01 February 2016, 19:35 / Business

Global steel production could rise in 2016 - FT survey

But the market will remain difficult due to low prices and weak demand in China Michael Pooler Steel companies are going through difficult times due to excess supply and weak demand for their products / D. Grishkin / Vedomosti

Global steel production will increase by just 0.15% in 2016, according to a survey of 18 analysts conducted by the Financial Times. In their opinion, renewed growth in production in the US and Europe will compensate for its decline for the second year in a row in China.

The increase in output could signal a recovery in the global economy, as output fell last year for the first time since 2009, by 2.8%, according to the World Steel Association. However, some of the analysts surveyed warned that the market will continue to be difficult, which has left many companies with losses. Due to excess supply and weakening demand, steel prices in 2015 fell to their lowest level in the last 10 years. Since November, the credit ratings of its four leading global producers - ArcelorMittal, US Steel, Sweden's SSAB and India's Tata Steel - have been reviewed by Standard & Poor's, and South Korea's Posco has posted its first annual loss. “The year will continue to be difficult for global steel companies. Margins and price levels are still unsatisfactory and no improvement is expected in the short term,” says Ingo Schachel from Commerzbank.

The situation may be alleviated somewhat by the cessation of growth in cheap exports from China, which increased by 20% in 2015 and to which many companies explain the collapse in prices. The country's production is expected to decline by 2.2%. Also, two-thirds of analysts surveyed believe that Chinese exports will remain the same or decline in 2016.

Analysts expect steel production in the US to increase 3% this year after a 10.5% contraction in 2015, and in the EU by 0.9% after a 1.8% contraction. As Jefferies' Seth Rosenfeld notes, European companies that sell higher value-added products will be better able to compete with importers. “But the risks for commercial grade steel producers are not just about prices, but also about loss of market share,” he added.

A number of anti-dumping proceedings being conducted in the US and EU against companies from China and Russia may partly help local producers. But this does not solve the industry's main problem - chronic overcapacity - and will only direct exports to other regions, argues Michael Schillaker of Credit Suisse. “We think 2016 could see some plant closures if banks and shareholders refuse to provide additional liquidity. We could also see the biggest wave of bankruptcies and protectionist measures since 2002,” he added.

Translated by Alexey Nevelsky