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Posted on 27 Oct 2020

Message from Secretary General_October 2020

The Global Forum on Steel Excess Capacity

The excess steelmaking capacity situation was very acute in 2015. In 2016, G20 nations noted that, “it depresses prices, undermines profitability, generates damaging trade distortions, jeopardizes the very existence of companies and branches across the world, creates regional imbalances, undermines the fight against environmental challenges and dangerously destabilizes world trading relations. It especially undermines income opportunities of employees”. 

“Alleviating excess capacity becomes a necessary condition, which allows the industry to face a number of long-term challenges more effectively and to continue investing towards value creation by adjusting to fundamental changes in economic activity brought about by the ‘next production revolution’. If the steel industry is to continue to invest towards value creation, it will require significant reductions in excess capacity and a return to sustainable profitability”.

With that, the Global Forum on Steel Excess Capacity (GFSEC) was established on 16 December 2016 in Berlin, together with 33 member economies representing more than 90% of global steel production and capacity; The OECD will act as its facilitator, its Steering Group and the Chairmanship. 

Interesting points to note at the 1st meeting:

• In 2016, global surplus in steelmaking capacity reached ~737 million MT based on a capacity of 2.37 million MT.
• China was the only country with a target to reduce 100 – 150 million MT of crude steel capacity in 5 years from 2016
• India and Indonesia were to increase crude steel capacity due to domestic growth
• Many countries have various policies with regards to the steel industry, such as:
  • Policies facilitating restructuring covering social & employment liabilities as well as to assist employees and re-employment, including upgrading skills.
  • Measures to promote consolidation, changes in ownership structure, improvement in regulations towards restructuring and bankruptcies
  • Initiatives for plant modernisation, policies and measures to encourage product specialisation and government support for R&D

The 6 Principles – Policy Development Framework to Reduce Excess Steel Capacity

1. Global challenge, collective policy solutions
2. Refraining from market-distorting subsidies & government measures 
3. Fostering a level playing field 
4. Ensuring market-based outcomes 
5. Encouraging adjustment and thereby reducing excess capacity
6. Ensuring greater transparency as well as review, discussion and assessment of the implementation of the Global Forum policy solutions.

Thereafter, policy recommendations were made, to be implemented by the GFSEC members, on a voluntary basis. 

In 2017, GFSEC recorded a decline in capacity by China, EU, Japan, US, South Africa (132 million MT) while increases were recorded in India, Brazil, Mexico, Indonesia and Turkey (34 million MT). China is the only country that set capacity reduction targets. GFSEC members concluded that they need to accelerate the effort to further reduce capacity as demand is only going to grow 1.1% in the long run.

In 2018, GFSEC found many economies building up their capacities significantly, with many being cross border investments, where 

domestic capacity decreases resulted   inincreasing capacity abroad. Mid-term  demand growth of 0.8% is expected until about 2040, much slower than capacity increases. GFSEC members reiterated their commitment to the 6 principles. They will host collaborative events with inputs from various steel sector representatives & international associations to deepen the exchange of information.

The duration of the GFSEC was to end after 3 years in 2019, but it was extended due to consensus by all members except China. Notwithstanding its departure from GFSEC, China maintains that “the relevant issues on steel industry and trade can be discussed through existing channels”. 

2020 e-Dialogue 

SEAISI is organising an e-Dialogue, a special event in partnership with the GFSEC. It will cover global and ASEAN steel excess capacity issues. The event will include a dialogue session between the GFSEC Chairman and ASEAN Iron and Steel Council Members. 

This is a close event limited to ASEAN Government Officials and Representatives from National Iron & Steel Associations from Indonesia, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam. 

2020 e-Talk 

We had a successful e-Talk with more than 140 registered delegates (18 countries); 27% of the delegates are in the top management level and 57% in mid-level. 

I hope our delegates found it an informative and interesting event. Thank you all for joining us. Also, a special thanks to Mr Henry Chang from Ferrotrade and Mr Bimakarsa Wijaya from the Indonesian Iron and Steel Industries Association, for joining the lively panel discussion.

The headline news and a feature on China import market in this month’s newsletter contains excerpts from the e-Talk. 

Keep Your Distance. Wear A Mask. Stay Safe.

   YEOH WEE JIN

Source:SEAISI