Global Steel Supply Outlook: Not Looking Great for Producers

Global steel overcapacity, which MetalMiner has been covering the past few months — most recently blowing up in Europe with a spat between ArcelorMittal and the French government — is now finally starting to make its way into mainstream commodity news.

Globally, steel production capacity this year will total 1.8 billion tons, but mills will take orders for only 1.5 billion tons, according to a recent article in the Wall Street Journal. Does that mean fewer mills are being built? Of course not. (Witness the current situation in India.)

The Steel Supply Picture in Europe

The ArcelorMittal/France issue — which centers on the steel company wanting to shutter two blast furnaces because it’s not making money, while France’s ministers wanting them to stay open and save jobs — is a microcosm of the larger steel oversupply issue in Europe, as evidenced by some industry leaders.

Wolfgang Eder, CEO of Austrian steelmaker Voestalpine AG and president of the European Steel Association, “has called for European politicians to organize a coordinated scheme of capacity-cutting,” according to the Wall Street Journal.

“The steel industry could fall back into the mistake of the 1980s, in which it would demand subsidies and keep obsolete plants running for social and political reasons,” he was quoted as saying in a recent interview with the WSJ.

The Steel Supply Picture in China

There are hundreds of small mills in China, and hardly any capacity cuts are being made to deal with oversupply.

Paulo Santos, of the blog Think Finance, writes: “Excess supply in China, or in China plus Europe, is bound to sour pricing and margins worldwide, especially taking into account that China holds almost 50% of the entire world’s steel production capacity.”

“As such,” he continues, “China steel pricing resuming its downward trend is a renewed negative for steel producers everywhere, including the U.S.”

Santos also cites the iron ore sector and mining equipment suppliers as a few of the to-be-affected parties by falling prices. Chinese steel, iron ore and coking coal, all considerable inputs in MetalMiner’s monthly price index, the Raw Steels MMI®, have contributed to the downward trend:

MetalMiner Raw Steels Price Index Nov 2012 chart

The Steel Supply Picture in the US

As far as US service centers go, according to MSCI data, “steel product inventories were 8.4 million tons at the end of October 2012, an increase of 0.8% over October a year ago and a decrease of 3.6% from last month.”

These stats represent a lower inventory surplus compared to the end of September, which stood at a total of 8.8 million tons.

At the current shipping rate, the October figures represent 2.4 months of supply in inventory, a decrease of 3% from a year ago. In September, the figures represented 2.8 of supply in inventory, according to MSCI.

Where Does Big Steel Go From Here?

Indeed, consolidation of steel mills and companies is a huge issue on the plate of a now-indisputably global industry.

But according to the WSJ, the steel industry is “expected to remain, for the foreseeable future, the most fractured of major industries”:

“The world’s top five steel companies control only 18.2% of global steel supply. By contrast, the world’s top five car companies control 50.6% of the global market. And the world’s top five sellers of seaborne iron ore— iron ore that is exported by ocean trade routes—account for 66.1% of that market.”

Good luck cutting down on that supply, folks.

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