Where is the Excess Capacity in the World Iron and Steel Industry? –A focus on East Asia and China–

The purpose of this study is to identify the location of excess capacity in the world iron and steel industry. Excess capacity is a production capacity that is inferior in competition, surviving due to factors other than competitive advantages, under the condition that world production capacity exceeds demand.

As a result of analysis, China was found to have the highest scale of excess capacity, while NAFTA (North American Free Trade Agreement) members, Europe, CIS (Commonwealth of Independent States) members, Japan, South Korea, and ASEAN (Association of Southeast Asian Nations) members were found to have a moderate scale of excess capacity. In China, Russia, Ukraine, Japan, and South Korea, excess capacity coexists with large-scale steel exports. However, excess capacity is considered to promote the exports of low value-added steel products only in China, Russia, and Ukraine. The iron and steel industry in China is not necessarily export-oriented, and its capacity utilization rate is not low compared with other regions. However, the production scale in China is outstanding among all economies. As a result, the scale of excess capacity and steel exports are the largest in the world. Moreover, low value-added products occupy a high share in the total iron and steel exports from China. In the cases of Russia and Ukraine, iron and steel industries are export-oriented. Furthermore, compared with China, low-value added products constitute a higher proportion in their export mix. However, the scale of excess capacity and exports are lower than China, in parallel with their production scale. In the cases of Japan and South Korea, iron and steel industries are export-oriented. However, the most exported products are high-grade flat products and high-grade host materials for business partners and subsidiaries abroad. In other words, the steel exports from Japan and South Korea are not commodity-based.

An increasing number of construction projects involving steelworks is in progress or being planned worldwide, especially in Asia. Thus, reduction of excess capacity would become difficult. Furthermore, as state-of-the-art technologies will be embodied in newly installed steelworks, the competition for survival in the iron and steel industry will intensify in the future.