Overcapacity will continue to weigh on steel industry

Short-term cuts to steel production in Europe and North America during the winter months will not mitigate the effects of global overcapacity.

MEPS’s newly published Steel Price Outlook report, which provides five-year forecasts for Europe, Asia and North America, estimates that global crude steel production will decline by 2.8% year-on-year to 1.84 billion tonnes in 2024. This is 6.2% lower than the peak of 1.96 billion tonnes recorded in 2021. A small decrease in global production is forecast for 2025. 

MEPS reported in October that worldsteel forecasts global steel demand will rise by 1.2% next year, to 1.77bn tonnes. This is down from its previous forecast of a rise to 1.82bn tonnes. 

Supply and demand imbalance  

Despite the decline in output and rising consumption, supply is far from aligning with demand. MEPS respondents report depressed prices, high inventories and, in Europe, stocks held at ports to avoid above-quota import tariffs. 

• This content first appeared in the December edition of MEPS's International Steel Review. The monthly report features steel prices, price indices, market commentaries and forecasts from across the region. Contact MEPS for details of how to subscribe.

Integrated mills, rerollers and stockists are implementing extended closures at the end of a year which has suffered from continued low demand, despite an easing of inflation and incremental interest rate cuts. High inventories and low rates of consumption are expected to minimise the effect of any lost output, however. 

The European Steel Association (Eurofer) highlights that global steel overcapacity is expected to exceed 560m tonnes this year – four times the EU's annual steel production. Furthermore, the OECD projects an additional 157 million tonnes of carbon-intensive capacity by 2026.  

By contrast, EU steel production has declined by 34m tonnes since 2018, falling to just 126m tonnes in 2023. Imports now account for 27% of the EU market. 

Asian mills account for over 70% of global supply, with Chinese production alone accounting for around 55%. The steel market has suffered the effects of oversupply due to China’s weakening domestic steel market. Data from the China Iron and Steel Association (CISA) showed that the country’s finished steel exports rose by 22.6% year-to-date by the end of November, reaching 101.2 million tonnes. 

Since 2013, Chinese authorities have been attempting to manage overcapacity with stringent guidelines which ensure that any new capacity is mitigated by the decommissioning of outdated equipment. However, annual output continued rising until 2020.  

Chinese crude steel production was down by 3% year-to-date, to 850.7m tonnes, at the end of October. Furthermore, the Chinese authorities recently paused all planning applications for new steel mills until a new capacity replacement allowance regime can be finalised. 

India’s crude steel production accounts for around 8% of global output. Its steelmakers produced 123m tonnes on material year-to-date to the end of October – up 5.6%. Growing domestic demand will mitigate this effect. According to Indian credit ratings agency, ICRA, domestic steel consumption will rise by 9-10% in the country’s 2024/25 financial year. However, India’s long-term goal is to reach an annual crude steel production of 300m tonnes by 2030.  

Pressure on prices and producers 

As 2024 comes to an end, overcapacity continues to apply downward pressure to steel prices and negative pressure to steelmakers’ operations. In Europe, Eurofer warned that the steel industry is “in crisis” after Thyssenkrupp and ArcelorMittal announced job cuts and site closures in December. Each cited low-cost Asian imports in announcing the changes. 

In South Korea, Posco is implementing a large-scale restructure – disposing of 120 non-core assets – after citing the effects of overcapacity in China. Meanwhile, Hyundai Steel confirmed the closure of its Pohang Plant 2 in November. 

Without a significant upturn in global demand in 2025, overcapacity will continue to weigh on the steel industry. Unfortunately, most MEPS respondents expect a slow start to the new year.