Global Steel Industry Seeks to Solve Overcapacity Dilemma

Since 2013, the global steel industry is still struggling under the influence of the slow recovery of the world economy and the slowdown of China's economic growth. The second quarter reports released by the world's major steel companies show that profits have generally declined, both in Europe and the United States and in Asia. Faced with serious global overcapacity and low steel prices, the world's major steel companies how to get through the difficult times?

Second quarter global steel profits continue to decline

The world's major steel companies released financial reports show that profits continued to decline in the second quarter. Industry insiders say that the reason for this phenomenon is the excessive competition caused by overcapacity in the global steel industry.

U.S. Steel's latest earnings report showed that the company lost $78 million in the second quarter of 2013, or 54 cents per share. In the same period last year, the company reported a net profit of $101 million, or 62 cents per share. U.S. Steel Chairman and CEO John Surma (JohnSurma) said the second quarter results by the continued shutdown of the Lake Erie plant and the slowdown in global economic growth, oversupply of U.S. steelmakers face price competition from imported products. In June, S&P rating agency downgraded the U.S. steel rating from BB to BB-, falling further into junk status. The reason for S&P's downgrade is the difficult situation in the industry, the bumpy economic growth is not enough to absorb the industry's excess capacity, and a large number of imports bring price pressure on domestic steel companies' products.

In Europe, the performance of steel companies is also not optimistic. ArcelorMittal, the world's largest steel company, disclosed a loss of $1.1 billion in the first half of this year, mainly in the second quarter, a significant expansion of the loss surface, a net loss of $780 million, twice the amount of the loss in the first quarter. This compares with a net profit of $1.1 billion in the same period last year. At the same time, ArcelorMittal lowered its earnings forecast for the year, from more than $7.1 billion to more than $6.5 billion. European steel giant ThyssenKrupp expects second-quarter net profit to fall 46% to 58.5 million euros.

Overcapacity, the world's major steel companies find their own way out

U.S. investment bank Morgan Stanley said in a report released in May this year, the global steel industry has reached 334 million tons of excess capacity, of which, China has about 200 million tons of excess capacity, Europe has about 40 million tons of excess, Japan has about 16 million tons of excess, South Korea has about 5 million tons of excess.

In the face of global overcapacity and declining profits, how do the world's major steel companies respond?

1. Cut supply

2. Sell assets to reduce debt

3. Invest in emerging markets to build plants

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