Good morning and thank you for the opportunity to appear as you kick off your study of the steel industry.
I have some short prepared remarks that I'll go through that reflect the input of everybody at the table, the three departments.
On behalf of my colleagues from the Department of Finance and Global Affairs Canada, let me express our gratitude for the opportunity to appear before this committee to discuss the Canadian steel industry. I have been asked to deliver opening remarks on behalf of all three departments.
Let me begin by speaking to the responsibilities of the three departments appearing as witnesses.
Innovation, Science and Economic Development Canada is the lead department responsible for analysis and policy development regarding Canada's steel sector. This includes focusing on innovation and productivity issues.
The Department of Finance is responsible for import policy, including trade remedies, which are used to address dumping and subsidizing.
Global Affairs Canada is the lead on Canada's international relations and World Trade Organization issues.
Together, our departments work collaboratively on issues important to Canada's steel sector.
Let me speak for a minute to the steel sector significance and a bit of background.
The steel industry constitutes a major pillar of the Canadian economy, supporting nearly 17,000 jobs directly and contributing about $2.6 billion directly to Canada's GDP. Besides the direct jobs, the industry plays an important secondary role as a key supplier to North American manufacturers, the energy sector, and the construction industry in particular, all of which derive billions of dollars in benefit from Canada's steel industry. However, difficult conditions are posing substantial challenges to the Canadian industry, which has suffered from weak demand, low prices, and intense competition. In this context, two of Canada's major steel producers, Essar Steel Algoma and U.S. Steel Canada, are now under creditor protection.
I'll turn now to some of the key issues.
One of the most pressing issues facing Canada's steel sector, and a key factor impacting the financial health of Canadian steel producers, is global excess capacity and the resulting increase of steel imports, particularly in terms of unfairly dumped and subsidized steel.
To put things in context, global steel-making capacity is approximately 2.4 billion tonnes. Canada has 20.5 million tonnes of steel-making capacity, which counts for approximately 1% of the global total. The capacity is small when compared to the approximately one billion plus tonnes of capacity in China, followed by second-place Japan with approximately 131 million tonnes. According to studies by the Organisation for Economic Co-operation and Development, in 2015 the world excess capacity stood at approximately 850 million tonnes.
This excess capacity has grown due to government intervention and control in countries providing subsidies that create or maintain excess capacity or allocate resources to the steel industry and implement border measures that encourage production and exports. The addition of new capacity, particularly in developing countries, has occurred despite data that continues to demonstrate an excess of supply and low global demand.
While not all of this excess capacity is being used, significant quantities of excess steel are still flooding the global market. This excess supply creates downward pressure on global steel prices, unfairly undermining competition in open markets like Canada.
In facing this challenge, countries are taking various measures to address imports and retain domestic markets for domestic producers. These measures, however, can have significant knock-on effects as countries look for alternative markets to which they can export their steel. Further excess steel depresses prices in manufacturing supply chains. For example, Canadian fabricators working with their partner steel companies can lose contracts for infrastructure projects to competitors using inferior dumped steel hidden in a manufactured product that's imported.
The Government of Canada is working on many fronts to respond to these challenges. This includes increased procurement opportunities for domestic firms and financial support for advanced technology development and adoption to increase the efficiency and sustainability of Canadian production. With respect to trade remedies, the government has made changes to strengthen the trade remedy system, and is considering further action in this area.
Our departments work closely on steel issues with our NAFTA partners through the North American steel trade committee. Recently, this extended to collaborative work with our NAFTA partners on the enforcement of steel-trade remedy measures with Canada's participation led by the Canada Border Services Agency.
We also work with other steel-producing countries on the issue of overcapacity at the OECD and the World Trade Organization. Concurrently, through our efforts with the G20, we are working to establish a global forum on steel excess capacity, and this was announced as part of a communiqué from the most recent G20.
Before I end my opening remarks, let me say a few words about technology, innovation and skills within the steel sector.
While the situation of global excess is a significant challenge, Canada has a very advanced steel industry, producing extremely high quality steel, be it high strength steel for the energy sector, or super-lightweight steel for the automotive industry.
This capital-intensive industry has the highest productivity rates among Canadian manufacturing sectors. Recent capital investments by industry have resulted in Canadian mills being among the most energy efficient and automated in the world.
Canada also produces steel that is significantly less carbon-intensive due in large part to the fact that significant inputs, particularly electricity for steel-making, come from non-emitting sources.
The industry across the country maintains linkages to universities, colleges, and research institutions, which ensure that the sector has the highly trained, highly skilled workforce it needs.
Despite these positives, the global challenges facing the steel industry are considerable. Departments we represent will continue to work with other federal partners and fellow stakeholders to ensure the steel industry can remain competitive.
Thank you again for this opportunity. My colleagues and I look forward to your questions. Merci.