Higher growth in steel consumption likely in 2018

A 2017 study of the key performance indicators of the global steel industry indicates a definite trend in what is expected for the current year. While global steel production increased 5.3% in 2017 over the previous year, projected steel consumption rose to 1.622 million tonnes last year.

Thus, 2018 began with a positive note that did not take place a year ago, when excess capacity in the global steel market was identified as the main constraint plaguing the industry amid a bargained-for business scenario. The Global Steel Forum, in addition to the OECD Steel Committee, has intensively discussed ways and means to eliminate excess capacity, and in this regard, China has been the main target.

China has even more recently proposed to close 100-150 tons of steel capacity during 2016-20. China promulgated strong abatement guidelines to close polluting firms in the coal, cement and steel sectors, and units that did not meet the abatement benchmark were presented with closure notifications following physical inspection, with labor redeployment to the greatest extent possible.

The Ministry of the Environment previously identified 29 steel production units for closure and has already limited production to 50% for all those units that show varying levels of problems in meeting pollution standards. It also eliminated about 50-100 tons of induction furnace capacity, which was not part of the country's regular production figures. Since these manufacturers mainly produce long products, the capacity closures have helped large players capitalize on local scarcity of these products to get a better return on their products.

In general, China is expected to exceed its 2020 shutdown target. It will also mean that existing production units will be able to achieve more efficient capacity utilization, with a positive impact on EBITDA and the ability to repay loans where required by law. As domestic steel prices rise by stimulating infrastructure investment and thus resisting the FAI from a sharp decline from the current 45% of GDP, China could improve the profitability index of state-owned enterprises and SMEs in the steel sector, which saved the country from a possible collapse of the banking system, as all of these units were heavily flooded with bank loans, as recommended by the provincial governments. A largely Chinese unswerving appetite for steelmaking