Home » News/Views » Too much of a good thing?

Too much of a good thing?

The global steel sector is again in a state of overcapacity, at the greatest level it has ever been. The sector, predominantly fuelled by China’s expansion since 2000, has grown to over 2,300 million tonnes while only needing 1,500 million tonnes to meet global demand. Some growth in demand is predicted, but still less than planned expansion in capacity.

The result is unviable profit levels in the steel industry and an influx of cheap steel worldwide, leading to closures and disruption, as happened in the British steel sector in 2015. Countries with domestic steelmaking capacity have sought commitments from China to reduce its excess capacity and eliminate further subsidies to the sector. 

China has acknowledged the problem and made commitments to reduce capacity, which have yet to materialise. But since 2007 China has added 552 million tonnes of new capacity, equivalent to seven times total US steel production in 2015. The perceived lack of progress forms part of the justification for the recent US action on tariffs, yet only 2 per cent of US steel imports come from China

In 2016 the G20 set up the Global Forum Steel Excess Capacity, which led to the 2017 agreement. This proposed transparency between producing nations about plans and economic support. But it has no answer other than creating a level playing field between countries by restricting state subsidies. The forum says this will enable markets to function, which implies further closures and restructuring, as happened in the EU 30 years ago.

• Related article: Steel: on the edge