A collapse in prices for the metal has wrought havoc on producers over the past year, with Chinese mills accused of compounding sluggish demand by dumping surplus steel on to international markets.
But Lakshmi Mittal, chief executive of ArcelorMittal, said there were signs of change. “We believe that we have reached the bottom of the situation and things should continue to improve,” Mr Mittal told the Financial Times.
He pointed to an uptick in spreads — a measure of the difference between steelmakers’ raw material costs and their selling prices — that suggests ArcelorMittal and its peers can look forward to improved earnings.
The Luxembourg-based company recorded a net loss of $7.9bn in 2015 and is seeking $3bn in a rights issue to reduce its debt. Rivals such as US Steel and Posco of South Korea also racked up losses last year.
China accounts for almost half the world’s annual steel production, and slowing economic growth has meant that exports of the metal have soared. But Beijing has pledged to cut between 100m and 150m tonnes of steel production capacity over the next five years.
Mr Mittal expressed confidence that China’s capacity reductions would happen for three reasons: Beijing’s environmental commitments under the latest global agreement to cut carbon emissions, the provision of funds to help laid-off workers and potential risks to the country’s banking sector.
More than half of major Chinese producers were in the red last year, according to the China Iron and Steel Association, whose members swung into a combined loss of Rmb64.5bn ($9.8bn).
“I think they have realised that this level of pricing and this level of excess production at a loss is not sustainable,” said Mr Mittal. “Three years [ago] . . . we thought that China’s [steel consumption] would peak in 2018 but sadly it has peaked in 2015/2016 now.”
Analysts said the effect of Chinese capacity reductions on global steel prices would partly depend on its pace.
Michael Shillaker, analyst at Credit Suisse, said: “China has talked about closing capacity in the last 10 to 15 years. The one difference now is that we are in an unsustainable part of the cycle and steel prices can’t stay at this level. Something has to give or [low] prices are going to put a large part of the global steel industry out of business.”
Beijing’s move to cut capacity comes amid a growing trade backlash: this month the US slapped a tariff of 266 per cent on one kind of steel from China.
European Union authorities have imposed some duties and launched investigations, but critics complain the bloc’s response is not sufficiently robust.
“There has been progress in the past six months [in EU trade actions] and I only wish that they could be faster, swifter in deciding the actions,” said Mr Mittal. “I think there could have been higher levies in some of the products.”
Source: FT