Feature

Steeling itself for a slowdown

China has made life miserable for the domestic steel industry, which is already grappling wih high leverage and a demand bust

Desperate times call for desperate measures. This adage would be apt for Lakshmi Niwas Mittal, who lords over the biggest steel empire in the world but is currently stuck on a hot tin roof. ArcelorMittal, a company that produced 98 million tonne of steel last year, compared with the world’s second-largest producer Nippon Steel, which produced only 49 million tonne, is grappling with a downturn in the steel industry. This situation is a result of the Chinese steel industry dumping its output across global markets, rendering just about every steel-maker across countries uncompetitive. Last year, China exported a record 93 million metric tonne (MT)of steel and in the first six months of 2015, China’s steel exports increased 27%, creating a glut in international markets that is, in turn, pulling down steel prices. 

The desperation is such that Mittal is urging South Africa’s president Jacob Zuma to impose a 10% import duty on Chinese steel in return for Africa’s largest steel-maker, ArcelorMittal South Africa will offer shares to black empowerment partners. With $2.8 billion in cash, $6 billion in credit lines and over $4 billion in cash flows from operations, ArcelorMittal appears to be in a better place to weather the downturn. Other steel-makers across the world might not be as lucky. US Steel Co, the largest metal producer in the US, is predicting doomsday. US Steel CEO Mario Longhi was quoted in an interview saying, “If the US doesn’t raise tariffs on Chinese steel imports, it could put at risk the existence of this industry.”

Zero-sum game

Over the past year, while input prices have come down…

 

 

 

 

 

 

 

…so has the price of steel

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