Global steel industry facing 'Ice Age'

Apr 01, 2016

The crisis engulfing the global steel industry is so severe that one of China's top producers has warned a new Ice Age has set in as mills confront overcapacity and rising competition that threaten their survival.

"In 2015, China experienced a slowdown in economic growth and excess steel capacity, which caused the domestic and overseas steel industry to enter into an 'Ice Age'," Angang Steel Co said after posting a net loss of 4.59 billion yuan ($710 million) for last year. There are severe challenges, fierce competition and difficult survival conditions, it said.

Steel demand in China is shrinking for the first time in a generation as growth slows and policy makers seek to steer the economy toward consumption. Faced with declining sales at home, mills in the top producer - which accounts for half of global supply - have shipped record volumes overseas, heightening competition from Europe to the US. Tata Steel in India said this week it's planning to sell off its loss-making UK plants, prompting Prime Minister David Cameron to call crisis talks on Thursday.

The steel industry is set for a "severe winter," Angang said, describing the market that it and others faced as complex. Output of steel by the country's fourth-biggest producer contracted 4.4 per cent last year, and the company is seeking to reduce costs and boost efficiency, it said.

Benchmark steel prices sank 31 per cent in China last year, pummelling mills' margins and spurring the government to step up efforts to force the industry to shut overcapacity and shift workers to other jobs. While reinforcement bar has rebounded since November, Daniel Hynes, senior commodities strategist at Australia & New Zealand Banking Group Ltd, forecasts the rally may not last.

"The short-term rally we've seen in steel prices will give way to the longer-term dynamic of weaker steel consumption in China," Hynes said by phone on Thursday. "I suppose the positive thing is that maybe the restructuring we're seeing in the steel industry will speed up the rationalisation of the market."

Source: Business Standard