News Room - Steel Industry

Global steelmakers face another year of pain with more capacity closures and job losses expected, even as steel prices start to stabilise thanks to painful production cuts, depleted stockpiles and rising trade barriers.

Capacity closures and bankruptcies picked up across the globe last year and top producers like ArcelorMittal and Nippon Steel slashed earnings forecasts as prices (ST-CRU-IDX) lost a third of their value, sliding to 12-year lows.

In January, prices finally edged up, but experts say a strong and sustained recovery is not yet within reach, meaning well over half the industry will remain loss-making.

“We see steel prices stabilising this year but the industry as a whole is still burning cash,” Patrick Morton, analyst at Macquarie, said. “Without some unforeseen event to help prices rebound strongly, the likelihood of western world shutdowns continues to rise.”

Some 50 million tonnes of excess steel capacity was shut last year in China, which produces about half the world’s 1.6 billion tonnes of steel, and whose major steelmakers lost 53.1 billion yuan (RM34.1bil) from January to November.
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China steel rebar prices have gained 1.7% this year to 1,826 yuan (RM1,172) a tonne following the cutbacks.

Outside China, another 20 millions tonnes of capacity was shut last year, according to consultants CRU. But analysts say that to balance the market, another 200-300 million tonnes still needs to be cut, mostly in China.

Beijing said last month it will cut steel capacity by 100-150 million tonnes, a move expected to lead to 400,000 job losses. There was no timeframe given for the cuts.

China is facing growing trade tensions after exporting a record 112 million tonnes of steel last year, equivalent to total North American output. Its trade partners have instituted dozens of anti-dumping measures against it, with many more in the pipeline.

“China’s steel industry is huge, making it difficult to manage and direct. News of capacity cuts might offer short term price support ... but we’ve seen announcements like this before which never really delivered,” Morgan Stanley analyst Tom Price said.

The World Steel Association (Worldsteel) says steel demand is expected to grow by 0.7% this year to 1.52 billion tonnes.

Global capacity, however, remains a whopping 2.3 billion tonnes.

“Nearly any Western producer making commodity-grade steel will not be profitable at these price levels,” said Ben Orhan, senior economist at IHS Global Insight. “Profits can be made only in specialty steels. We expect prices will recover slightly this year but there will be further mill shutdowns.”