UN/ECE WARNS OF A POTENTIAL WORLD OVERCAPACITY BUILD UP IN STEEL
8 April 1997
UN/ECE WARNS OF A POTENTIAL WORLD OVERCAPACITY BUILD UP IN STEEL
The Working Party on Steel of the United Nations Economic Commission for Europe
(UN/ECE) warned of a potential world overcapacity build up during its Meeting of
Experts on the Steel Market held on 27 March 1997 in Geneva.
According to the presentations of participants on the evolution of their country's steel
market, the outlook for the world steel market is expected to show generally
favourable trends in 1997. However, there are some concerns ahead. In 1996, the
secretariat warned about the potential for an overcapacity build up in the near future.
Rapidly growing new capacity is taking place in North America and Asia as well as
in South America. In the EU countries, a total capacity reduction of about 12 Mt
which took place in the past three years has now been partly offset by productivity
increases in major EU steel mills.
The Japanese steel industry might see increased steel exports as a result of
strengthened competitiveness which has been achieved through the completion of its
restructuring and the recent depreciation of the Yen. Chinese crude steel production
reached the 100 Mt level in 1996. The increasing speed of crude steel production
in China is surprisingly very fast, attaining an annual average rate of more than 7 per
cent in the past five years, although there has been no significant new construction
of greenfield steelworks.
In Russia, 1996 steel exports passed the 20 Mt level again. Nevertheless, the
capacity utilization is estimated at a low rate of about 67 per cent. The current
production overcapacity in Russia and Ukraine is thought to be very high, amounting
to approximately 20 - 30 Mt, according to calculations made from the National
Monographs submitted to the secretariat from those two countries.
The elimination of overcapacity is very costly. In the first half of the 1980s, the EU
eliminated about 30 Mt of overcapacity at vast expense. The restructuring of the
Russian and Ukrainian steel industries will also need enormous funding. Neither
countries have yet succeeded in taking decisive measures to curtail overcapacity.
This means that the overcapacity situation in both countries will continue to exist at
least in the near future towards the year 2000.
Participants in the Meeting of Experts on the Steel Market stressed the need for the
world steel industry to recognize that the world steel market is fragile at present and
threatened by increasing supply pressures. An effort to avoid an over-supply
situation and to match supply to the level which the market requires is essential.