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Oversupply restricts mill profitability

A MEPS (International) product story
Edited by the Engineeringtalk editorial team Dec 5, 2005

Oversupply has restricted mill profitability, especially in Europe and Asia, this year, according to steel market analyst MEPS.

Oversupply has restricted mill profitability, especially in Europe and Asia, this year, according to steel market analyst MEPS.

Some producers fell into the red in the third quarter.

Such poor financial results are clearly not sustainable, says the report.

Inventory management has been under way since the second trimester and now seems to be in its final stages.

Production cuts by most major producers have contributed to the stock run-down.

Mills have announced output curbs amounting to more than 1.5 million tonnes in the second half of this year, although it is not clear how much of this represents a real reduction in supply to the market.

EU and US producers will be looking for opportunities to raise prices as the re-stocking phase of the cycle begins.

However, sharply escalating production in China could derail this process.

Chinese crude stainless output rose by more than 50% in the first half of 2005, and is forecast to exceed 3.7 million tonnes by December, a year-on-year increase of over 30%.

Growing Asian production means companies which traditionally export into that region are finding it more difficult to do so.

Finland's Outokumpu has shifted some of its supply away from Asia into other markets.

South Africa's Columbus Stainless (part of the Acerinox group) has resorted to production cuts rather than sell hot coil into Asia at the very low prices currently ruling.

Posco's stainless production so far this year is down by almost 5%.

Expanding Chinese supply is forcing these and other producers to curb their output.

Within China itself, there have been reports of some cold rolled strip producers switching away from stainless to roll carbon steel strip instead.

The picture could deteriorate further.

According to a recent report by Outokumpu, China will account for around 70% of the global increase in stainless melting capacity between 2004 and 2009.

If all of these additional furnaces are built - and this is not necessarily the case - they will pose a long term threat to both price levels and stability of the market in general.

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