Tata Steel UK has drawn attention to a pressing issue facing the global steel industry: the alarming level of excess steel production capacity. In 2023, this excess was estimated at 543 million metric tons, a figure more than 70 times the size of the entire steel market in the United Kingdom. The implications of this overcapacity are profound, with the potential to undermine all efforts to decarbonize the UK steel industry.
UK Steel has launched a comprehensive report that outlines the existential risk posed by global excess steel production, which is largely driven by non-market forces. The findings emphasize that recent expansions in steelmaking, particularly in Southeast Asia and the Middle East, are predominantly state-funded and focused on high-emission blast furnaces that do not correspond to actual domestic demand levels. This situation is creating a saturated market, further complicating the landscape for UK steel producers.
As the world’s largest steelmaker, China’s demand for steel is declining. This downturn is resulting in a significant surplus of steel that is spilling over into other markets, causing prices to plummet. It is estimated that China will export 100 million metric tons of steel this year, which is enough to satisfy the entirety of the UK's steel demand for 13 years.
The consequences for the UK steel industry are alarming. By 2024, the share of imports in the UK market surged to 68%, up from 60% in 2023 and 55% in 2022. These rising levels of imports, particularly from China, have historical precedent; the last time such levels were recorded, several UK steel plants were forced to shut down, leading to significant job losses across the sector.
UK Steel argues that while the UK Government is making serious investments in the steel industry, addressing the issue of excess capacity and fostering fair competition should be fundamental components of the upcoming Steel Strategy. “Now is the time to create a fair and competitive trade landscape for the UK steel industry that will underpin UK jobs, economic resilience, and decarbonization,” stated Gareth Stace, Director General of UK Steel.
The report stresses that existing steel safeguards, which currently protect the UK sector from trade diversion, are set to expire in 2026 due to World Trade Organization rules. Without timely action, the UK steel industry could face an untenable situation when these protections lapse in just 21 months.
The environment is further complicated by the permanence of US Section 232 tariffs, which have led to the introduction of these safeguards. Countries around the globe, including those in the European Union, are ramping up their trade defense measures. This rise in protectionism means that the UK is likely to see even greater trade diversion to markets that are less shielded from such pressures.
UK Steel has put forth four critical recommendations aimed at mitigating the impacts of global overcapacity on the UK steel industry:
1. Explore Trade Policy Options: The UK should consider trade policy measures, including those that utilize WTO exceptions, in light of actions taken by other WTO members.
2. Review Trade Remedies Framework: Making the UK trade remedies framework more accessible to industry stakeholders could improve the competitive landscape.
3. Engage in International Initiatives: Active participation in international efforts, such as the potential Global Arrangement on Sustainable Steel and Aluminium currently being negotiated between the US and EU, is essential for fostering a fair trade environment.
4. Strengthen Policies Against Carbon Leakage: Enhancing carbon leakage and public procurement policies can help counter the negative impacts of excess capacity on the market share of UK producers.
Gareth Stace further elaborated on the challenges posed by global excess capacity. He emphasized that it represents one of the most significant hurdles for the steel industry today, jeopardizing fair competition and leading to market distortions fueled by extensive subsidies.
UK Steel urges the government to take bold actions and demonstrate leadership in navigating the complexities of international trade and national interests. The report underscores that failing to address these issues promptly could result in British steelmakers losing vital market share, rendering investments in decarbonization futile.
