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This research examines the barriers preventing entry and exit in the steel industry and their economic implications.

March 12, 2026Open Access

The Overcapacity Trap - Barriers to Entry and Exit in Steel

Key Points

This research examines the barriers preventing entry and exit in the steel industry and their economic implications.
Analysis of global steel market capacity and utilization rates
Evaluation of state subsidies impacting market dynamics
Assessment of exit costs associated with capital investments
Comparison of proposed interventions with Germany's coal phase-out strategies.
Projected steel capacity surplus of 721 million tonnes by 2027
Utilization rates expected to decline to 70%
Exit costs estimated at £4-5 billion contributing to economic traps
Four proposed interventions could mitigate these issues effectively.

Abstract

Global steel faces 721 million tonnes surplus capacity by 2027 with utilisation falling to 70%. Dual barrier structure creates vicious cycle: state subsidies undermine natural entry barriers enabling uneconomic expansion, whilst £4-5 billion exit costs trap capital even during extended unprofitability. Four strategic interventions offer solutions: ownership screening preventing inappropriate acquisitions, enhanced environmental permitting, CBAM carbon pricing, and comprehensive closure programmes modelled on Germany's €40 billion coal phase-out.

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