Global steel sector risk to peak in 2016 as overcapacity bites: Coface

PARIS – The steel sector is most at risk among the 12 structures assessed by global credit insurer Coface. It is now assessed as "very high risk” in Latin America, emerging Asia, the Middle East and Western Europe, and "high risk” in Central Europe Steel is one of the least profitable sectors in the world (ranked 90th out of 94) and the deepest in debt.

China's price competitiveness (especially for low-end steel) is weakening steel producers around the world, Coface says, adding that current overcapacity is also weighing down on credit risks in China, with corporate indebtedness is rising significantly.
“In 2014, China accounted for 45% of the world's total steel production. Now, however, its appetite is waning, with a contraction of 3% contraction in 2014 and 5% in 2015,“Coface says.
“Meanwhile, China’s production capacity has continued to increase, heightening the global imbalance between supply and demand.
“While global production is weakening (-3.1% at end February 2016) and one-third of steel production lines are at a standstill, supply is still abundant. This has resulted in strong pressure on prices, which are down significantly.
“China is now exporting its production surplus (+20% in volume in 2015), which is particularly weakening steel production structures in Europe, the United States and emerging countries.”
Nevertheless, a rebalancing of supply and demand could be possible from 2018, Coface says, when the first capacity reductions in Chinese production begin to materialise.
(In February 2016, the Chinese Government announced the first reduction in production capacity - of 40 million tonnes.)
“While emerging economies will have less success in catching up than in the past, their growing urbanisation and expanding middle classes will be new relays for growth,” Coface says. “The three sectors that use the most steel – the automotive industry, machinery and construction activity - continue to have positive perspectives over the medium term.”  www.coface.com (ATI).