Shifting Steel Production Patterns in the US and Elsewhere
In an interview with Third Bridge Forum, the CEO of a leading sector company said his firm was projecting that China would produce 965 million tonnes of new steel this year, up 4% from 2018’s 928 million tonnes.
In addition, in August China did not import any scrap iron or steel at all, the first month in decades that this had happened.
Production capacity was increasing, with 40 million tonnes worth of electric arc-based steel production expected to be added this year. China already produces more of this steel than the US, according to the CEO.
However, further into the future, steel output was predicted to slow to approximately 900 million tonnes by 2025. Profit margins have been falling across 101 major Chinese steel producers, according to the Interview, and with capacity increasing these margins would only fall further.
The producers will have to slow down their rate of growth and output or move into a largely negative profit margin, he explained. Alternatively, “…they’re going to have to try to increase exports, which we don’t think will happen in this significantly negative trade environment,” the CEO said.
India is also increasing its steel output, which has grown by 5-7% a year in recent years – a rate it is expected to maintain for the foreseeable future, making India the second-largest steel producer in the world. However, India’s expansion is not expected to have the same impact as China’s, as it is a “rather insular” market.
Looking more broadly at the sectors that would take up this steel, the specialist said there were “more negative signs than positive” regarding the global economic outlook. However, the US and Canadian outlooks were slightly more upbeat, with the automotive market “holding up in terms of output”. The construction sector was expected to slow once the current raft of projects were complete, he added, but still post mid-single-digit growth in 2020.
To access all the human insights from Third Bridge’s US Steel Sector Analysis – Capacity Additions & Pricing Update Interview, click below to view the full transcript.
The information used in compiling this document has been obtained by Third Bridge from experts participating in Forum Interviews. Third Bridge does not warrant the accuracy of the information and has not independently verified it. It should not be regarded as a trade recommendation or form the basis of any investment decision.
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