NEW YORK Steel industry leaders need to make strong moves to combat chronic overcapacity and low profit margins, according to Cambelle-Inland LLC chairman Craig Bouchard.
"From the leaders of the steel industries, we need significantly different action. We need big changes or the steel industry is not going to regain its health from a return-on-investment perspective," Bouchard said in a presentation at the Steel Success Strategies XXVIII conference in New York, sponsored by AMM and Englewood Cliffs, N.J.-based World Steel Dynamics Inc.
He cited overcapacity in the global steel industry as one of the major issues squeezing profit margins, and challenged steel leaders to adopt a novel approach to address the problem.
Global overcapacity is estimated at 334 million tonnes, according to Morgan Stanley Research data, including 200 million tonnes in China.
Worldwide steel output is likely to grow around 3 percent per year over the next five years, the same rate as steel consumption, Bouchard said, meaning that overcapacity will persist unless action is taken.
The traditional method of solving overcapacity is through consolidation, but there arent enough healthy steel companies to aggressively buy unhealthy companies, he said.
Bouchard declined to comment on action that particular companies should take, but said the markets problems were long-term structural issues rather than cyclical business challenges, with changes needed industry-wide. Bankruptcies could reinvigorate the market, for example, he said.
Chinese overcapacity might continue to be an insoluble issue, he said. "If the Chinese just shut down 200 million tonnes of production we wouldnt have a problem. But its not going to happen."