Steel industry’s big comeback already losing steam – analysts
AFTER eight years of misery, 2016 has been something of a boon for the steel industry. The big question is can they keep the winning run going?
While many steelmakers surprised analysts with better profits and the stocks enjoyed the best rally in years, the industry’s biggest problem hasn’t been solved. China still exports at a record rate and there are hundreds of millions of tons of surplus capacity around the world still undercutting prices.
“We don’t think at this point that the recovery is sustainable,” said Alon Olsha, an analyst at Macquarie Group in London. “There remains a huge amount of overcapacity in steel and latent capacity that can easily be turned back on.”
The biggest sign that the recovery is almost over is that prices have started to turn south and even ArcelorMittal recently warned that momentum was slowing. At the beginning of the year, steel prices rallied with the speculative fever in iron ore and signs that extra stimulus would spark a recovery in the Chinese economy. Prices peaked in April, and have since weakened.
In July, China’s steel exports jumped 5.8 percent year on year to 10.3 million tons. For comparison, the UK produces 12 million tons a year. China exported 67.4 million tons in the first seven months of the year, a record for the period.
Narrow losses
US Steel Corporation is already moving to capture some of the benefits from its 192 percent surge this year and government efforts to stem a tide of cheap imports.
The producer said this week that it was tapping shareholders for about $439 million (R6 billion) to give it more financial flexibility. Last month it reported a narrower than analysts expected.
ArcelorMittal reported its best quarterly profit since 2014 as deep cost cuts started to pay off and steel prices rebounded. However, the industry continued to face the challenges of “structural overcapacity”, chief executive Lakshmi Mittal said.
Moody’s Investor Service said last week: “We expect market conditions to remain challenging in the second half of the year with uncertainties around prices and level of imports from Asia.” – Bloomberg loss