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China steel industry outlook ‘calamitous’: WSD

Keywords: Tags  Peter Marcus, Karlis Kirsis, World Steel Dynamics, China steel, scrap exporter, Steel Success Strategies XXVIII, Frank Haflich

NEW YORK — China’s steel industry is in a "calamitous situation" as its era of breakneck growth comes to an end and demand by 2015 "may not be much changed from 2013," an industry analyst said at the Steel Success Strategies XXVIII conference in New York.

Peter F. Marcus, managing partner at World Steel Dynamics Inc. (WSD), Englewood Cliffs, N.J., said that during a recent visit to China he found the problems facing the country’s steel producers’ are "deeper than thought" and more long term in nature, and over the next decade demand is likely to hit a "Great Wall."

Marcus, who along with WSD managing partner Karlis M. Kirsis delivered the opening address at the AMM- and WSD-sponsored event, cited China’s shift from capital equipment and infrastructure spending to an economy emphasizing rising household consumption. The former is seven times more steel intensive than consumer-related spending, he noted.

Moreover, the Chinese steel industry doesn’t necessarily contain a large portion of obsolete capacity in at least one key sector, hot strip mills, with only six of 77 such mills built prior to 2000, he said.

With 32 plate and 300 rebar mills, China’s excess capacity is "quite remarkable," Marcus said. And the prospects for consolidation are questionable as provincial governments try to maintain employment and Chinese mills attempt to export more, running into an "avalanche" of countervailing duty complaints. China’s steelmakers are "going to have a period of intense pain," he said.

China could play a key role in a "massive rebalancing of metal resources" over the next decade, Kirsis said, noting that its reservoir of obsolete scrap—on average 10 to 40 years old—could grow from 64 million tonnes in 2015 to 220 million tonnes by 2025 and 430 million tonnes in 2035. "China will become a huge steel scrap exporter," he said.

Kirsis said that the world could lose 175 million tonnes of annual steelmaking capacity by 2020, if not before, with 15 million tonnes being shed in North America. Asked which domestic mill assets are most vulnerable, Marcus said that with scrap prices likely to be lower by then, along with a greater local supply of direct-reduced iron, electric furnace mills are likely to see a "rise in market share" at the expense of blast furnace producers, and the brunt of the shakeout would be absorbed by integrated mills.

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