Global excess steel production capacity is set to reach 721 million by 2027 — OECD

The global steel industry is currently facing two interlinked challenges: tackling the issue of excess production capacity and preparing for a low-emission future.

This is set out in the report by the Organisation for Economic Co-operation and Development (OECD) entitled ‘Navigating the Steel Transition amid Global Excess Capacity’.

Global excess steel production capacity is forecast to rise from 601 million tonnes in 2024 to 721 million tonnes in 2027.

Large-scale subsidies in countries with non-market economies and the resulting excess capacity are affecting the pace of the transition to low-carbon production, according to the OECD. Furthermore, foreign direct investment is contributing to the relocation of high-emission capacity rather than its orderly decommissioning.

According to the organisation’s forecasts, the total capacity along the DRI-EAF route, which is expected to come on stream by 2027, stands at 30.7 million tonnes, whilst capacity using BF-BOF technology and electric arc furnaces fuelled by scrap stands at 62.1 million tonnes and 61.7 million tonnes respectively. However, the expansion of capacity based on DRI technology is not necessarily a consequence of a decision to switch to more environmentally friendly production methods. Instead, it is driven by comparative advantages and other market factors — just as is the case with the closure of energy-intensive BF/BOF operations.

As of the second quarter of 2025, low-carbon projects totalling 15.5 million tonnes had been suspended or postponed due to overcapacity, high energy costs and regulatory uncertainty.

The fall in prices for conventional steel also weakens the commercial case for ‘green’ products, increasing the relative premium that buyers will have to pay.

It should be recalled that the American Iron and Steel Institute (AISI) noted that global overcapacity undermines market discipline and creates significant obstacles for American steelmakers who, amongst other things, are seeking to invest in new, modernised facilities.