European steel producers are urgently seeking answers. Over the last two years, the continent’s steel market has been flooded by cheap exports from China, posing an existential threat to European firms’ ability to compete and prompting increasingly urgent calls for robust trade measures and tariff reforms. John Basquill reports.
Europe’s steel industry has found itself face-to-face with a devastating overcapacity crisis.
China’s steel production has expanded dramatically in recent years, driven in part by state-led support and financial stimulus measures. At the same time, a drop in domestic demand – in no small part due to a significant decline in the local real estate market and a slowdown in infrastructure development – means the country’s steel exports have rocketed.
Exports of Chinese steel rose by 38% in 2023 and a further 20% in the first half of last year, according to industry group UK Steel. Because supply is so much greater than demand, those steel exports are undercutting the cost of local production across Europe, resulting in job losses, production cuts and dire warnings about the long-term viability of the industry.
In the UK alone, around two-thirds of steel is now imported from China, up from just over half in 2022. EU steel production has dropped by 34 million tonnes since 2018, with imports accounting for more than a quarter of the market, the European Steel Association (Eurofer) says.
In early October, the Global Forum on Steel Excess Capacity, which brings together policymakers and industry representatives from 28 steel-making economies, said excess capacity is now forecast to rise to 630 million tonnes by 2026 – equivalent to around five times the level of EU annual production.
Just weeks later, it emerged that China’s steel exports in October were the highest in any single month since September 2015, totalling more than 11 million tonnes. The figure represents a more than 40% increase year-on-year.
Industry groups are issuing increasingly urgent appeals to policymakers to take radical steps and tackle the issue head on, including by revisiting Europe’s current approach to tariffs.
“The clock has already struck midnight,” says Eurofer director-general Axel Eggert in a statement issued in late November. “How many more plant closures, job losses, and stalled decarbonisation projects will it take before the EU and member states wake up?”
Eggert calls on the European Commission and national governments to “stop this bloodshed and adopt swift measures on trade… while working on a structural solution to preserve our industry’s competitiveness”.
European steelmakers are increasingly feeling the strain. Germany-headquartered Thyssenkrupp announced in November it planned to reduce its workforce by around 40%, cutting or outsourcing thousands of jobs, and would close a further processing site in Kreuztal-Eichen.
The company said the move was a response to “fundamental and structural changes in the European steel market”.
“Increasingly, overcapacity and the resulting rise in cheap imports, particularly from Asia, are placing a considerable strain on competitiveness,” it said.
ArcelorMittal said in its results for Q3 2024 it believes current market conditions are “unsustainable”, with China’s excess production keeping steel prices below marginal cost curves and meaning “the majority of producers [are] loss making”.
Group chief financial officer Genuino Christino, described the figures from October as showing a “flood of exports” and a market situation that “needs to be taken very seriously and quickly by the authorities in Europe and across the world, quite frankly”.
Salzgitter’s chief financial officer, Birgit Potrafki, told investors in November that “challenging conditions in the market for the steel-related industry over the course of the year necessitate decisive measures”.
The company, which broke even across the first nine months of 2024, said that important customers in the steel market are relocating value chains to the US and China “with the aim of circumventing trade defence measures”.
Trade remedies “not sufficient”
Fears over steel overcapacity are not new. An October analysis by the Center for Strategic and International Studies (CSIS) notes that stimulus measures taken by the Chinese government during the global financial crisis in 2008/09 resulted in a “production glut” by the mid-2010s.
In March 2018, the US responded by introducing a blanket 25% tariff on steel imports from the majority of trading partners, including China. A few months later, the EU introduced safeguards of its own, placing a 25% tariff on steel imports above a certain quota.
However, those measures are currently set to expire in 2026 in the EU and UK – and the threat posed by overcapacity appears a longer-term one, CSIS says.
“Unlike past episodes of overcapacity, the current challenge seems structural in nature,” write Jane Nakano, a senior fellow in CSIS’s energy security and climate change program, and former intern Claire Zhao.
A paper published by UK Steel in October says time “is therefore limited, while the impact of inaction would be devastating and potentially irreversible”.
Eurofer’s Eggert has called for “unilateral trade actions” to tackle the issue, arguing that keeping markets open only benefits countries that are not part of the Global Forum on Steel Excess Capacity.
“A vast number of countries have already imposed tariffs on steel imports,” he says.
An action plan published by the association in November calls for authorities to strengthen EU trade defence instruments, such as anti-dumping and anti-subsidy tools, to stop unfair practices in the short term.
It also appeals for a structural solution to stop the “spill-over impact” of the crisis, noting that overcapacity is also now building in North Africa, the Middle East and the Asean region.
UK Steel’s paper says trade remedies alone are “not sufficient” to deal with global structural oversupply.
It notes that restrictions on other Chinese products imposed by markets such as the US and EU result in goods flowing into other markets, which either have export capacity themselves or are able to re-export those materials.
“Many of these countries such as Vietnam are not yet blocked by trade defence measures in export markets,” UK Steel says.
“This creates what is often described as a ‘whack-a-mole’ effect, reducing the effectiveness of trade remedies, as applying a measure on one country often results in a reorientation of trade flows.”
Balancing tariffs with free trade
Introducing blanket tariffs on steel imports would not be a straightforward process for the EU or UK.
The World Trade Organization (WTO) found in 2022 that the steel tariffs imposed by the US were in violation of its rules, dismissing the country’s claim they were necessary to preserve national security.
Though the tariffs were initially introduced by President Trump, the WTO ruling was rejected by the Biden Administration.
WTO rules require tariffs be applied equally across trading partners, other than those subject to a free trade agreement, and do not allow discrimination against particular countries. The UK Steel paper notes that both the UK and EU have committed to keep such tariffs at 0%.
However, it suggests there is room for manoeuvre within the WTO’s rules.
Countries are able to apply tariffs on certain goods as long as they are offset by reducing tariffs elsewhere, UK Steel says. If tariffs on steel were still only applied after a quota had been reached, concessions offered to other WTO partners “could be fairly modest”.
“This option would not disrupt imports but help stabilise the market and only act to curb trade diversion,” it says. “UK suppliers already face this when exporting to the US and it remains to be seen what approach the EU will adopt following its safeguards expiry.”
The association also suggests partners could work together to produce metrics on global excess capacity that could be linked to a tariff-rate quota system. That way, if a country’s excess capacity rises, quotas could decrease and tariffs could be imposed more readily.
“UK Steel does however recognise that these processes can be protracted, and multilateral agreements are not likely to be able to materialise quickly enough to offer industry the necessary protections by 2026,” it says.
Carbon emissions critical
A further concern raised by Eurofer and UK Steel is that oversupply from China could harm decarbonisation efforts.
Eurofer says that across Europe, billions of euros have been invested in decarbonising steel, but those efforts risk being nullified if domestic capacity is replaced by materials produced in more carbon-intensive ways.
UK Steel adds that more than two-thirds of steelmaking capacity is in countries that have net-zero emissions targets later than 2060 or not at all, and that carbon-intensive blast furnaces make up nearly 75% of additional capacity in Asia.
The Global Forum on Steel Excess Capacity statement from October notes: “The growth in global excess capacity has a negative impact on global carbon emissions and seriously reduces the financial capability of steel companies to invest in new and existing technologies needed in order to significantly reduce carbon emissions.”
However, the CSIS paper says efforts within China to decarbonise the industry could offer a glimmer of hope by reducing overcapacity while cutting emissions.
A ‘Special Action Plan’ issued in June by China’s Natural Resources Defense Council sets out steps to replace blast furnaces with electric arc furnaces predominantly using scrap steel as feedstock.
CSIS estimates that if this resulted in electric arc furnaces accounting for 15% of production, along with a 1% overall drop in production, the sector’s carbon emissions would be more than 200 million tonnes lower than five years ago.
China also last year launched a programme incentivising companies and individuals to upgrade equipment and trade in old goods, which are then recycled.
These two initiatives could “form a complementary system in which they theoretically tie the steel industry’s upstream and downstream processes”, CSIS says.
“While no official document or statement appears to discuss whether or how these two were intended to interact, they seem to have created a circular economy framework that addresses both overcapacity and decarbonisation.
“A key question to Western policymakers is what this development may mean for China’s prospect of becoming a competitive exporter of low-carbon steel.”
