Global Steel Recovery "Modest," OECD Committee Chair Says

30 March 2017

The global steel sector has lately seen a “modest recovery,” while trade frictions remain worryingly high, according to the chair of the Organisation for Economic Co-operation and Development’s (OECD) Steel Committee following a meeting in Paris late last week.

“Conditions in the world steel market have improved over the past year. However, there are indications that this trend may be temporary,” said Ronald Lorentzen, the committee chair, following the 23-24 March discussions in the French capital.

“Moreover, excess capacity remains considerable, capacity utilisation rates continue to be very low, and the financial situation is still challenging for most companies,” he added.

Along with noting the weak signs of recovery, the meeting of the Paris-based body also recognised some industry improvements over the past year, with overall crude steel production worldwide seeing a small uptick from the year prior. According to the World Steel Association, these numbers were 1629.6 million tonnes (Mt) in 2016, versus 1615.0 Mt in 2015.

Meanwhile, published steel demand forecasts by the World Steel Association from October 2016 show only a 0.2 percent recovery in demand during 2016 following a three percent decline in 2015. The non-profit association is due to release its next “short range outlook” in April.

Lorentzen also cited various potential risks for the sector, flagging in particular the growing number of “trade restrictions,” as well as policy uncertainty on trade and related subjects. Other factors included the need for additional information on economic policy measures that the Chinese government may take.

China, which accounts for approximately 45 percent of global demand, is expected to experience another reduction in demand this year. While stimulus measures by the domestic government have been credited with limiting these demand drops, the World Steel Association has suggested that the struggles seen in some industrial sectors, especially construction, will persist.

Overall, international steel demand growth is slated to hit 0.5 percent in 2017, compared to the 0.2 percent increase seen last year.

Trade tensions, overcapacity 

Over the last two years, steel trade growth has slowed, according to the OECD. While the year 2015 saw such trade growth hit 1.6 percent, trade growth later contracted by 0.1 percent in 2016. Both figures fall well below previous averages.

In recent years, concerns have been raised by some steel-producing countries over the possibility of “dumping” by some major players, referring to the practice of selling goods abroad at prices less than their normal value. In some cases, these concerns have been followed by trade remedy investigations and related duties. (See Bridges Weekly, 2 February 2017 and 30 June 2016)

According to Lorentzen, members of the Steel Committee expressed concerns over growing trade tensions, arguing that steel markets should “remain as open and free of distortion as possible.” 

Overcapacity continues to afflict the global steel market, with capacity growth outpacing market demand, as described by Lorentzen and affirmed by the Steel Committee in their support of the Global Forum on Streel Excess Capacity, which was established late last year in the wake of the G20 leaders’ meeting. (See Bridges Weekly, 7 September 2016)

The committee also welcomed efforts underway to help increase transparency through timely sharing of capacity-related data.

Steel in the green economy

Environmental concerns were also discussed during the committee meeting last week in Paris, specifically how to support the transition toward making this sector less carbon-intensive in the future.

The chairperson’s report did not expand in detail, aside from referring to the difficulties in doing so and related discussions on how to use “market-driven” and other tools to support this objective.

The World Steel Association has argued that steel has significant potential as a means to support a transition toward a greener economy, including by making transport less carbon-intensive and facilitating the development of use of cleaner vehicles.

ICTSD reporting.

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