This is not the first time that Indian steel companies have announced grand plans to increase capacities.
They did so with a vengeance in the mid-nineties, and the result was a steel glut that depressed steel prices and led several steel producers to the brink of bankruptcy. Are we going to see a repeat of that story?
According to conservative estimates, the total outlay for the country’s steel expansion plans is likely to be above Rs 75,000 crore (Rs 750 billion).
That outlay is justified on the grounds of an anticipated doubling of demand in the next eight years and strong internal cash flows of steel companies.
However, recent reports suggesting a slowdown in steel prices are a cause for concern. Also some industry experts have pointed out that steel capacity is increasing all over the world, which could lead to global over capacity a few years down the line.
And Russia too: Russian steel capacity poses further threat to global prices
MOSCOW. May 16 (Interfax) – Russian steel producers’ recent investments to increase domestic capacity threaten to push down an already weakening steel cycle, says a report titled “Market and Institutional Uncertainties Weigh On Russian Steel Companies,” published on May 16, 2005, by Standard & Poor’s Ratings Services.
“The 2003-2005 sales bonanza, enjoyed by steelmakers worldwide, enabled Russia’s largest steel producers to achieve almost full capacity utilization, and they are investing a significant portion of the resulting windfall cash flows to eliminate production bottlenecks and further increase output,” an S&P press release quoted credit analyst Elena Anankina as saying.
“Yet, although Russia’s domestic market has been growing, this growth is insufficient to absorb the increased capacity, and local steel supply exceeds demand by a factor of two–a situation that is unlikely to change in the foreseeable future. Consequently, Russian steelmakers will remain heavy exporters, which may impact steel prices given the turndown already evident in Europe.”
So then we have this guy building into a forecast glut … I hope for his sake he knows what he’s doing.
Pittsburgh Business Times
A steel entrepreneur said this week he could have financing in hand within 60 days to build a midsized steel processing mill along the Ohio River in Louisville, Ky.
Matthew Botsford, who through his company LEO Inc. has been trying to pull together a deal in Kentucky for the past three years, said he has signed a contract with Yang Chang Heng, chairman of Chinese manufacturing contractor China Metallurgical Construction Group that will provide $340 million, or approximately 85 percent of the money needed to build a $402 million steel coil facility on 81 acres in the Jefferson Riverport International industrial park in Louisville. The proposed mill would produce approximately 1.5 million tons of hot or cold steel rolled coils per year.
To make the deal fly, Mr. Botsford must still find another $60 million to complete the construction package. He also has to find investors to buy out the Chinese once the mill is up and running. “They don’t want to be the owners of this thing,” Mr. Botsford said. Mr. Botsford said construction of the mill could be completed in 18 months to two years.
Mr. Botsford said the domestic steel industry’s extremely successful year in 2004 and continued success in the first quarter of 2005 has increased the financial community’s interest in his project. He wouldn’t name the three financial institutions with which he is currently negotiating. He said the mill would work with slabs made from domestic producers as well slabs from foreign blast furnace products, such as those produced in iron ore-rich Brazil.
A local analyst said the concept could work, but Mr. Botsford might get slapped down if he tries to go head-to-head with the big boys in marketing to the auto and appliance industries.