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Your current location :Home > News > Global steel sector vulnerable - Coce

Global steel sector vulnerable - Coce

Global steel production will ll over the next 12 months because of current overcapacity and the slowdown in the Chinese economy says Coce.

The experts in assessing business sector credit risks have published a report on the challenges cing the steel industry which focuses on China, the leading producer and consumer of steel.

Nearly 1.5 billion tonnes of steel was produced in the last 12 months, an increase of 4.2% on 2011 but this has stabilized in recent months and Coces economists predict a year of retrenchment in 2013, particularly in China where demand is lling. In the UK, steel producers are vulnerable because of the downturn in the automotive and construction industries in the Eurozone, while margins are being squeezed by cheaper Chinese steel flooding the market.

Mr Grant Williams Risk Underwriting Director at Coce in the UK commented that These are difficult times for the steel industry with the worlds largest manucturer, ArcelorMittal, blaming the weaker demand environment in Europe for its decision to write-down USD 4.3 billion in its fourth quarter accounts. Steel manucturers are taking sensible steps to reduce costs and increase competitiveness in the UK. For example, TATA Steel recently announced that it was cutting 600 management and administration jobs at its Port Talbot works, while investing in production cilities such as restarting a blast furnace at the same location.

He added However, it is inevitable that the steel sector will be vulnerable to insolvencies and late payment over the coming months so it is important for suppliers in this sector to take sensible precautions before offering credit terms. Coce has a strong record within the steel sector, keeping our clients informed about the changing risk profile of customers and working with them to agree sensible credit limits so they can remain competitive.

Coce focuses on the steel sector as part of its quarterly Panorama: Sectors report which assesses the strengths and weaknesses of 14 important business sectors in emerging Asia, North America and the European Union. The key points include:

1. Global steel production was at its highest ever level in 2012 but only 77% of capacity was being utilised by December 2012, compared with 82% in April 2012. Supply is expected to outstrip demand in 2013, forcing prices down and curbing production.

2. China has become the dominant force in the sector in just over a decade. In 2001, it produced 18% of the worlds steel but it now accounts for 45%. It is also the worlds largest steel consumer. By contrast, the EU now accounts for 11% of production, compared to 22% in 2001.

3. Steel manucturing in China has been hit by the global economic downturn which has affected exports. In China itself, steel industry margins have been squeezed by higher iron ore costs, over-production and the deflationary policies of the Chinese Government designed to prevent an unsustainable construction boom. The China Iron and Steel Association announced a 96% ll in members profits for the first half of 2012, compared with the same period in 2011.

4. The steel market is fragmented, with the worlds five largest companies responsible for only 18% of world production. In China, this fragmentation is even more marked with thousands of small and medium-sized steel producers co-existing with larger, state-owned enterprises. This has made it more difficult for the Chinese Government to tackle the over-production problem although addressing this challenge is part of the Governments latest five-year plan.

5. Coce is optimistic that in the long-term the Chinese Government will be able to deal with the problems affecting its steel industry and ensure that it continues to dominate this sector, driven by the countrys expanding infrastructure and growing domestic market for cars and other consumer goods.

6. It is therefore likely that other steel-producing countries will continue to find themselves under pressure from cheaper Chinese steel and the more aggressive market policy of the Chinese Government. For example, Eurofer, the association representing European steelmakers has already lodged complaints about the Government and regional subsidies received by Chinese steelmakers.

Source - Coce

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