Easing steel glut risks tension with nations
The Group of 20’s effort to eliminate the world’s steel glut will face a major obstacle if developing countries resist attempts to curtail government subsidies to local producers, according to the outgoing chief of the OECD’s steel committee.
Excess supply in China is spilling over onto world markets, sparking protectionist measures from East to West, and drawing attention from world leaders. One hurdle to overcome could be the unwillingness of emerging nations to abandon efforts to nurture their sectors through government support, said Risaburo Nezu, chair of the Steel Committee at the Paris-based Organization for Economic Cooperation & Development.
The OECD is facilitating the Group of 20’s global forum to tackle overcapacity, with the steel glut high on the agenda at their summit in Hangzhou earlier this month. China, which supplies about half the world’s steel, has been at odds with other big producers on how to deal with the issue, and OECD talks in April failed to reach agreement on a course of action.
Although many developing nations are suffering from the flood of cheap Chinese metal, the forum could see a faction emerge that wants “to nurture the steel industry via government funding, when what is being proposed is abolishing state subsidies based on market principles,” Nezu said in an interview in Tokyo last week.
“Whatever the form is, or whoever handles it, it’s never easy to resolve this issue,” he said, referring to the new forum. “Many difficulties lie ahead.”
Despite China’s commitment to reduce its capacity by as much as 150 million metric tons (about 13 per cent) before 2020, U.S. and European regulators have argued that Beijing hasn’t done enough to curb its subsidies. However, the G-20’s communique eschewed fingerpointing at Beijing and instead described overcapacity as a “global issue, which requires collective responses.”
Still, advanced regions, including Europe, the U.S. and Japan, want to eliminate subsidies or any other forms of support from the state that distort markets and contribute to excess capacity, Nezu said. Finding a way to bridge that position with China and other emerging nations meant the forum’s first gathering in Paris on Sept. 9, comprising OECD and G-20 representatives, was slow-going and didn’t produce any concrete plans.
The OECD will produce a progress report on steel overcapacity for G-20 leaders ahead of their 2017 summit in Germany.
Meanwhile, China’s production shows little sign of letting up. The latest data following the G-20 summit showed August’s output rising 3 per cent from a year earlier as mills fired up capacity to capture more profits from a surge in prices. China is seeking to restructure its bloated steel sector to help cut overcapacity.