While crude steel production growth in China is maintained at 7.8% in the first 11 months of last year, the level of consumption is surely coming down. With exports not exhibiting a quantum jump in 2013, the excess capacity syndrome is going to plague the Chinese steel industry in 2014.
A recent report estimated excess global capacity of steel at around 542 million tonne.
The report suggests that China carries around 46% of excess global capacity.
Although China is committed to close substantial capacity annually on account of environmental considerations, a few fresh capacity additions would be undertaken by state-owned enterprises.
So, if the demand scenario in China continues to be weak and exports go on as usual, the excess capacity earlier estimated may surface.
Product-wise analysis may throw some additional facts.
In HR coils, the current capacity of 217 million tonne (mt) in China has to meet full domestic demand, leaving an exportable surplus resulting in 95% capacity utilisation.
In CR coils/ sheets, the current Chinese capacity of 140 mt is to cater to domestic demand and exports. In the case of galvanised products, current capacity of 66.5 mt has been created with utilisation rate pegged at not more than 53%.
As regards Plate, the current capacity has been estimated at 89 mt with current capacity utilisation around 75% and primary demand emanating from shipbuilding and machinery and equipment sectors. The same report has identified excess capacities at 106 mt in EU, 81 mt in CIS countries, 63 mt in Japan, 15 mt each in the US/ Canada and Latin America and 14 mt in the rest of the world.
Indias current level of crude steel production (78 mt in 2012-13) indicates a capacity utilisation of 81%. In the next three years, India will be adding nearly 30 mt of fresh capacity in both long and flat categories. India can fully meet the indigenous demand for HR coils, plates, galvanised products and long products, except minor tonnages in API>5LX 100 grade, special grades and over dimensional plates which get imported.
India is also exporting these categories. It is likely that downstream industries like cold rolling, machinery, equipment and oil and gas pipelines would prosper as they satisfy the growing demand of CR and plates from automobile, consumer durables and petrochemical industries.
Both these products may encounter a temporary surplus scenario if the demand growth lags behind capacity creation. India currently produces about 24 mt of HR (including IPT/own consumption) and 4.2 mt of plates. The production in both these categories would increase with Bokaro, Rourkela, Essar, JSPL, JSW and Bhusan expanding their capacities or installing new facilities in new locations. If domestic demand grows on the back of enhanced investment in infrastructure and growth in manufacturing, as are being projected, additional capacities would not create any problem for the industry which is also emphasising export marketing. Is it wishful thinking
The author is DG, Institute of Steel Growth and Development. The views expressed are personal