Overcapacity hurts steel mills
THE global steel industry faces an escalating crisis and any prospective mill closures look unlikely to be enough to lift a sector hit by the flood of cheap Chinese steel and low prices.
THE global steel industry faces an escalating crisis and any mill closures in prospect look unlikely to be enough to restore sectoral profitability.
Britain’s second-largest steel maker, SSI UK, went into liquidation last week, citing a slump in steel prices and record exports from China.
Similar troubles are circling SA’s second-largest steel maker, Evraz Highveld Steel and Vanadium, which is undergoing business rescue proceedings, while Tata Steel and US Steel Corp have curtailed capacity this year.
Experts say measures taken so far fall far short.
“The steel industry is in its worst recession in 10 years, potentially as bad as 1991-92,” said VTB Capital’s Wiktor Bielski. “There’s almost nobody who isn’t hurting right now. Less than 50% of the global industry can make money at current prices.”
Consultancy CRU said 700-million tonnes out of a total 2.3-billion tonnes of annual steel-making capacity was “spare“, with cuts of 400500-million tonnes needed by 2020 to balance the market.
Few believe such cuts will materialise, not least because 300-million tonnes of spare capacity is in China, where the sector employs millions and cutbacks could spark unrest.
“It is the rule of the market. If not China, it will be Indian, Russian or Turkish mills, the more competitive will outlive the high-cost producers in the developed economies,” said a China Iron and Steel Association officer.
The association expects China’s steel exports will exceed 100-million tonnes this year, after surging 50% last year to 94-million tonnes. This flood of cheap Chinese steel has helped send global prices to 11-year lows.
“Global steel prices have fallen more than iron ore in the last few weeks. In southern Europe we see steel from China at about €300 a tonne, significantly below the cost of the most efficient (European) producer,” said Voestalpine CEO Wolfgang Eder.
Scarcely a month goes by without news of new protectionist measures, which many experts see as counterproductive in the long run because they reinforce overcapacity.
“The best market is a market that is as free as possible from artificial restrictions within the rules of the World Trade Organisation,” said Edwin Basson, the director-general of the World Steel Association.
Yet protectionism is popular, and political and labour pressures to keep mills running are intense.
At the same time steel demand remains lacklustre.
CRU estimates demand, which has been growing anaemically since the financial crisis, will fall 3% this year, thanks in part to the slowdown in China, which consumes half the world’s steel. It sees compound annual growth in demand of 2% until 2019.