Growing steel demand in global market as well as securing sources of raw material supply have pushed capacity expansion in steel industry to new highs. It is forecasted that global economy will continue to expand in the long run regardless of a slowdown in recent years. Buoyant market in emerging Asia is powering global economic growth. China's overheated investment boom will continue. India's economy is still looking good amid the current scenario of global financial distress. Global Insight has noted that Asia-Pacific will overtake North America as the largest regional economy within 10 years time. Hence, steel demand is expected to increase further in the long term. Credit Suisse remarked at the IISI Economic Committee meeting in March 2008 that there are a lot more room for steel consumption per capita to increase further. Current global steel apparent demand registered 200kgs per capita per annum, and is expected to reach 300kg in the next 20 years. Steel consumption is expected to grow at 4-4.5% rate for ex-China countries for the next few years, while demand growth in China is expected to register 10-15% for the same period. Hence, it is forecasted that global steel demand could reach between 1.6 billion tonnes and 1.7 billion tonnes in 2012.
On the supply side, there are many capacity expansion projects taking place. Many steel manufacturers are attempting to enlarge size of capacity to gain competitiveness and to secure sources of raw material supply. Evidently, there are many consolidation and co-investment activities taking place. However, several risk factors need to be considered, and these include continued tightness in raw material supply, prices and environmental management.
Credit Suisse has claimed that, in actual fact, over-capacity gap is closing. With maximum utilization rate at 95%, overcapacity rate has moved down from 25% 10 years ago to below 10% in 2007. Interestingly, it is discovered that steel inventory levels in many countries are also getting lower. Steel inventories in Japan were nearly two months in hand 10 years ago, but the level was reduced to less than a month as recorded in early 2007. Overall inventory level in USA was reported to have fallen recently as well. Inventory level in Europe was at a higher level, but was relatively low when compared to the industrial production level.
Credit Suisse has further forecasted that there will be new global capacity of 95 million tonnes in 2010 and additional 89 million tonnes and 76 million tonnes to be added in the following two years. Nearly half of the figures is attributable to the capacity expansion in China. It implies that global capacity in four years time will reach 1.85 billion tonnes. Capacity utilization is estimated at approximately 93% to 94%. In other words, global steel production would reach 1.7 billion tonnes in 2012. Based on the crude steel production figure in 2007, China will be producing almost 700 million tonnes of crude steel by 2012, while domestic demand would reach 667-762 million tonnes. Countries in ex-China will produce up to 1.06 billion tonnes and demand will reach up to 985 million tonnes in the same year. In total, global steel demand could exceed 1.7 billion tonnes, while global crude steel production would also be at similar level. Therefore, based on a normal situation (no global recession) a significant overcapacity situation is unlikely to happen in the next few years.