Overcapacity in Steel: China’s Role in a Global Problem

Overcapacity in Steel: China’s Role in a Global Problem
Listing Type: Research Reports

Lukas Brun

The global steel sector is once again in a state of overcapacity. The sector, predominantly fueled by China’s expansion since 2000, has grown to over 2,300 million metric tons (MT) while only needing 1,500 MT to meet global demand. The result is a global steel sector at unviable profit levels and an influx of cheap steel in the global trading system adversely affecting companies, workers, and the global trading regime. This report was prepared for the Alliance for American Manufacturing (AAM).

Research questions: What is overcapacity? Why is overcapacity a problem? What causes overcapacity? What can be done to address overcapacity?

Key takeaways: Capacity levels in the global steel industry are below 70%, slightly below the worst years of the global financial crisis, and levels at or above 80% are needed for industry profitability. China, as the world’s largest steel producer and net exporter recognizes that excess capacity must be reduced, yet commitments to reduce capacity have not had measurable effects. The global steel capacity problem raises questions about how countries with different development models affect the global trading system and how trade tensions among countries can be reduced.

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