The global excess steel production capacity will grow from 601 million tons in 2024 to 721 million tons by 2027, according to the OECD forecast. The organization believes that further expansion of production with an existing surplus will weaken the financial capacity of companies to invest in low-carbon technologies and increase the risk that subsidized capacity growth will delay the decarbonization of the industry.
In the report "Focusing on the Steel Market," the OECD notes that a prolonged oversupply puts pressure on prices, reduces margins, and increases the financial burden on producers. At the same time, government support for weak players can slow down the decommissioning of enterprises with high emissions.
Capacity growth of blast furnace and converter plants outstrips closures
According to the organization's calculations, in 2025-2027, about 25.8 million tons of capacity at blast furnace converter plants will be shut down worldwide, including 15.6 million tons in China, which is approximately 60% of the total volume. However, this will be blocked by the introduction of 62.1 million tons of new capacity in the converter segment, mainly in China and India.
Of the identified closures, only 6.9 million tons, or 27%, are related to replacement with electric arc furnaces at the same sites. According to the OECD, this shows that the deterioration of market conditions remains the decisive factor, rather than the desire to reduce emissions.
Separately, the report says that Chinese overseas investments are contributing to the shift of carbon-intensive production. It is expected that about 60 million tons of capacity in the ASEAN countries will be increased with the participation of Chinese capital, which may prolong the region's dependence on traditional technologies.
The expansion of electric arc and DRI capacities does not always mean decarbonization
The OECD also reported that in 2025-2027, the steel production capacity in direct iron reduction plants followed by melting in electric arc furnaces (DRI-EAF) will increase by 30.7 million tons, and the capacity of electric arc furnaces on scrap — by 61.7 million tons. However, as the report highlights, much of this growth is due to the availability of raw materials, energy cost advantages, and expectations of rising demand, rather than specific climate goals.
Of the DRI projects scheduled to be launched by 2027, only about 19 million tons, according to the OECD, actually meet the objectives of reducing emissions. The organization reminds that the production of DRI by itself does not guarantee a low-carbon profile: in the case of coal technologies, this is especially important, and gas projects require a clear plan for the transition to the use of hydrogen, if the goal is almost zero emissions.
Low-carbon projects are postponed due to deteriorating investment conditions
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