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Steel executives say rising prices have spurred companies to invest heavily in new factories, but production comes at a time when demand for building materials is shrinking, challenging widespread optimism in the market.
A worker walks past a coil at the Dofasco Steel Works in Arcelor-Mittal, Ontario, Canada, March 13, 2018. REUTERS/Mark Blinch
Steel prices have risen 70% since hitting a 10-year low at the end of 2015, driven by cyclical upward trends, rising protectionism and China's capacity cuts of nearly 150 million tonnes. China accounts for half of the world's 16 billion tons of capacity.
Shares of global steelmakers have soared since late 2015, when overcapacity triggered an industry crisis that led to the closure, bankruptcy and layoffs of steel mills. Arcelor Mittal (MT. AS), the world's largest steelmaker, rose 135% in the period.
"With the expansion of the economy over the past two or three years, this problem has almost disappeared," Wolfgang Eder, chief executive of Voestalpine, told Reuters at a conference in Tokyo.
"But now this problem is reappearing because it seems that we are approaching or have reached the peak of the upstream cycle."
The World Steel Association (WorldSteel) predicts that steel demand will increase by 3.9% and 1.4% respectively this year and next.
The association did not give a forecast for 2020, but many expect a further decline in demand growth for the year.
On the supply side, the Organisation for Economic Cooperation and Development (OECD) expects steel-making capacity to increase by 52-91 million tons, or 2.3-4%, between this year and 2020. It is equivalent to a growth of about 1% a year.
"On the surface, demand growth is more than capacity growth. However, most of the growth is expected in 2018, so there are concerns about what will happen when demand slows, "said Jeremy Platt, an analyst at steel consultancy MEPS.
According to the OECD, steel-making capacity fell for the second consecutive year to 2.25 billion tons last year, narrowing the gap between capacity and production from 730 million tons a year ago to 561 million tons.


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