Maximum Global Steel Capacity Faces 2013 Demand Problems

As happens often in the historical annals of major industrial commodities, alignment of supply and demand rarely happens. This is particularly relevant to the ups and downs of global metals related to the construction of all aspects of buildings, transportation, and power generation. Most recently steel, the universal base metal, is reaching peak capacity, while global demand will barely hold its own during 2013.

To put this problem in perspective, worldwide steel mills have reached a total estimated supply capacity of 1.8 billion tons, while facing the most optimistic global demand of only 1.5 billion.

And although new orders will be relatively static as the New Year approaches, a spate of an estimated 100 new mills is expected to generate additional supply capacities of 350 million tons by 2016 all over the world.

With China long ago superseding America’s once-dominant steel production as late as the 1960′s, Beijing now boasts 46% of the world’s steel output. Since the ability to produce steel has traditionally signified developing nations’ industrialization, countries such as Vietnam, Argentina, Ecuador, Peru, and Bolivia have capitalized on government subsidies to maximize the building of even more indigenous mills than are needed to satisfy world, exceeding even domestic needs.

The price shrinkage consequences of this unstoppable steel glut will be felt by raw material suppliers such as Australia’s massive iron ore reserves, also producers, distributors, end-users and scrap generators alike. The world’s leading international steel producer corporations such as Arcelor Mittal and the U.S.’s Nucor are already feeling the results in their profit statements.

Of course, the beneficiaries of lower steel costs most immediately will be the tens of thousands of steel product components, and makers of pipe-valve-fittings, flanges, etc. Of course, such advantages will only be temporary, as a downward pricing spiral will gather speed, eliminating any short-term price advantage, and reducing the value of millions of tons of inventories reposing in the raw state or as part of finished goods.

During my long-term analysis of the turbulent history of steel pricing, it appears that the periods of significant steel cost reduction have shared simultaneity with mini recessions or worse for the huge industrial production sectors requiring steel components of all types.

Expect steel prices in general to languish throughout 2013 as the nationalistic desire for steel production supersedes the increasing resultant overcapacity.

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