It's Cooperate or Die as Global Steel Overcapacity Crisis Threatens Critical Industry
It may be time for producers to consider an OPEC-style accord
The global steel industry is paralyzed by an overcapacity crisis, with about 550 million metric tons (MMT) of excess capacity in 2023, exceeding the total output of OECD nations, according to the OECD’s Global Forum on Steel Excess Capacity (GFSEC). The World Steel Association expects this overcapacity to hit 721 MMT by 2027. The resulting price suppression from this state of affairs renders steel uninvestable, despite its critical role in building the infrastructure critical for the green energy transition. Without urgent action, the industry risks collapse under its own weight.
Major producers are showing strains of sustained struggle. ArcelorMittal’s South African outfit faces severe financial losses, driven by high energy costs, weak demand, and competition from cheap Chinese imports. China Baowu Group, the world’s top producer, has idled furnaces amid domestic oversupply. British Steel teeters on insolvency, battered by energy prices and export floods. Tata Steel, which is - amongst other things - developing steel pipes specifically for hydrogen infrastructure to support India’s Green Hydrogen Mission, is undermined by depressed margins.
The core issue is a lack of global cooperation. Steel producers operate in a fragmented free-for-all market. Subsidies fuel overproduction. China’s subsidies are ten times higher than OECD levels, bringing steel to the market at prices below production costs. This dynamic erodes margins, discourages investment in low-carbon technologies critical for long-term sustainability of the industry, and therefore puts the industry in a downward spiral.
Previous attempts to address overcapacity have failed. The GFSEC, launched in 2016 by G20 and OECD members, aimed to curb subsidies and promote transparency. Global capacity actually rose since then. Trade measures have been circumvented (eg through transhipments to US via Mexico), exposing the limits of unilateral actions. Multilateral talks have stalled, and producers continue to be exposed to unrelenting price wars.
It may be time for serious producer cooperation. How about an Organisation of Steel Exporting Countries (OSEC), the OPEC of steel? Kind of worldsteel with teeth: modelled partly on OPEC’s supply coordination but with an additional emphasis on global sustainability goals.
OSEC would:
Establish a framework for binding production quotas, linked to green steel output.
Adopt valuable aspects of OPEC’s oil price stabilization mechanisms to maintain investable global price levels.
Incentivize sustainable investment by redirecting subsidies to ongoing development and scale-up of lower-carbon production methods, like electric arc furnaces (EAFs) and hydrogen-based direct reduced iron (DRI) plants.
Enforce strict anti-dumping penalties.
A single company or country can not solve this overcapacity problem alone. It is “cooperate or die” time. An OSEC’s success would hinge on enforceable commitments and a focus on high-growth, sustainable markets, ensuring steel remains the backbone of a net-zero future.