CRU at Alacero: Crude steel production to grow 1.5% in next 5 years

Tuesday, 12 November 2019 22:55:50 (GMT+3)   |   San Diego
       

Paul Butterworth of CRU spoke on the first panel of the 60th Alacero meeting and said that he expected a crude steel production growth 1.5% over the next five years in best case. That translates about 140 million tons of additional crude steel production which is almost equal to the steel demand increase expectations and therefore steel market is relatively healthy from a demand perspective, he concluded.

Talking about the profitability of the industry, Butterworth said that since 2014 China has closed down 260 million tons of steelmaking capacity, and the steel production has been broadly flat but capacity utilization jumped to 85% from 70%, and as a result, profitability in the domestic market improved. That in turn reduced the incentive to export, increasing the capacity utilization in the rest of the world and improving the profitability, Butterworth said. But this year, along with new capacities, capacity utilization went down to 80% in China and the profitability also went down, said Butterworth.

According to Butterworth the capacity uplift in China could be anywhere between 50-100 million tons this year, as Chinese mills are investing heavily in pollution control equipment and they are being affected less and less by the winter pollution control measures.

There are also new capacities coming in rest of the world, Butterworth added. Overall he said there could be 300 million tons of new capacity or available capacity coming into the market in the next five years. So the capacity utilization in the steel industry overall could fall by 7% which would translate in to a fall of 10% in EBITDA margin, according to Butterworth. The industry has been very profitable in 2017 and 2018 but it is not likely to achieve same margins in the future, he concluded.

Butterworth also said that because of high CO2 prices, European mills cannot access the end part of their sales portfolio as it is just not economic to do so. He added that it was the main factor behind the decision of several mills in Europe today to cut output. The European steel industry is therefore studying how to improve the situation and get to lower levels of CO2, he added.


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