G-20 Plan for Steel Glut Risks Tension With Emerging Nationsby
OECD chief says Paris meeting ends without concrete steps
Chinese steel mills’ production shows no signs of abating
The Group of 20’s effort to eliminate the world’s steel glut will face a major obstacle if developing countries resist attempts to curtail government subsidies to local producers, according to the outgoing chief of the OECD’s steel committee.
Excess supply in China is spilling over onto world markets, sparking protectionist measures from India to the U.S., and drawing attention from world leaders. One hurdle to overcome could be the unwillingness of emerging nations to abandon efforts to nurture their sectors through government support, said Risaburo Nezu, chairman of the Steel Committee at the Paris-based Organization for Economic Cooperation & Development.
The OECD is facilitating the Group of 20’s global forum to tackle overcapacity, with the steel glut high on the agenda at their summit in Hangzhou earlier this month. China, which supplies about half the world’s steel, has been at odds with other big producers on how to deal with the issue and OECD talks in April failed to reach agreement on a course of action.
Although many developing nations are suffering from the flood of cheap Chinese metal, the forum could see a faction emerge that wants “to nurture the steel industry via government funding, when what is being proposed is abolishing state subsidies based on market principles,” Nezu said in an interview in Tokyo last week.
“Whatever the form is, or whoever handles it, it’s never easy to resolve this issue,” he said, referring to the new forum. “Many difficulties lie ahead.”
Despite China’s commitment to reduce its capacity by as much as 150 million metric tons, or about 13 percent, before 2020, U.S. and European regulators have argued that Beijing hasn’t done enough to curb its subsidies. However, the G-20’s communique eschewed finger-pointing at Beijing and instead described overcapacity as a “global issue, which requires collective responses.”
Still, advanced nations, including Europe, the U.S. and Japan, want to eliminate subsidies or any other forms of support from the state that distort markets and contribute to excess capacity, Nezu said. Finding a way to bridge that position with China and other emerging nations meant the forum’s first gathering in Paris on Sept. 9, comprising OECD and G-20 representatives, was slow-going and didn’t produce any concrete plans.
“Important matters were not discussed at the meeting,” Nezu said. “I think discussions should have been a bit more in-depth, but that approach was avoided to smooth things over.”
The OECD will produce a progress report on steel overcapacity for G-20 leaders ahead of their 2017 summit in Germany.
Meanwhile, China’s production shows little sign of letting up. The latest data following the G-20 summit showed August’s output rising 3 percent from a year earlier as mills fired up capacity to capture more profits from a surge in prices. Exports remain elevated and the campaign to cut overcapacity is is falling short, with less than half of this year’s target met by the end of July.
China is seeking to restructure its bloated steel sector to help cut overcapacity. Two of its biggest mills agreed to combine their listed units in a deal announced Tuesday in what could be the first of several mergers. On Thursday, China’s state-owned Assets Supervision and Administration Commission approved that merger at the group level.
Nezu has announced that he is stepping down from his post on the OECD’s steel committee and handing the reins to Ronald Lorentzen, deputy assistant secretary for import administration at the U.S. Department of Commerce, he said. Nezu, who earned an MBA from Harvard Business School, is a former Japanese bureaucrat at the country’s trade ministry.