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July 1, 2007

A DELUGE OF GLOBAL STEEL CAPACITY

Although China is the prime culprit in the surge of steel production, other developing nations are ramping up capacity as well. New construction of steel mills is planned around the globe, and if producing nations don’t consume all the steel they produce, exports could add to a growing international surplus.

Chinese production this year is up 23% and on pace to produce more than 500 million tons (see “Tidal Wave of Steel,” Forward, May/June 2007).

Other nations, including India and Brazil, are poised to be much larger producers because they have access to low-cost labor and raw materials, such as iron ore and coking coal, as well as energy, says Nick Sowar, Cincinnati-based global steel leader at Deloitte & Touche LLP.

India, currently ranked seventh in the world for steel production capacity, consumes growing amounts of steel for infrastructure, and its steel companies recently have acquired larger ones (see “A Passage to Prominence”). The Indian government’s steel secretary, R.S. Pandey, reported in April that India expects to become the world’s No. 2 steel producer by 2016 by tripling its current production capacity to 120 million tons per year.

LARGE STEEL PROJECTS OUTSIDE OF CHINA
Company Location Capacity (million metric tons per year)
Tata Steel Orissa Chhattisgarh
and Jharkhand, India
23 mty
POSCO Orissa India 12 mty
Arcelor Mittal Jharkhand, India 12 mty
Arcelor Mittal Mittal Orissa, India 12 mty
Cia Siderùrgica Nacional (CSN) Itaguai Rio de Janeiro and
Minais Gerais, Brazil
9 mty
Hyundai Steel Tangjin South Chungchong
Province,South Korea
8 mty
CVRD/Baosteel Group Maranhao, Brazil 7.5 mty
SAIL Jharkhand, India 6 mty
Sinosteel Corp Jharkhand, India 5 mty
ThyssenKrupp AG/CVRD Rio de Janeiro, Brazil 5 mty
Tata Steel/Viet Nam Steel Corp. Ha Tinh, Vietnam 4.5 mty
SAIL/Rashtriya Ispat Nigam Ltd./National Mineral Development Corporation Chhattisgarh, India 4 mty

 

Tata Steel plans to expand its capacity in India by 23 million tons a year with three new plants in the states of Orissa, Chhattisgarh and Jharkhand. Korea’s POSCO plans a 12-million-ton-a-year plant in Orissa, although progress has been slow because of political opposition. Arcelor Mittal plans a $9 billion, 12-million-ton-a-year mill either in Orissa, Jharkhand or both, depending on whether the government grants access to state-owned iron ore mines.

 

Brazil, which ranks No. 2 in world iron ore production and No. 10 in steel production, has a few big mills in the works. In May, Companhia Siderùrgica Nacional (CSN) announced plans to build a $3.1 billion plant in Itaguai in the state of Rio de Janeiro and a $2.9 billion plant in the southeastern state of Minais Gerais. Both mills are planned to produce 4.5 million tons a year.

Also in Rio de Janeiro, Germany’s ThyssenKrupp AG approved a project in May 2006 to build a 5-million-ton-a-year steel mill in a joint venture with Brazil’s CVRD. Production is to begin in early 2009.

But will demand grow enough to absorb the growing production? If it doesn’t, exports to the developed world could pressure established producers and ignite a downward price spiral.

 “I don’t believe an uncontrollable glut of steel will flood the world in the next five to10 years,” says Martin Woertler, Dusseldorf, Germany-based senior partner with The Boston Consulting Group. “I believe most of the volume will be taken up by the growing domestic demand and steel-consuming industries in the emerging countries. International competition will become a lot stronger, but I don’t see a devastating scenario.”

Nevertheless, established steel producers will watch carefully. “Everyone has to be worried, but I don’t see it falling back to where the industry was before 2002,” Woertler says. “I think a strong producer of high-quality steel will be able to cope, but will have to adjust.”