PARIS The chairman of the influential steel committee of the Organization for Economic Cooperation and Development (OECD) has told steelmaking countries to ease off subsidizing the sector to fight overcapacity.
"Excess capacity is one of the biggest challenges facing the steel industry today," Risaburo Nezu said in a statement released after a two-day meeting of the committee in Paris that wrapped up July 2. "Open markets for steel are crucial for the health of the industry."
A "high level of excess capacity is a major cause of the industrys weak financial performance and is threatening the viability of many firms," Nezu said, citing statistics underlining a moderate revival for the sector, based mainly on rebounding demand in China. "With investment projects continuing to increase in a number of economies, while steel consumption growth is anticipated to remain moderate, the global imbalance will continue to pose risks for the industry for the foreseeable future."
Following detailed discussions on this issue and its causes at the committee meeting, Nezu noted that "subsidies and government support measures that promote investment in steelmaking facilities or sustain companies in distress that would otherwise shut down are a major source of trade friction."
Handouts encouraging steelmakers to keep production high when demand is weak can cause dumping, harming steel producers in trading partner countries, he said.
Export restrictions on raw materials were a major problem, Nezu said, which "can exacerbate overcapacity of steel plants in economies that impose them and tend to hinder fair competition in global steel markets."
The committee itself agreed to continue collecting information on such measures, where they are being implemented, and the potential problems they create.
Meanwhile, the chairman noted that the growth in state-owned steel enterprises, backed by government finance, could harm efficient competing private steel companies.
"There is a need for increased transparency regarding the behavior of (state-owned enterprises), particularly with respect to the regulatory advantages, subsidies or other benefits that they may receive," Nezu said.
Participants at the meeting noted that all major steel-producing economies should cooperate to address these and other government interventions in the sector.
"Efforts in this direction could help reduce the extent of excess capacity and minimize the recurrence of past cycles of trade disturbances and remedial trade actions," Nezu said.
The steel committee has representatives from 27 OECD developed world member countries and involves other steel-manufacturing countries, including Brazil, Argentina, Egypt, India, Malaysia, South Africa, and China. These countries account for most of the worlds steel production and trade.
While global steel consumption growth has moderated in the first quarter of this year vs. the fourth quarter of 2012, growth in the beginning of 2013 was still higher than what was registered in the third quarter of 2012, the committee was told.
Relatively higher steel consumption growth rates seen in the last quarter of 2012 and the first quarter of 2013 "reflect an increase of apparent steel consumption in China, whereas steel consumption in the rest of the world decreased," Nezu said.
Chinese steel production increased 9.1 percent year on year during the first quarter, or a new projected all-time annualized high of 767 million tonnes.
Excluding China, global steel production totaled an annualized 787 million tonnes in the first quarter, down 3.7 percent compared with the same 2012 period.
The energy sector could be a growth area for steel, especially in energy exploration and transportation.
Energy production, transformation and transportation currently account for about 12 percent of total steel output, according to Nezu.
A version of this article was first published in AMM sister publication Steel First.