[Asian Steel Watch] Vol.1(2016.1) Overcapacity has long been blamed as the main cause of the recession in the steel industry (especially the price decline), but this claim has not yet been backed by enough systematic analysis. For this reason, the exact amount of overcapacity continues to be a controversial topic, and a consensus on realistic measurement of capacity is nonexistent. Therefore, one is hard-pressed to provide an insightful answer to the question of whether the current overcapacity level is more serious than the past. In this article, we will first examine how serious global steel overcapacity is in terms of nominal amount. Reliable annual historical data for China and other countries are derived mainly from OECD data on nominal crude steel capacity, and are compared to annual crude steel consumption data. Next, we will try to measure the genuine steel overcapacity by introducing the concept of effective capacity, and investigate whether the steel industry’s recession after the financial crisis was triggered by overcapacity....

1. Vol.01 January 2016 6362 Asian Steel Watch
Overcapacity has long been blamed as the main
cause of the recession in the steel industry (es-
pecially the price decline), but this claim has not
yet been backed by enough systematic analysis.
For this reason, the exact amount of overcapac-
ity continues to be a controversial topic, and a
consensus on realistic measurement of capacity
is nonexistent. Therefore, one is hard-pressed to
provide an insightful answer to the question of
whether the current overcapacity level is more
serious than the past.
In this article, we will first examine how
serious global steel overcapacity is in terms of
nominal amount. Reliable annual historical data
for China and other countries are derived mainly
from OECD data on nominal crude steel capacity,
and are compared to annual crude steel consump-
tion data. Next, we will try to measure the genu-
ine steel overcapacity by introducing the concept
of effective capacity, and investigate whether the
steel industry’s recession after the financial crisis
was triggered by overcapacity.
Is the thought of global steel overcapacity
causing plummeting steel prices and economic
recession a sheer myth? Is overcapacity after the
financial crisis a grave reality facing global steel
companies? Is global steel oversupply manageable
without immense concerted effort from the steel
community and government intervention?
Recently, the global steel
industry is falling deeper
into a slump, and the
claim that the industry
is sinking once again
into a swamp of long-
term market recession is gaining ground. Overca-
pacity is frequently blamed for the recession.
In light of the early arrival of China’s peak
steel, as evidenced by the drop in China’s crude
steel demand in 2014 and 2015, people claim
that the steel industry cannot avoid a long-term
recession without resolving the issue of global
steel overcapacity.
As shown in <Figure 1>, global overcapacity
relative to crude steel demand gradually decreased
Is steel industry
oversupply real?
from mid 30% in the middle of 1990s until right
before the global financial crisis of 2008, when it
began a sharp incline. China’s nominal overcapac-
ity increased dramatically from 2005, while global
nominal overcapacity excluding China stayed just
above 30% after the onset of the 2008 financial
crisis. The recent hike in China’s nominal overca-
pacity is aggravating worries that the steel indus-
try recession will be prolonged due to oversupply.
Will excessive capacity drive the steel industry
into a deeper recession? Rod Beddows, author of
Steel 2050, published in 2014, writes that similar
steel overcapacity issues existed in the period
from 1975 to 1999. He suggests from the his-
tory that overcapacity of 15-20% is normal for
the steel industry. Dr. Beddows also claims that
the possibility of relief from China’s overcapacity
exists, based on future economic growth and an
increase in steel demand. However, the sudden
growth in magnitude of China’s capacity, and per-
sisting massive capacity among other countries
around the globe, cast serious doubt over the
possibility of relief from steel overcapacity.
In order to calculate the
extent of overcapacity,
an accurate measure of
capacity is necessary.
The common method of
calculating overcapac-
ity by using nominal capacity is highly likely to
yield exaggerated figures. This is because it is
physically impossible for plants to operate year-
round at 100% nominal capacity, due to various
issues such as raw materials supply, facilities
maintenance, and the existence of outdated
facilities. How can real, meaningful capacity (at
highest possible operation rate) be estimated?
In theory, this measurement, known as effec-
tive capacity, can be derived by way of thorough
investigation of every single steel plant around
the world. But in practice, such an investigation
is nearly impossible. Until now, efforts to esti-
mate effective capacity were largely based on a
macro approach. Key examples are the methods
used by the OECD and WSD (World Steel Dy-
namics). WSD provides definitions for various
The Myth and Reality of
Global Steel Overcapacity
Dr. Jun H. Goh
Managing Director
POSCO Research Institute
jgoh@posri.re.kr
Dr. Moon-Kee Kong
Senior Principal Researcher
POSCO Research Institute
mkkong@posri.re.kr
How can
overcapacity
be measured?
Figure 1. Nominal Overcapacity Rate Relative to Steel Demand
-10
-
10
20
30
40
50
60
Except China Global China
(%)
Note: Nominal overcapacity rate = overcapacity/crude steel demand (overcapacity = capacity – crude steel demand)
Source: OECD, WSD, POSCO Research Institute
Featured Articles
'95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
The Myth and Reality of Global Steel Overcapacity

2. Vol.01 January 2016 6362 Asian Steel Watch
Overcapacity has long been blamed as the main
cause of the recession in the steel industry (es-
pecially the price decline), but this claim has not
yet been backed by enough systematic analysis.
For this reason, the exact amount of overcapac-
ity continues to be a controversial topic, and a
consensus on realistic measurement of capacity
is nonexistent. Therefore, one is hard-pressed to
provide an insightful answer to the question of
whether the current overcapacity level is more
serious than the past.
In this article, we will first examine how
serious global steel overcapacity is in terms of
nominal amount. Reliable annual historical data
for China and other countries are derived mainly
from OECD data on nominal crude steel capacity,
and are compared to annual crude steel consump-
tion data. Next, we will try to measure the genu-
ine steel overcapacity by introducing the concept
of effective capacity, and investigate whether the
steel industry’s recession after the financial crisis
was triggered by overcapacity.
Is the thought of global steel overcapacity
causing plummeting steel prices and economic
recession a sheer myth? Is overcapacity after the
financial crisis a grave reality facing global steel
companies? Is global steel oversupply manageable
without immense concerted effort from the steel
community and government intervention?
Recently, the global steel
industry is falling deeper
into a slump, and the
claim that the industry
is sinking once again
into a swamp of long-
term market recession is gaining ground. Overca-
pacity is frequently blamed for the recession.
In light of the early arrival of China’s peak
steel, as evidenced by the drop in China’s crude
steel demand in 2014 and 2015, people claim
that the steel industry cannot avoid a long-term
recession without resolving the issue of global
steel overcapacity.
As shown in <Figure 1>, global overcapacity
relative to crude steel demand gradually decreased
Is steel industry
oversupply real?
from mid 30% in the middle of 1990s until right
before the global financial crisis of 2008, when it
began a sharp incline. China’s nominal overcapac-
ity increased dramatically from 2005, while global
nominal overcapacity excluding China stayed just
above 30% after the onset of the 2008 financial
crisis. The recent hike in China’s nominal overca-
pacity is aggravating worries that the steel indus-
try recession will be prolonged due to oversupply.
Will excessive capacity drive the steel industry
into a deeper recession? Rod Beddows, author of
Steel 2050, published in 2014, writes that similar
steel overcapacity issues existed in the period
from 1975 to 1999. He suggests from the his-
tory that overcapacity of 15-20% is normal for
the steel industry. Dr. Beddows also claims that
the possibility of relief from China’s overcapacity
exists, based on future economic growth and an
increase in steel demand. However, the sudden
growth in magnitude of China’s capacity, and per-
sisting massive capacity among other countries
around the globe, cast serious doubt over the
possibility of relief from steel overcapacity.
In order to calculate the
extent of overcapacity,
an accurate measure of
capacity is necessary.
The common method of
calculating overcapac-
ity by using nominal capacity is highly likely to
yield exaggerated figures. This is because it is
physically impossible for plants to operate year-
round at 100% nominal capacity, due to various
issues such as raw materials supply, facilities
maintenance, and the existence of outdated
facilities. How can real, meaningful capacity (at
highest possible operation rate) be estimated?
In theory, this measurement, known as effec-
tive capacity, can be derived by way of thorough
investigation of every single steel plant around
the world. But in practice, such an investigation
is nearly impossible. Until now, efforts to esti-
mate effective capacity were largely based on a
macro approach. Key examples are the methods
used by the OECD and WSD (World Steel Dy-
namics). WSD provides definitions for various
The Myth and Reality of
Global Steel Overcapacity
Dr. Jun H. Goh
Managing Director
POSCO Research Institute
jgoh@posri.re.kr
Dr. Moon-Kee Kong
Senior Principal Researcher
POSCO Research Institute
mkkong@posri.re.kr
How can
overcapacity
be measured?
Figure 1. Nominal Overcapacity Rate Relative to Steel Demand
-10
-
10
20
30
40
50
60
Except China Global China
(%)
Note: Nominal overcapacity rate = overcapacity/crude steel demand (overcapacity = capacity – crude steel demand)
Source: OECD, WSD, POSCO Research Institute
Featured Articles
'95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
The Myth and Reality of Global Steel Overcapacity

3. Vol.01 January 2016 6564 Asian Steel Watch
types of capacity.1 In recent years, the OECD
has been making efforts to share its method of
quantifying effective capacity of member states.
The OECD’s definition of effective capacity dif-
fers more or less from WSD’s. The OECD bases
maximum production on peak market condition
during a period, and the market condition is
estimated with consideration to factors such as
steel production, price, and profitability.
In addition, a number of methods
exist for technical estimation of maxi-
mum potential output even without
assumption of steel market conditions.
Some key examples are Peak-to-Peak2,
DEA (Data Envelopment Analysis), and
SPF (Stochastic Production Frontier).
We used the DEA method, because
it does not require an assumed shape of
the production frontier and allows cal-
culation of potential capacity through
nonparametric estimation.Whichever
method is used, the benefits of estimat-
ing effective capacity are clear. Using
effective capacity to estimate the maximum pos-
sible production of steelmakers yields a smaller
magnitude of overcapacity. If this is the case, can
introduction of effective capacity measurement
dispel worries about overcapacity causing stagna-
tion or recession in the steel market?
At some point, the myth
that “overcapacity is the
main cause of the reces-
sion (especially the price
decline) in the steel in-
dustry, and recovery will
be difficult without relieving overcapacity” started
to be accepted as a fact within the steel industry.
The reason we call it a myth is that we have yet to
learn the exact magnitude of overcapacity, and the
actual impact of overcapacity on the recession in
the steel industry has not been clearly revealed.
<Figure 2> shows that when using nominal
capacity in the estimation, a close correlation
between overcapacity and steel prices is observed
from as early as 2008. From 2008 to 2014, steel
prices and the reciprocal of the nominal over-
capacity rate of steel mills moved in nearly the
same direction. In other words, global hot-rolled
steel prices fluctuated with the steel overcapacity
rate. During this period, global nominal overca-
pacity increased steadily in size, but demand also
grew. The degree of nominal overcapacity relative
to demand size (overcapacity rate) fluctuated, fol-
lowing the peaks and valleys of steel prices.
From the steel industry’s perspective, however,
these results are, in fact, an “inconvenient truth”
that is difficult to accept. These findings support
the argument that stresses the importance of ef-
fective capacity and disregards nominal capacity
as a meaningless figure. We used the DEA method
to estimate effective capacity.3 Estimated overca-
pacity rate was around 20%, far below the figure
derived from nominal capacity, but the resulting
trend was essentially the same as that of nominal
overcapacity rate. After 2012, however, compared
to the increase in effective overcapacity rate, the
decrease in steel prices became rather steep.4 In
other words, the results of the overcapacity esti-
mation using effective capacity seem to
negate the claim that the recent drop
in steel prices was caused entirely by
overcapacity. In particular, the sudden
price drop in 2015 cannot be explained
simply by overcapacity. Even after al-
lowing room for errors in estimating
effective capacity, these results weaken
faith in the myth of overcapacity.
Meanwhile, <Figure 2> presents an-
other question: why were steel prices
so low before 2007, when global over-
capacity was low, with nominal overcapacity rate
below 20% and effective overcapacity rate below
10%? As the reader probably knows already, the
issue is raw materials prices. From 2005 to 2007,
even with low overcapacity, steel prices remained
low because raw materials prices were low. Look-
ing at <Figure 3>, the main cause of the recent
drop in steel prices is undeniably raw materials
prices, not overcapacity. Of course, this does not
cancel out the influence of the existence of over-
capacity, but the evidence is sufficient to under-
Is steel market
recession caused
by overcapacity?
1
WSD classifies capacity into
three types: ①Gross capacity:
Engineered capacity ②Effective
capacity: Amount of steel
production that may occur about
a year after steel prices take off
③ECO capacity: Level of steel
production that can be achieved
before there's a sizable rise in the
cost to produce the last tonne.
2
Peak-to-Peak is a method that
simply assumes full utilization
at data value peaks, and uses
parametric estimation to calculate
the potential capacity between
peaks.
3
Nominal capacity and crude steel
production data from 1995-2015
were used respectively as input
and output (forecast value used
for 2015), and effective capacity
was assumed to be the maximum
potential output, as calculated
from the given input (nominal
capacity) through DEA analysis.
4
Using effective capacity as
estimated by WSD also shows
a widening gap with the recent
price trend.
Recently, the global steel industry is falling deeper into a slump, and the
claim that the industry is sinking once again into a swamp of long-term
market recession is gaining ground. Overcapacity is frequently blamed for
the recession.
Featured Articles
Figure 2. Steel Prices and Overcapacity Rate
400
500
600
700
800
900
40
30
20
10
0
'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15(e)
($/t) (%)
World HR Export Price (L)
Nominal Overcapacity Rate (R)
Effective Overcapacity Rate (R)
Note: The right axis is reversed in order for the overcapacity rate to be easily compared with HR price.
Source: OECD, WSD, POSCO Research Institute
The Myth and Reality of Global Steel Overcapacity

4. Vol.01 January 2016 6564 Asian Steel Watch
types of capacity.1 In recent years, the OECD
has been making efforts to share its method of
quantifying effective capacity of member states.
The OECD’s definition of effective capacity dif-
fers more or less from WSD’s. The OECD bases
maximum production on peak market condition
during a period, and the market condition is
estimated with consideration to factors such as
steel production, price, and profitability.
In addition, a number of methods
exist for technical estimation of maxi-
mum potential output even without
assumption of steel market conditions.
Some key examples are Peak-to-Peak2,
DEA (Data Envelopment Analysis), and
SPF (Stochastic Production Frontier).
We used the DEA method, because
it does not require an assumed shape of
the production frontier and allows cal-
culation of potential capacity through
nonparametric estimation.Whichever
method is used, the benefits of estimat-
ing effective capacity are clear. Using
effective capacity to estimate the maximum pos-
sible production of steelmakers yields a smaller
magnitude of overcapacity. If this is the case, can
introduction of effective capacity measurement
dispel worries about overcapacity causing stagna-
tion or recession in the steel market?
At some point, the myth
that “overcapacity is the
main cause of the reces-
sion (especially the price
decline) in the steel in-
dustry, and recovery will
be difficult without relieving overcapacity” started
to be accepted as a fact within the steel industry.
The reason we call it a myth is that we have yet to
learn the exact magnitude of overcapacity, and the
actual impact of overcapacity on the recession in
the steel industry has not been clearly revealed.
Figure 2 shows that when using nominal
capacity in the estimation, a close correlation
between overcapacity and steel prices is observed
from as early as 2008. From 2008 to 2014, steel
prices and the reciprocal of the nominal over-
capacity rate of steel mills moved in nearly the
same direction. In other words, global hot-rolled
steel prices fluctuated with the steel overcapacity
rate. During this period, global nominal overca-
pacity increased steadily in size, but demand also
grew. The degree of nominal overcapacity relative
to demand size (overcapacity rate) fluctuated, fol-
lowing the peaks and valleys of steel prices.
From the steel industry’s perspective, however,
these results are, in fact, an “inconvenient truth”
that is difficult to accept. These findings support
the argument that stresses the importance of ef-
fective capacity and disregards nominal capacity
as a meaningless figure. We used the DEA method
to estimate effective capacity.3 Estimated overca-
pacity rate was around 20%, far below the figure
derived from nominal capacity, but the resulting
trend was essentially the same as that of nominal
overcapacity rate. After 2012, however, compared
to the increase in effective overcapacity rate, the
decrease in steel prices became rather steep.4 In
other words, the results of the overcapacity esti-
mation using effective capacity seem to
negate the claim that the recent drop
in steel prices was caused entirely by
overcapacity. In particular, the sudden
price drop in 2015 cannot be explained
simply by overcapacity. Even after al-
lowing room for errors in estimating
effective capacity, these results weaken
faith in the myth of overcapacity.
Meanwhile, Figure 2 presents an-
other question: why were steel prices
so low before 2007, when global over-
capacity was low, with nominal overcapacity rate
below 20% and effective overcapacity rate below
10%? As the reader probably knows already, the
issue is raw materials prices. From 2005 to 2007,
even with low overcapacity, steel prices remained
low because raw materials prices were low. Look-
ing at Figure 3, the main cause of the recent
drop in steel prices is undeniably raw materials
prices, not overcapacity. Of course, this does not
cancel out the influence of the existence of over-
capacity, but the evidence is sufficient to under-
Is steel market
recession caused
by overcapacity?
1
WSD classifies capacity into
three types: ①Gross capacity:
Engineered capacity ②Effective
capacity: Amount of steel
production that may occur about
a year after steel prices take off
③ECO capacity: Level of steel
production that can be achieved
before there's a sizable rise in the
cost to produce the last tonne.
2
Peak-to-Peak is a method that
simply assumes full utilization
at data value peaks, and uses
parametric estimation to calculate
the potential capacity between
peaks.
3
Nominal capacity and crude steel
production data from 1995-2015
were used respectively as input
and output (forecast value used
for 2015), and effective capacity
was assumed to be the maximum
potential output, as calculated
from the given input (nominal
capacity) through DEA analysis.
4
Using effective capacity as
estimated by WSD also shows
a widening gap with the recent
price trend.
Recently, the global steel industry is falling deeper into a slump, and the
claim that the industry is sinking once again into a swamp of long-term
market recession is gaining ground. Overcapacity is frequently blamed for
the recession.
Featured Articles
Figure 2. Steel Prices and Overcapacity Rate
400
500
600
700
800
900
40
30
20
10
0
'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15(e)
($/t) (%)
World HR Export Price (L)
Nominal Overcapacity Rate (R)
Effective Overcapacity Rate (R)
Note: The right axis is reversed in order for the overcapacity rate to be easily compared with HR price.
Source: OECD, WSD, POSCO Research Institute
The Myth and Reality of Global Steel Overcapacity

5. Vol.01 January 2016 6766 Asian Steel Watch
mine blind faith in the myth.
Analysis so far leads to an obvious conclusion.
While overcapacity is certainly the most chal-
lenging issue for today’s global steel industry,
its impact on steel market conditions has been
somewhat exaggerated. Of course, this is not to
say that the steel industry’s efforts to minimize
overcapacity are unnecessary. We mean only to
say that we must escape from the preconception
as we call the myth of overcapacity. In any indus-
try, realistic judgment is necessary on whether
overcapacity is the source of all problems.5
The question asked at the beginning of this
article—can the introduction of effective capacity
measurement dispel worries about overcapacity
causing stagnation or recession in the
steel market?—has been answered for
the most part. Blaming the steel market
recession entirely on overcapacity is at
least somewhat unfair, and accepting
the effective capacity measurement can
potentially provide significant relief
from that responsibility. Though there
is still room for controversy regarding the accuracy
of the measurement process used to estimate ef-
fective capacity, the magnitude of overcapacity has
certainly been exaggerated to some extent.
The new outlook does
not diminish the seri-
ousness of the overca-
pacity issue for the steel
industry. Relieving over-
capacity still remains the
most urgent issue, and requires the attention and
efforts of the global steel industry.
As seen in Figure 1, based on nominal
capacity, global overcapacity has been worsen-
ing steadily since the financial crisis, and the
overcapacity rate has recently begun increasing
rapidly with the sharp decline in steel demand.
Using OECD projection of global steel capacity,
and our forecasts for crude steel demand for the
next two years, yielded a nominal overcapacity
rate of around 40%.6 In particular, the year 2013
will likely end up being the peak of China’s steel
demand, so massive relative overcapacity is in-
evitable. Reassessing overcapacity using effective
capacity measurements still shows that global
overcapacity rate will near 30%, and China’s over-
capacity rate will reach around 50% within 2-3
years. This means that overcapacity can no longer
be considered a myth. It is becoming a reality.
While efforts to reduce capacity are impor-
tant, the continuous growth of steel demand is
essential in lowering overcapacity rates, as Dr.
Beddows pointed out. Investment in infrastruc-
ture and the growth of the manufacturing sectors
in emerging countries such as India, the ASEAN,
and the Middle East is important in creating steel
demand, and might offset China’s declining steel
demand in the future. China’s plans for develop-
ment and financial support in Asia—the One
Belt, One Road initiative, which seeks to connect
Western China, Southeast Asia, and Europe, and
infrastructure investment in Asia through the
Asian Infrastructure Investment Bank (AIIB)—
present new opportunities to unleash the poten-
tial of China’s steel demand.
However, the global economy has
not shown clear momentum for recov-
ery since the financial crisis, and con-
cerns are mounting over a significant
slowdown of China’s economy with
fluctuations in the Chinese stock mar-
ket and the shock from the contraction
of the real estate bubble. Under these
circumstances, worries about steel
overcapacity are snowballing.
The vague notion that overcapacity
is to blame entirely for the steel market recession
does not offer much help in eliciting specific re-
sponses from the global steel community and in-
dependent steelmakers. Each country must pro-
actively reduce unnecessary excess capacity and
quantify effective overcapacity. To these ends,
the OECD Steel Committee’s current efforts to
provide capacity measurement are praiseworthy.
The situation at present demands that we per-
ceive the reality clearly and seek lessons from the
history of the steel industry in order to overcome
the challenge of overcapacity.
Can the issue of
steel overcapacity
be overcome?
5
For example, the oil industry is
an industry in which overcapacity
is a major issue. The recent drop
in oil prices was determined to
have been caused by excessive
market share competition rather
than overcapacity. (Kibsgaard,
Presentation at Scotia Howard
Weil 2015 Energy Conference)
6
For projected capacity until 2017,
see the following resources.
“Future investment projects
in the global steel industry,”
Directorate for Science and
Industry, DSTI/SU/SC (2014),
“Excess Capacity in the
Global Steel Industry and the
Implications of New Investment
Projects,” OECD Science,
Technology and Industry Policy
Papers, No. 18, OECD Publishing
(2015).
The situation at present demands that we perceive the reality clearly
and seek lessons from the history of the steel industry in order to
overcome the challenge of overcapacity.
Featured Articles The Myth and Reality of Global Steel Overcapacity
Figure 3. Steel Prices and Raw Materials Prices
'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
($/t) ($/t)
World HR Export Price (L)
Iron Ore Price (R)
Source: CRU, WSD
500
600
700
800
900
400
80
100
120
140
180
160
60

6. Vol.01 January 2016 6766 Asian Steel Watch
mine blind faith in the myth.
Analysis so far leads to an obvious conclusion.
While overcapacity is certainly the most chal-
lenging issue for today’s global steel industry,
its impact on steel market conditions has been
somewhat exaggerated. Of course, this is not to
say that the steel industry’s efforts to minimize
overcapacity are unnecessary. We mean only to
say that we must escape from the preconception
as we call the myth of overcapacity. In any indus-
try, realistic judgment is necessary on whether
overcapacity is the source of all problems.5
The question asked at the beginning of this
article—can the introduction of effective capacity
measurement dispel worries about overcapacity
causing stagnation or recession in the
steel market?—has been answered for
the most part. Blaming the steel market
recession entirely on overcapacity is at
least somewhat unfair, and accepting
the effective capacity measurement can
potentially provide significant relief
from that responsibility. Though there
is still room for controversy regarding the accuracy
of the measurement process used to estimate ef-
fective capacity, the magnitude of overcapacity has
certainly been exaggerated to some extent.
The new outlook does
not diminish the seri-
ousness of the overca-
pacity issue for the steel
industry. Relieving over-
capacity still remains the
most urgent issue, and requires the attention and
efforts of the global steel industry.
As seen in Figure 1, based on nominal
capacity, global overcapacity has been worsen-
ing steadily since the financial crisis, and the
overcapacity rate has recently begun increasing
rapidly with the sharp decline in steel demand.
Using OECD projection of global steel capacity,
and our forecasts for crude steel demand for the
next two years, yielded a nominal overcapacity
rate of around 40%.6 In particular, the year 2013
will likely end up being the peak of China’s steel
demand, so massive relative overcapacity is in-
evitable. Reassessing overcapacity using effective
capacity measurements still shows that global
overcapacity rate will near 30%, and China’s over-
capacity rate will reach around 50% within 2-3
years. This means that overcapacity can no longer
be considered a myth. It is becoming a reality.
While efforts to reduce capacity are impor-
tant, the continuous growth of steel demand is
essential in lowering overcapacity rates, as Dr.
Beddows pointed out. Investment in infrastruc-
ture and the growth of the manufacturing sectors
in emerging countries such as India, the ASEAN,
and the Middle East is important in creating steel
demand, and might offset China’s declining steel
demand in the future. China’s plans for develop-
ment and financial support in Asia—the One
Belt, One Road initiative, which seeks to connect
Western China, Southeast Asia, and Europe, and
infrastructure investment in Asia through the
Asian Infrastructure Investment Bank (AIIB)—
present new opportunities to unleash the poten-
tial of China’s steel demand.
However, the global economy has
not shown clear momentum for recov-
ery since the financial crisis, and con-
cerns are mounting over a significant
slowdown of China’s economy with
fluctuations in the Chinese stock mar-
ket and the shock from the contraction
of the real estate bubble. Under these
circumstances, worries about steel
overcapacity are snowballing.
The vague notion that overcapacity
is to blame entirely for the steel market recession
does not offer much help in eliciting specific re-
sponses from the global steel community and in-
dependent steelmakers. Each country must pro-
actively reduce unnecessary excess capacity and
quantify effective overcapacity. To these ends,
the OECD Steel Committee’s current efforts to
provide capacity measurement are praiseworthy.
The situation at present demands that we per-
ceive the reality clearly and seek lessons from the
history of the steel industry in order to overcome
the challenge of overcapacity.
Can the issue of
steel overcapacity
be overcome?
5
For example, the oil industry is
an industry in which overcapacity
is a major issue. The recent drop
in oil prices was determined to
have been caused by excessive
market share competition rather
than overcapacity. (Kibsgaard,
Presentation at Scotia Howard
Weil 2015 Energy Conference)
6
For projected capacity until 2017,
see the following resources.
“Future investment projects
in the global steel industry,”
Directorate for Science and
Industry, DSTI/SU/SC (2014),
“Excess Capacity in the
Global Steel Industry and the
Implications of New Investment
Projects,” OECD Science,
Technology and Industry Policy
Papers, No. 18, OECD Publishing
(2015).
The situation at present demands that we perceive the reality clearly
and seek lessons from the history of the steel industry in order to
overcome the challenge of overcapacity.
Featured Articles The Myth and Reality of Global Steel Overcapacity
Figure 3. Steel Prices and Raw Materials Prices
'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
($/t) ($/t)
World HR Export Price (L)
Iron Ore Price (R)
Source: CRU, WSD
500
600
700
800
900
400
80
100
120
140
180
160
60