The Steel Lining on the Dark Cloud

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Currently China is both the largest producer and the largest consumer of steel in the world; as such any rise or dip in global prices of iron ore or steel can be attributed to China. Because of this reason, and because China itself has been experiencing much lower rates of growth than we had seen until that point, the global steel industry is in a wobble.

Steel Supply 2013

Steel industry has to work with a major handicap, because of which it cannot really proactively tailor the supplies to the vagaries of demand. The governments round the world endow the steel industry with strategic and symbolic importance. Whatever the deficiency of demand, a steel plant cannot be easily shut down. That has been the experience in Europe, in US, in Africa, everywhere.

global steel

On the other hand, as compared with the iron ore extraction sector, the steel industry is highly fragmented; while the global iron ore supplies are controlled by just two or three big players, the largest steel producer’s contribution to the market does not exceed 10%. As a result, if the structural changes in demand call for structural changes in production, that cannot happen fast.

Capacity utilization rates in the sector remain at about 80%; in fact the global percentage level of excess capacity is greater now than it was last year due to the continued growth in new steelmaking facilities particularly in developing economies.In 2013, excess capacity will remain the most significant issue in the steel sector. However, the continued closure of older, higher-cost steelmaking capacity and increased demand should lead to improved profitability for the sector in 2014 and 2015, driven by better utilization rates.