NEW STEEL-MAKING CAPACITY GROWING FASTER THAN EXPECTED
5 August 1997
The United Nations Economic Commission for Europe (UN/ECE) has just
released a pre-publication version of its 45th annual review of the steel market, The Steel Market in 1996 and Prospects for 1997. The review focuses on
rising new crude steel-making capacity, particularly in North America and Asia.
Today the world steel market sees itself threatened by possible oversupply in
the short term and overcapacity build-up in the medium term.
One year ago, ECE already warned of a potential overcapacity build-up in
the period from 1995/1996 to 1999. The latest ECE analysis points to a large
expansion of total new crude steel-making capacity in North America and Asia
for the same period - a 12 Mt increase to 87.7 Mt. Although in North America,
expansion predictions remain unchanged from last year's (17.4 Mt), new
capacity in Asia will expand to 70.3 Mt, with Malaysia, Thailand and Taiwan
Province of China showing particularly strong growth. Out of the 87.7 Mt, new
EAF (electric arc furnace) capacity is expected to reach as much as 60.3 Mt,
considerably greater than last year's prediction of 54.1 Mt.
In Taiwan Province of China, CSC inaugurated No.4 BF (blast furnace) in
November 1996, adding new capacity of 2.0 Mt. In the Republic of Korea,
Posco is constructing No.5 BF at Kwanyang, which is expected to be
completed in 1999. At Kwanyang, a mini-mill project to install an EAF and a
thin slab caster will also be completed in 1999. No.5 BF and the mini-mill will
raise crude steel-making capacity by 3.0 Mt and 2.0 Mt, respectively. The new
facilities will make Posco
the largest mill in the world in 1999, ahead of Nippon Steel.
India, on the other hand, has decelerated its construction of new capacity.
The recent weakening market situation, coupled with fears about overcapacity
resulting from numerous projects to construct new steelworks, has caused the
postponement of a few projects.
In the United States, five new mini-mill flat-product plants totalling 5.8 Mt in
capacity came on stream in 1996. In 1997, Ipsco is due to commission a 1.2 Mt
plant for flat products in Montpelier, Iowa. Trico Steel, a joint venture with LTV,
British Steel and Japanese Sumitomo Metal, is scheduled to start operation of a
2.0 Mt strip sheet mini-mill in Decatur, Alabama.
In addition to its concern about growing steel-making capacity in North
America and Asia, the world steel industry is worried about the massive
overcapacity in the Russian Federation and Ukraine. Production overcapacity in
these countries is estimated to amount to approximately 20-30 Mt, despite
enormous export volume in recent years. Eliminating overcapacity is very costly.
As the restructuring of the Russian and Ukrainian steel industry will need
enormous funding, neither country has yet succeeded in taking decisive measures
to curtail overcapacity. This means that the overcapacity situation in both
countries will continue at least until the year 2000.
In the short term, the world steel industry also faces the following concerns.
In the European Union, the total capacity reduction of about 12 Mt which has
taken place in the past three years has now been partly offset by productivity
increases in major 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.
In Taiwan Province of China, steel consumption has stagnated at around 22-23 Mt since 1993, although there are several plans to install new capacity. In
Thailand, the economy has slowed down since 1996, although total new capacity
of about 8 Mt is scheduled to come on stream within a couple of years.