A report released by global credit insurer Coface concludes that the global steel industry is suffering from weak growth, fed by overcapacity and Chinese exports. This follows a long period of increasing demand driven by China in the 2000s.

In February 2016, the Chinese government announced the first reduction in production capacity, by 40 million metric tons.

In 2014, China accounted for 45 percent of the world’s total steel production. But that appetite is waning, with a 3.3-percent contraction in 2014 and a reduction of five percent in consumption in 2015.

Meanwhile, China’s production capacity has continued to increase, heightening the global imbalance between supply and demand. While global production is weakening—declining by 3.1 percent at the end of February 2016—and one-third of steel production lines are at a standstill, supply is still abundant. This has resulted in strong downward price pressure. China is now exporting its production surplus which is weakening steel production structures in Europe, the United States and emerging countries.

The Chinese economy is undergoing structural changes, with manufacturing giving way to the expanding services sector. The country’s domestic consumption of steel has already reached its peak and will continue to decline, according to Coface.

Coface has seen a gradual rise of credit risks in global metal production. The sector is the most at risk among the 12 industries followed by Coface. It is now assessed as “very high risk” in Latin America, emerging Asia, the Middle East and Western Europe, and “high risk” in Central Europe and North America.

In fact, steel is one of the least profitable sectors in the world (ranked 90th out of 94) and the deepest in debt. China’s price competitiveness, especially for low-end steel, is weakening steel producers around the world. Current overcapacity is also weighing down on credit risks in China and corporate indebtedness is rising significantly.

The rebalancing of supply and demand could be possible from 2018, when the capacity reductions by China will begin to be felt. Growing urbanization and expanding middle classes in emerging markets are expected to present new outlets for growth. Three sectors that use the most steel continue to have positive outlooks over the medium term.

The automotive industry has a substantial margin for development in emerging economies. In India there are 100 autos per 1,000 inhabitants compared to 808 per 1,000 inhabitants in the U.S.

Machinery is also benefiting from numerous pockets of growth, both in emerging markets and advanced economies, according to the Coface report. Construction activity should take off again, due to the strong potential for urbanization in most emerging countries, the report concluded.