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Steel market improvement ‘may be temporary’

Global – The OECD’s steel committee has acknowledged a modest recovery in the global steel market but expresses ongoing concern over increases in steelmaking capacity. At its meeting last week in Paris, it also noted mounting trade frictions and stressed the need for steel markets to remain ‘as open and free of distortion as possible’.

Conditions in the world steel market have improved over the past year – ‘but there are indications that this trend may be temporary’, says the committee. ‘Demand growth is expected to remain modest as Chinese steel demand, which accounts for 45% of the world total, is anticipated to decrease again in 2017, after growing by 1.3% in 2016.’ Among the risks clouding the steel demand outlook, the committee identifies: rising trade restrictions; recent trade and tax policy uncertainty in a number of countries; lack of clarity regarding further Chinese government economic stimulation; and increased digitalisation of modern economies that point towards less steel use in relation to economic growth.

Excess capacity remains ‘considerable’ and utilisation rates ‘very low’, such that the financial situation for most steel companies ‘is still challenging’, argues the OECD committee. The amount of steelmaking capacity closed in 2016 was offset by new additions, resulting in a net increase of 32.4 million tonnes or 1.4% to 2.3897 billion tonnes. New data suggest nearly 40 million tonnes of gross capacity additions are currently under way and could come on stream by 2019 while an additional 53.6 million tonnes of capacity is in the planning stage for possible start-up during the same time period.

The OECD committee has reiterated the urgency of addressing the excess capacity problem, for example by avoiding any direct or indirect forms of government support at home and abroad (including through state-owned entities) that incentivise the expansion of excess capacity or sustain economically unviable capacities.

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