Steel overcapacity threatens industrial competitiveness, OECD warns

While global attention in recent months has largely focused on oil and gas markets, the OECD is warning that a growing crisis is unfolding in the steel sector, where state-backed production and rising excess capacity continue to distort international markets.

According to the Organisation for Economic Co-operation and Development (OECD)'s stance shared in its latest report on the industry, government subsidies—particularly in China—are placing mounting pressure on steel producers in Europe and other advanced economies.

The OECD argues that state support has been a key driver of global overcapacity, with most of the growth in steelmaking capacity over the past two decades occurring outside OECD member countries and often benefiting from government assistance.

In 2024, the median Chinese steel producer received subsidies equivalent to 15 times those granted to steelmakers elsewhere, relative to total assets, the organization said.

At the same time, Chinese steel exports reached a record 131 million tonnes in 2025, representing a 153% increase compared with 2020. The figure exceeded the European Union's total steel output for the year.

The OECD expects global steel overcapacity to rise from 640 million tonnes in 2025 to 745 million tonnes by 2028 as new production capacity continues to outpace demand growth.

While worldwide steel demand is forecast to increase by only 34 million tonnes between 2026 and 2028, steelmakers are planning to add as much as 139 million tonnes of new production capacity during the same period.

China is expected to account for a significant share of that expansion, with projects underway to add up to 38.6 million tonnes of steelmaking capacity by 2028—the largest increase planned by any country.

If these projects proceed as planned, global excess capacity would exceed the combined annual steel production of all OECD countries by nearly 320 million tonnes, highlighting the scale of the imbalance facing the industry.

Policymakers warn that prolonged overcapacity could erode profitability across domestic steel sectors and undermine their long-term viability. Such a trend could increase dependence on imports of a material widely regarded as strategically important for construction, defense, energy infrastructure and advanced manufacturing.

Steel remains a cornerstone of the global economy, serving not only the construction sector but also industries ranging from automotive manufacturing and renewable energy to electric vehicles, data centers and critical infrastructure.

For many governments, the issue is therefore no longer simply an industrial concern but increasingly a matter of economic resilience and strategic security.

By Nazrin Sadigova