He also cited the significantly higher cost of energy than competitors, the difficult access to raw materials and the lack of public investment.
The industry move towards decarbonisation was also putting additional pressure on the European market.
“We added to a fragile situation which is now speeding up the problem. We added a market intervention which is unseen before when we said we want to decarbonise the steel industry in a decade,” said Christian Ehler, MEP and member of the ITRE Committee.
Caldonazzo also noted that public grants were difficult to access for decarbonising European companies despite support being announced as part of the Green Deal in 2019. He added that if decarbonisation is the priority for the EU, then companies need market defence, with the high costs of green steelmaking making the market uncompetitive.
Meanwhile, Judith Kirton-Darling, general secretary of IndustriAll, said of the European steel industry: “This house is on fire and unless we bring in the fire brigade right now the house will burn down.”
She called for action “at pace” and noted the danger of deindustrialisation and the geopolitical consequences of losing the strategic steel industry as a key energy transition material.
“We really need the new Commission to arrive running on the defence of this strategic industry,” she said. “We can’t wait any longer.”
“We are now in the real danger zone where if political decisions are not being taken right now, we risk major investment decisions going elsewhere in the world,” she added.
Kirton-Darling also pointed to the lack of an industrial policy attached to the targets set by the Green Deal. “You can’t have a target without an industrial strategy of how you reach the target.” However, she did see a way forward through the steel action plan. “The elements are there on the table. There is a question of sequencing. We need all the parts of the action plan on the table to have coherence,” she said.
Gori noted that the Commission needs to help create a green steel market and put forward the demand through public procurement and incentivise its use. Kirton-Darling also echoed this, stressing that from day one for the new commission, things like public procurement “are really low hanging fruit”.
Carrie Bone UK
EUROFER calls for urgent trade actions to address Global Steel Overcapacity
The European Steel Association (EUROFER) is calling on countries involved in the Global Forum on Steel Excess Capacity (GFSEC) to take immediate and decisive trade measures in response to rising global steel overcapacity.
Newly released data from GFSEC indicate that this issue continues to worsen, putting thousands of jobs at risk and distorting the global steel market, especially in Europe.
EUROFER’s Director General, Axel Eggert, emphasized that market forces alone cannot resolve the overcapacity problem. He urged GFSEC countries to adopt a comprehensive strategy that includes unilateral trade actions, particularly targeting nations that have withdrawn from the forum or continue to export excess steel. “The open market approach only benefits countries with unchecked overcapacity. We need actions that cover the full range of steel products and address all affected countries,” said Eggert.
At today’s GFSEC Ministerial Meeting, it was projected that global steel overcapacity could reach 630 million metric tonnes by 2026, five times the EU’s crude steel production in 2023. This surplus threatens economies with open markets, particularly in the EU, and undermines efforts toward decarbonization and innovation, which are critical for the green transition.
Eggert stressed that European steelmakers are heavily investing in decarbonization, but these efforts are at risk due to the flood of underpriced, carbon-intensive steel entering the market. “We need emergency measures to address this issue and find a structural solution to its root causes,” he concluded.
Chinese steel outflows, output vexes global industry
China’s steel industry was among the main concerns in the global steel market amid growing steel exports.
At the Irepas steel industry conference held in Paris on Sept. 16, Wee-Jin Yeoh, secretary general of the South East Asia Iron and Steel Institute, said the rise of Chinese export volumes to Southeast Asia and planned capacity expansions in that region are “unsustainable,” making the next two years difficult for the region amid a trend towards “de-greening.”
China has increased exports in recent years due to capacity utilization at over 80% while domestic demand has been decreasing. On Aug. 13, China’s Baowu Steel Group warned that China’s steel industry is facing a more severe situation than seen in 2008 and 2015 amid plummeting domestic Chinese prices.
China predominantly exports flat steel products to Southeast Asia, amounting to 25 million mt, or 28%, of China’s total steel exports in 2023, according to SEAISI.
Overcapacity in Southeast Asia will lead to an “explosion” of carbon emissions in the region, Yeoh said. Southeast Asia still has relatively young blast furnaces, with comparatively high carbon emissions and will see new blast furnace-basic oxygen furnace capacities come on stream. SEAISI expects 83% of steel production in the region to be done in blast furnaces by 2030, up from 71% in 2024.
Trade barriers on the rise
China’s rapid increase in cheaply priced steel product exports to many regional markets over the past two years has heightened protectionism worldwide with further escalation possible, while global steel prices are likely to remain low, GMK Center, a Ukraine-based steel consultancy, said in a report Sept. 18.
Steel anti-dumping investigations worldwide rose to 14 as of early July from five in 2023, of which 10 and three, respectively, concerned Chinese products, according to GMK.
Among countries and regions already imposing restrictions or conducting AD probes against Chinese steel products are: the European Union, the US, Canada, Vietnam, Turkey, Mexico, Brazil, Thailand, South Africa, and Saudi Arabia, GMK said.
China’s finished steel exports in August rose 21.3% from July and 14.7% from a year earlier to 9.50 million metric tons, the third highest so far in 2024, the country’s customs data showed.
Over January-August, the Chinese exports increased 20.6%, or 12.03 MMt, from the year before to 70.58 MMt.
Its finished steel exports are on track to surpass 100 MMt in 2024 for the first time since 2016, after rising in August, market participants told S&P Global Commodity Insights.
“Under these circumstances, protectionist trade policies for steel products have become more evident not only in Europe and the US but also in Asia, and Japan is now in a situation where some concrete countermeasures are necessary,” Tokyo Steel said as it cut its October list prices in September.
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.