UK Steel calls for additional protection from overcapacity

Industry association UK Steel is warning the domestic market could be exposed to excess capacity if existing safeguards were to lapse, Kallanish notes.

The Steel Trade Beyond 2026 report says that excess steel capacity worldwide, built due to non-market forces such as state subsidies, could cancel out UK investments if not tackled with new trade policies. Global steel excess capacity in 2023 was estimated at 543 million tonnes.

Steel demand in China is also weakening, and the country is expected to export 100mt this year, causing supply to spill over into other markets and dampen steel prices.

The average profitability of the steel sector is currently the lowest in a decade, according to the report, with producers in developed economies losing market share to underpriced imports.

The import share in the UK has jumped to 68% so far in 2024, from 60% in 2023 and 55% in 2022, with just 40% of the UK’s yearly demand requirements being fulfilled by domestic supply.

The association notes that while the UK government is investing seriously in building the UK steel industry, addressing excess capacity and fair competition should be a fundamental element of the upcoming Steel Strategy.

UK Steel director general Gareth Stace says: “A raft of distortive subsidies is leading to oversupply which is met with rising protectionism and trade diversion.”

The report adds that safeguards which have been shielding the UK sector from trade diversion, will have to expire in 2026 due to WTO rules, and action must be taken urgently ahead of existing protection lapsing in 21 months’ time.

There are fears that growing trade protectionism by other countries could result in trade flows being directed at markets left exposed, with the UK government now needing to go further than it has before. The US continues to add additional tariffs on Chinese imports, as has Canada.

It recommends the government explores trade policy options, including ones that make use of WTO exceptions, in the context of actions taken by other WTO members which could include tariff-rate quotas.

Additionally, it should seek to play an active role in international initiatives such as the Global Arrangement on Sustainable Steel and Aluminium currently being negotiated between the US and EU.

Other recommendations include reviewing the UK trade remedies framework to make it more accessible to industry, and strengthen carbon leakage and public procurement policies to counter the impact of excess capacity on UK producer market share.

Stace adds that excess capacity has the potential to redraw the map of global steelmaking as there is no longer fair competition.

The report also notes that capacity growth in Southeast Asia and the Middle East has been largely state-funded and for high-emission blast furnaces. Over two thirds of the steelmaking capacity is in countries that have net zero targets later than 2060 or none at all.

Carbon-intensive blast furnaces account for more than 74% of capacity additions in Asia, while 89% of blast furnace energy input globally comes from coal.

“Failing to tackle the issue head-on could see British steelmakers continue to lose market share and mean that investments in decarbonisation are all for naught. So far, steel safeguards have offered a necessary shield but their expiry in 2026 could see industry faced with a cliff edge,” Stace concludes.

Carrie Bone UK

kallanish.com