By 2047, domestic steel makers are hoping to build 500 million tonnes installed capacity
By Kunal Bose
One single factor that is primarily responsible for the weak finances of the world steel industry is installed capacity staying well in excess of demand. If that is not enough to stand in the way of most mills across the continents to generate surpluses to support decarbonisation of steelmaking and use of hydrogen as a reductant in place of metallurgical coal, the industry is seeing significant new capacity in the pipeline. This and other related issues came up for scrutiny by industry officials and observers at the steel conclave in New Delhi, brilliantly curated by Alok Sahay, secretary general of Indian Steel Association (ISA).
Ubiquitous in its application from construction to automobiles to machinery and defence products, steel is considered a strategic material, which every country wants to have its own manufacturing capacity. Being also highly labour intensive, all steelmaking countries, including the OECD (Organisation for Economic Cooperation and Development) member states, have remained highly protective of the industry. In his campaign to return to the White House for a second term, Donald Trump made a promise to revive the rust belt industries, including steel and aluminium. Since becoming President, Trump has used the tariff card to give protection to steel made in the US. Incidentally, the global steel industry provides employment to around 6m people, including 1m in OECD countries.
Genuine anticipated demand driven capacity growth apart, quite a few economies, China in particular, stand out as an example of how market-distorting subsidies and non-market policies lead to bloating of steel capacity. In its report on steel outlook, 2025, OECD says: “The rise in China’s position in the global steel industry is not a purely market driven outcome.” State intervention in various forms has helped China to own steelmaking capacity of around 1.3bn tonnes or well over half the estimated global capacity of 2.472bn tonnes. Ex-China common concern is China making annually around a billion tonnes of steel when its demand continues to fall leading the country to become a market distorting exporter.
No wonder, steelmaking countries in the West are miffed at the prospect of global steel capacity rising by a hefty 165m tonnes (or by 6.7% on present capacity) during 2025-27. This happens when the industry is confronting sluggish demand growth and low metal prices. One common fear is with the commissioning of that volume of new capacity, the mills will be further constrained to limit production. What needs to be factored in, the world has started experiencing moderate steel demand growth after four consecutive years of contraction in steel use. Talking to DCI, Anthony de Carvalho, steel division head at OECD gives the warning that a significant difference between capacity and demand will contribute to financial stress for the industry. Even the most efficient steelmakers will not be spared the pain of presence of capacity not in alignment with demand.
OECD estimates that with the excess capacity growing to 721m tonnes by 2027 from an already high of 602m tonnes in 2024, the industry’s capacity use will be inching towards 70% from the present around 78%, making it a big challenge for mills to stay in the black. The agency foresees further “appreciable decline” in steel demand in China where house building and construction will continue to face headwinds and metal requirements of OECD member countries will stay “roughly constant.” As a result, world demand will grow at a tepid rate of 0.7% through 2030. Whatever happens to steel demand in China or in developed economies, India, which is the world’s second largest producer and user of steel, will remain the global industry’s brightest but it is also making important strides in steel capacity building. The positive feature is that thanks to impressive growth in domestic demand, which is to remain the case for years to come, India is not contributing to world surplus capacity.
At the same time, OECD foresees strong demand growth to continue in ASEAN (Association of Southeast Asian Nations) and MENA (Middle East and North Africa) regions. Both the regions are seeing construction of new steel capacity in anticipation of growing local requirements of steel for infrastructure development and construction and manufacturing work. Even then, countries such as Vietnam, the Philippines and Thailand continue to push more and more steel in the world market, thereby often being the cause of market disturbances.
Carvalho says Asian countries, including China and India, will contribute 58% to the new capacity buildup of 165m tonnes. With much fanfare China launched a steel capacity swap system in 2018 restricting building of new mills in place of scrapped units claiming to fulfil two objectives: freeze capacity growth and eliminate energy guzzling polluting capacity. But here the twist in the tale was that in many cases modern mills designed to make high value steel came up in place of virtually non-functioning units. So, technologically advanced new capacity is getting created in China under the guise of capacity replacement. What is particularly disturbing is that China is seeing building of new capacity, of course with the connivance of local provincial administrations when domestic steel demand is falling.
Reflective of the continuing crisis of the real estate sector and slowing infrastructure development, China’s local steel demand hit a six-year low at 892.87m tonnes in 2024 when its steel production slid 1.7% to 1.005bn tonnes. Much to the concern of the rest of steelmaking countries, poor domestic demand leaving China with considerable surplus led the country to export in 2024 a record volume of 118m tonnes. Even while the Chinese steel production is down so far this year in 2024, its steel exports in the first eight months up to August were up 10% year-on-year to 77.49m tonnes. The development has not come as a surprise, since domestic steel consumption in the first half of 2025 saw a significant drop over the previous year’s corresponding period. Some demand improvement is expected in the current half. But that will not be enough for China to apply a brake on exports.
While the Indian steel industry is much smaller in size compared to China with current capacity around 205m tonnes, the growth is so planned that the local demand is comfortably met by supplies from within. Even then, India remained a net importer of steel during 2024-25 with imports at 9.551m tonnes and exports at 4.858m tonnes. Backed by robust demand from the construction, infrastructure and automobile sector, Indian finished steel, including stainless steel consumption was up the world’s best at 11.5% to 152m tonnes. According to ISA president Naveen Jindal, demand for steel will continue to grow at a healthy clip. He is expecting Indian steel consumption to rise at double digit in the current half after growing at 7-8% in the first half.
The pace at which capacity is growing in India gives confidence to industry officials that by 2030, the country will have built capacity well in excess of the official target of 300m tonnes. Jindal now holds the prospect of India becoming a 500m tonne capacity nation by 2047, coinciding with it becoming a developed nation that will demand per capita steel consumption rising to around 300 tonnes. The present per capita use in India is just over 100 tonnes against the world average of 221 kg.
From what Jindal says, it becomes clear that India will need all the extra steel to build world class infrastructure and housing. The government wants India to become the world’s next major shipbuilding nation and once that happens a new steel demand stream will open up. Incidentally, India is already making grades of steel suitable for building ships. Whatever the capacity buildup, India will not at any stage become an aggressive seller of steel products overseas and thereby, cause market distortions.
OECD says in the projected world steel capacity growth by 2027, cross-border investments will have a new tonnage share of 16%. China, already burdened with serious over capacity at home and facing official resistance to building new mills have ventured out in ASEAN in particular and also African countries with investments in steel. As it would happen, almost three-quarters of cross-border investments are leading to creation of BF-BOF route of steelmaking, which will leave carbon footprint much bigger than when steel is made through EAF (electric arc furnace.) Considerations of cementing political influence and submitting to resource nationalism in host countries have also been behind China making cross-border investments in steel and other metals. The net result is accretion in capacity, creating in the process all kinds of market distortions denying a level playing field.
Weighed down by excessive high capacity and production not in alignment with demand, the Chinese industry is left with no option but to export at any cost. OECD points out, “the surge in exports of low-priced steel from China has disrupted international markets, resulting in growing trade tensions that seem likely to persist in the near term.” Over the past many years, Beijing and also provincial governments have been providing incentives, open and also hidden first to build capacity and then support production and exports. Subsidies in different forms that Chinese mills enjoy are ten times that obtained in OECD.
Chinese mills have benefited from below market rate borrowings, direct grants, paying for energy at lower than market rates and preferential tax treatment. No doubt, quite a few mills in China will cease operation without heavy doses of subsidy. Moreover, instances are not few where incentives are extended to commercially unjustified steel ventures. But China is not the only country indulging in anti-competition, anti-market practices benefiting the industry.
Subsidy as obtains in China and some other countries robs the ones who play by the rules of a level playing field. No wonder then, as OECD points out, the burden of surplus capacity and production is robbing the industry of profitability it needs to invest in new technologies for decarbonisation. This besides, rises in exports of artificially low-priced steel, mostly from China have proved to be trade disruptive resulting in growing trade tensions that are likely to persist in the near term. Expectedly, low priced exports proving disruptive for industries of recipient countries of such steel are the cause of growing trade tensions leading to tariff and non-tariff barriers.
No wonder, recent times have seen affected countries filing antidumping cases in good numbers as a shield to predatory imports. As OECD says, “during 2024,19 governments initiated 81 antidumping investigations involving steel products, a five-fold increase from the 2023 level and near the 2016 steel crisis level.” Here Asian steelmakers are in the dock accounting for nearly 80% of antidumping complaints, with China alone accounting for more than one-third of the total. The challenge for OECD member countries will be to pressure China to genuinely trim steel capacity and stop subsidising its steelmakers, especially in their export drive. That will return the world steel industry to sustainably healthy working, boosting the decarbonisation drive.
In the midst of sustainability dialogue, a subject being animatedly discussed is if the outcome of Trump tariff blitz is in alignment with the President’s objective to secure fresh investment in the industry. The acquisition of storied US Steel by the Japanese Nippon Steel at $14.9bn, representing a considerable premium over the market price in June after months of uncertainty because of reservations of politicians and trade union leaders brings with it a commitment to build a greenfield mill at an investment up to $4bn. Furthermore, Nippon Steel will invest $11bnthrough 2028 to modernise the US Steel infrastructure. No one will grudge Trump taking credit for securing the golden share in US Steel to protect national security and interest. Initially opposed to the buying of US Steel, the powerful United Steelworkers Union finally came on board with Nippon Steel making a commitment to preserve American jobs and honour the existing agreements with USU.
In the meantime, South Korean Hyundai Steel is making ready a 2.7m tonne EAF in Louisiana to make HR and CR sheets for use mainly in the automobile industry. The unit built in collaboration with Posco will start production in 2029. Investment in steel is part of Hyundai Group’s planned major investment of $26bn in the US during 2025-28 mostly in automobile. The steel unit to create over 1,400 direct jobs will be supplying steel to South Korean automobile factories in the US and also American automakers. Investments by Nippon Steel and Hyundai are seen as a strategic response to the US tariffs on imported steel. Owing mills locally will allow these companies to avoid paying the import tax as they get a major foothold in a major market. (IPA Service)
