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MB’s Ferro-alloys conference is an event naturally dominated by sellers. In steel industry structural terms, anyway.
And, with more than 1,000 market participants gathered in Berlin, it’s little surprise that things got bullish pretty quickly.
The economic crisis is winding down. The days of doom and gloom are fading. And the commodities super-cycle, driven by China, is only just getting started, analysts and industry players said at the event.
So raw materials supply is going to be pretty tight for the next decade, they reckon. There’s some reason to believe that’s true.
China is somewhere in the region of 40% urbanized. If the economy continues to grow that could reach Japan-like levels of 60%, which means 300 million extra people taking up residence in the country’s cities.
That kind of transience requires massive investment in infrastructure. In 15 to 20 years China could be home to 220 cities with more than 1 million people. This would mean 170 new mass transit systems and 50,000 new skyscrapers.
All this growth will need a lot of steel, and a significant portion of that will be stainless. Some analysts believe this increased demand will see Chinese stainless steel output hit 25.4 million tonnes by 2020.
On top of that factor in the 4-5 million tpy of stainless steelmaking capacity set to come onstream elsewhere in the world during that period and you’re talking about a 60% increase in world capacity in the next ten years.
That could mean an extra 500,000 tonnes of nickel demand, focused in the period up until 2015, when nickel demand will be 300,000 tpy higher than it is now.
Except this is where the reasoning breaks down.
The stainless steel industry is in a poor state— the sector is laboring under a blight of overcapacity.
In flat products it’s massive. In 2009 capacity equivalent to 62% of the total market size stood idle. It’s fallen slightly since then, but overcapacity in flat products is still on track to be 53% of the total market size this year.
In long products the problem is even worse.
In 2009 4 million tonnes of capacity stood idle. That’s equivalent to 99% of the market as a whole. Again, in 2010 overcapacity has started to fall slightly. But capacity equivalent to a whopping 94% of the market will still be idle this year.
That’s an awful lot of slack in the system waiting to be tightened up.
A big part of the problem is outside China. In Europe there is something like 5 million tonnes of unutilized capacity. And in the Americas it’s in the region of 2.5 million tonnes.
But in China, as well, investment in stainless steelmaking capacity has outpaced growth in demand. Unutilized capacity here is now nearly 5 million tonnes. Not one of the world’s largest stainless steelmakers operated at full capacity in 2009.
And, over the next few years, the problem is going to get much, much worse.
Yusoco, ThyssenKrupp Stainless, Acerinox, Fujian Wuhang, Jindal Stainless, Jisco and Southwest Stainless are all planning on adding significant swathes of extra capacity. They’re not alone.
China’s economy will keep growing at an impressive rate for many years. But analysts need to properly take stock of the impact of the crisis on the stainless steel business and what it means for the future before they go back to the unimaginative straight line forecasting of old.