West alarmed as global steel capacity set to jump 165 mt by 2027

Steelmaking countries in the West are miffed at the prospect of global steel capacity rising by a hefty 165 million tonnes (mt) during 2025–27 when the industry is already confronting poor demand and low metal prices. One common fear is that, with such big new capacity coming on stream, the mills will be constrained to further limit production.

 

Anthony de Carvalho, steel division head at Organization for Economic Co-operation and Development (OECD), warns that the emergence of a significant difference between capacity and demand will contribute to financial stress for the industry, including the most efficient steelmakers. The global surplus steel capacity is set to rise from 602 mt in 2024 to 721 mt in 2027, Carvalho says.

 

Excess capacity of that size will inevitably lower the capacity utilisation rate to 70 per cent from 78–79 per cent now. This will make it a big challenge for steel mills everywhere to stay in the black. Carvalho says capacity growth is happening when China is expected to experience a further “appreciable decline” in steel demand, thanks to the continuing crisis in the house-building and construction sectors.

 

Steel requirements of the 38 member countries of the OECD will continue to stay “roughly constant”. Factoring in all this, the OECD thinks world steel demand will grow at a slow rate of 0.7 per cent 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 centre. India has not only remained the strongest driver of steel demand growth among all countries, but it is also making important strides in steel capacity building.

 

Carvalho says Asian countries, including China and India, will contribute 58 per cent to new capacity creation by 2027. With much fanfare, China launched the ‘steel capacity swap system’ in 2018, restricting the building of new mills in place of scrapped units and claiming to fulfil two objectives: freezing capacity growth and eliminating energy-guzzling, polluting capacity. But here the twist in the tale is that in many cases, modern mills designed to make high-value steel came up in place of closed and virtually non-functioning units. So, technologically advanced new capacity is being created in China under the guise of capacity replacement.

 

Reflective of the continuing crisis in the real estate sector and slowing infrastructure development, China’s local steel demand hit a six-year low at 892.87 mt in 2024, when its steel production slid 1.7 per cent to 1.005 billion tonnes. To the concern of the rest of the steelmaking countries, poor domestic demand left China with considerable surplus, leading the country to export a record 118 mt last year. Even while Chinese steel production is down so far this year, its steel exports in the first eight months up to August were up 10 per cent year-on-year to 77.49 mt. The development has not come as a surprise, since domestic steel consumption in the first half of 2025 saw a significant drop compared with the corresponding period the previous year. Some demand improvement is expected in the current half, but that will not be enough for China to apply a brake on exports.

 

The writer is a Kolkata-based independent journalist