Commodity Blog

Steel companies must consider shelving all growth capex plans as soon as possible if the global steel industry is to have a sustainable future, Credit Suisse warned in a report Wednesday.
Warning of the dangers of oversupply in coming years, the bank added that failure to achieve this would ultimately lead to further forced plant closures, likely rounds of protectionism and subnormal returns for potentially the next decade at least.
Explaining the new dynamic driving steel markets in the wake of a 450 million mt drop in global steel demand, the bank said we have returned to supply-led cycles, like the 1980s and 1990s, where regardless of a potential 3–5% global demand growth trend once the cycle has normalized, the level of excess capacity means that supply fluctuations will drive the cycle for steel again, and not demand.
If the steel industry proceeds as it had planned with plant capacity additions, there is a real risk of far greater excess capacity than in the 1980s and 1990s and consequently utilization rates that are structurally too low to sustain the industry in its current form, CS warned.
To illustrate the magnitude of the likely oversupply problem, CS produced forecasts of new capacities, predicting 90 million mt of capacity would be added in 2009, 95 million mt in 2010, 89 million mt in 2011 and 76 million mt in 2012. In every year, China accounts for 40–60% of additional capacity, with India in second place.