Alacero at OECD Meeting: Steel Industry Faces Most Difficult Situation Since Late 90s
12/10/2013 - On 5–6 December 2013, Alacero — the Latin American Steel Association — participated in the 75th Steel Committee Meeting of the OECD (Organization for Economic Cooperation and Development).
This industry summit gathered government representations of 34 countries, industrial associations, unions and consultancy firms.
The Committee discussed the slow growth prospects, exchanged views on the effect of excess capacity on the financial health of the industry and agreed on identifying future work for addressing it. It also expressed concerns about trade frictions in steel and raw materials trade and exchanged views on potential policy measures to improve steelmakers’ energy efficiency.
Alacero, along with Japan, was one of the only two regions invited to present their points of view on current steelmaking global overcapacity.
Alacero began addressing that the current situation is becoming critical as global overcapacity reaches more than 500 million tons, which represents 36% of annual apparent steel use (compared to historic ratios of 19%). This scenario complicates the situation of the sector.
The Latin American organization highlighted that state-owned enterprises (SOEs) now represent a key player in the steel industry that was not present in the last overcapacity crisis of the late 90s. According to 2011 figures, SOEs account for 50% of the top 46 steel companies, and almost all of them belong to China. Moreover, 38% of the world steel production is generated at Chinese SOEs.
Overcapacity is driving exports up and prices down. These facts, along with global demand slowdown and the risk of a rise in raw materials prices, are pressing on private companies’ profitability and are leading to increased trade frictions.
In the case of Latin America, Alacero noted that after being a net finished steel exporter, the region became a net importer. Massive imports — many of them under unfair trade practices — are driving antidumping measures up. Currently, 52 investigations are under development in different countries of the region, 23 of them against Chinese companies. Also, 78 antidumping measures are already in place, 43 against China.
Regional annual steel consumption grew 5% year-on-year in 2012, while imports increased by 26%. Latin American consumption is being supplied by imports that are forcing a drop in domestic production and intra-regional trade.
Alacero is concerned about imports of metal-mechanical products affecting the whole steel value chain and driving de-industrialization in the region. A series of studies developed during the last three years demonstrated that for every US$1 million in metal-mechanical products imported into the region, the local sector loses between 36 and 64 direct, indirect and induced jobs. Also, imports are diminishing the investments in the metal-mechanic sector. There is a growing risk for the steel industry to lose its customer base.
Alacero made some recommendations to improve the situation in the Latin American steel industry and to build an economically sustainable future for the region:
Some key elements of Mr. Nezu’s final statement include:
During the first three quarters of 2013, global steel production reached 1,582 million tons, annualized, which is 2.7% above the first three quarters of 2012. Chinese steel production increased by 8% year-on-year in the first three quarters of 2013, reaching a new all-time high. In the rest of the world, steel production was 798 million tons in the first three quarters (annualized), down 2% year-on-year. According to the October 2013 forecast from the World Steel Association, world apparent steel use is expected to increase by 3.1% in 2013 and by 3.3% in 2014.
Excess capacity has reached very high levels, the industry’s financial situation is weak, and trade protectionist measures seem to be increasing.
The Committee discussed how the current situation of the steel industry compares to the previous steel crisis of the late 1990s. Members observed that the financial performance could be viewed as worse now than during that crisis. The global capacity utilization ratio appears to have an important effect on steel industry profits, among other factors.
Members highlighted that the market mechanisms should work in order to allow closures to happen when necessary and that all kinds of measures artificially supporting capacity should be avoided. The role of governments in facilitating adjustment in the sector was emphasized as long as there are no subsidies involved.
Also, it was noted that subsidized trade and dumping practices appear to be increasing. As a consequence, countries are responding with trade remedy actions which are legitimate measures to counteract unfair trade provided they are compatible with WTO rules.
The Committee discussed the slow growth prospects, exchanged views on the effect of excess capacity on the financial health of the industry and agreed on identifying future work for addressing it. It also expressed concerns about trade frictions in steel and raw materials trade and exchanged views on potential policy measures to improve steelmakers’ energy efficiency.
Alacero, along with Japan, was one of the only two regions invited to present their points of view on current steelmaking global overcapacity.
Alacero began addressing that the current situation is becoming critical as global overcapacity reaches more than 500 million tons, which represents 36% of annual apparent steel use (compared to historic ratios of 19%). This scenario complicates the situation of the sector.
The Latin American organization highlighted that state-owned enterprises (SOEs) now represent a key player in the steel industry that was not present in the last overcapacity crisis of the late 90s. According to 2011 figures, SOEs account for 50% of the top 46 steel companies, and almost all of them belong to China. Moreover, 38% of the world steel production is generated at Chinese SOEs.
Overcapacity is driving exports up and prices down. These facts, along with global demand slowdown and the risk of a rise in raw materials prices, are pressing on private companies’ profitability and are leading to increased trade frictions.
In the case of Latin America, Alacero noted that after being a net finished steel exporter, the region became a net importer. Massive imports — many of them under unfair trade practices — are driving antidumping measures up. Currently, 52 investigations are under development in different countries of the region, 23 of them against Chinese companies. Also, 78 antidumping measures are already in place, 43 against China.
Regional annual steel consumption grew 5% year-on-year in 2012, while imports increased by 26%. Latin American consumption is being supplied by imports that are forcing a drop in domestic production and intra-regional trade.
Alacero is concerned about imports of metal-mechanical products affecting the whole steel value chain and driving de-industrialization in the region. A series of studies developed during the last three years demonstrated that for every US$1 million in metal-mechanical products imported into the region, the local sector loses between 36 and 64 direct, indirect and induced jobs. Also, imports are diminishing the investments in the metal-mechanic sector. There is a growing risk for the steel industry to lose its customer base.
Alacero made some recommendations to improve the situation in the Latin American steel industry and to build an economically sustainable future for the region:
- At the government level, the overcapacity problem should be addressed with an integral approach. Policies that level the playing field against SOEs should be an important element of this approach, as private sector companies cannot compete with governments.
- It is necessary that Latin American governments take effective and immediate actions against unfair Chinese imports.
- Latin American governments should promote the metal-mechanical value chain because massive and subsidized imports are causing unemployment issues that need to be addressed promptly.
- Finally, Latin American governments should promote industrial investment as a share of GDP to around 22–25% during the next 10 years to strengthen industrial development.
Some key elements of Mr. Nezu’s final statement include:
During the first three quarters of 2013, global steel production reached 1,582 million tons, annualized, which is 2.7% above the first three quarters of 2012. Chinese steel production increased by 8% year-on-year in the first three quarters of 2013, reaching a new all-time high. In the rest of the world, steel production was 798 million tons in the first three quarters (annualized), down 2% year-on-year. According to the October 2013 forecast from the World Steel Association, world apparent steel use is expected to increase by 3.1% in 2013 and by 3.3% in 2014.
Excess capacity has reached very high levels, the industry’s financial situation is weak, and trade protectionist measures seem to be increasing.
The Committee discussed how the current situation of the steel industry compares to the previous steel crisis of the late 1990s. Members observed that the financial performance could be viewed as worse now than during that crisis. The global capacity utilization ratio appears to have an important effect on steel industry profits, among other factors.
Members highlighted that the market mechanisms should work in order to allow closures to happen when necessary and that all kinds of measures artificially supporting capacity should be avoided. The role of governments in facilitating adjustment in the sector was emphasized as long as there are no subsidies involved.
Also, it was noted that subsidized trade and dumping practices appear to be increasing. As a consequence, countries are responding with trade remedy actions which are legitimate measures to counteract unfair trade provided they are compatible with WTO rules.
