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Analysts: Cheap Debt Contributing to Steel's Oversupply
11/17/2015 - Inexpensive credit has allowed unprofitable production to be maintained, supporting the continued glut of steel on the market, according to analysts at financial services firm Macquarie Group.
"A world of cheap money not only sees new capacity built, it also means existing capacity doesn’t disappear," Colin Hamilton, the firm’s global head of commodities research, told BloombergBusiness.
"While most regions are well off their peak production levels over the last decade, permanent capacity closures have been few and far between," he said.
The firm noted that global capacity utilization has averaged below 80 percent for seven years, which is unprecedented.
“To get 90 percent capacity utilization, where steelmakers have decent pricing power, we would need circa 275 million (metric tons) mothballed, equivalent to Japan and Western Europe," he told Bloomberg.
"This highlights the scale of the problem facing global steel."
"While most regions are well off their peak production levels over the last decade, permanent capacity closures have been few and far between," he said.
The firm noted that global capacity utilization has averaged below 80 percent for seven years, which is unprecedented.
“To get 90 percent capacity utilization, where steelmakers have decent pricing power, we would need circa 275 million (metric tons) mothballed, equivalent to Japan and Western Europe," he told Bloomberg.
"This highlights the scale of the problem facing global steel."
