G7 criticizes subsidies driving overcapacity in steel, aluminium

Leaders of the Group of Seven (G7) countries have reaffirmed their commitment to fair trade and criticized the use of subsidies that create excess capacity, including in steel and aluminium.

In a joint statement issued at the virtual G7 Trade Track meeting on May 28, the governments of Canada, France, Germany, Italy, Japan, the United Kingdom and the United States called for the start of talks to develop stronger international rules on market-distorting industrial subsidies and trade-distorting actions by state enterprizes.

“We reaffirm the importance of the Global Forum on Steel Excess Capacity (GFSEC) as a forum that can help address the issue of global steel excess capacity in a multilateral framework,” the statement said.

“We believe that dialogue, transparency, and cooperation at a global level represents a crucial means to address the imbalances created by worsening excess capacity. We deem it paramount that the GFSEC can count on the active participation of all major producer states,” it added.

According to the World Steel Association (Worldsteel), crude steel output reached 1.86 billion tonnes in 2019, with China producing 996.3 million tonnes of that total, or 53.3%, and consuming 907.5 million tonnes, or 51.3%, of finished steel products out of a total global consumption of 1.76 billion tonnes.

Fastmarkets calculated its daily steel hot-rolled coil index, domestic, exw Northern Europe at €1,136.25 per tonne on Friday May 28, up by €19.58 per tonne week on week and by €148.75 per tonne month on month.

The G7 statement also noted ongoing concerns over the increased use of non-market policies and practices like subsidies, which it alleges distort competition and reduce fairness and trust.

“Of particular concern are harmful industrial subsidies, including those that lead to severe excess capacity, a lack of transparency regarding the state’s role in the economy and the role of state enterprizes in unfair subsidization and forced technology transfer,” the statement said.

Founded in 2016 and facilitated by the Organisation for Economic Co-operation and Development (OECD), the GFSEC is an open platform for all G20 member countries and interested OECD members. Its members include most of the 10 largest steel-producing economies in the world, with the notable exception of China.

According to GFSEC, excess steelmaking capacity creates significant difficulties for steel producers globally, including depressing prices, undermining profitability, generating damaging trade distortions, creating regional imbalances, and destabilizing world trading relations.

One of GFSEC’s stated aims is to eliminate subsidies and other government support measures that sustain uneconomic steel plants, encourage investment in new steelmaking capacity that would otherwise not be built, facilitate exports of steel products, or otherwise distort competition by contributing to excess capacity.

The G7 statement also welcomed work by the OECD that had identified an apparent relationship between government support - in the form of below-market financing - and excess capacity in several sectors.

This extends to the aluminium industry, where producers have long-criticized China for producing around 57% of global primary aluminium, compared with just 11% in 2004.

In January 2019, an OECD report alleged that while government support is commonly found throughout the aluminium value chain, it is especially heavy in China and Gulf Cooperation Council (GCC) countries.

This has been refuted by companies in those regions including Aluminium Bahrain (Alba) and China Hongqiao Group.

Industry associations have also been vocal in criticizing what they believe to be unfairly subsidized Chinese aluminium production, which they argue has led to excess capacity and a growing influx of underpriced Chinese exports.

They have also called on the G7 to take action against unfairly subsidized overcapacity and other market-distorting behavior that they allege undermines the sustainable growth of the aluminum industry.

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