World steel capacity utilisation continues to fall
27 November 2015
The latest report from the World Steel Association shows the world steel capacity utilisation ratio fell to 68% in August, compared with 71.6% at the same time last year.
While there is a seasonable dip in output in late summer the average ratio in 2015 is running at least two points lower than in 2014. Over capacity is impacting the steel industry throughout the world. This was starkly illustrated in the UK during September when SSI announced the closure of its Redcar blast furnace and Tata Steel confirmed the closure of two Scottish operations and the mothballing of its plate mill in Scunthorpe, with a consequent loss of 1,200 jobs. Tata Steel’s wire rod mill, which produces cold heading wire, was not directly affected by the cuts.
A Reuters survey of steel analysts forecasts that iron ore prices will remain below US$50 per tonne for the coming two years as supply of the raw material continues to outstrip demand, particularly in China. Analysts that had previously forecast Chinese steel production would continue to rise until 2020 now suggest the peak was reached in 2014. Credit Suisse projects Chinese steel production to fall from 823 million metric tonnes in 2014 to 812mmt this year. By 2018 it believes the figure could be down to 745mmt. At this level, though, China will continue to have massive over capacity, expected to continue depressing world steel prices. Despite many Chinese steel companies reported to be making substantial losses there remains little evidence of significant reductions in output, with many focusing on overseas sales to compensate for weak domestic demand.
The China Iron & Steel Association has announced that medium and large-scale steel mills in the country lost the equivalent of US$4.4 billion in the first nine months of 2015. It also, though, confirmed that reduction in output was still at a lower pace than the fall in domestic demand.
Steel analysts MEPS (www.meps.co.uk) recently raised other concerns relating to the growth in exports of Chinese steel products. China incentivises steel companies to export but restricts tax rebates to alloy grades. However, the threshold of alloying element content to achieve eligibility for export rebate is low. This, MEPS says, brings into question the degree to which the mechanical properties of the material are improved and may create performance risks, particularly in relation to weldability. MEPS also highlights massive discrepancies between official Chinese data for exports of certain types of steel when compared with the receipts from Chinese suppliers recorded in other countries. The analyst’s conclusion is that the Chinese reporting mechanisms are not fit for purpose.
