The most disturbing feature of the world steel industry, which gives a good insight into the state of global economy, in 2015 was prices falling to their lowest in a decade. That hot-rolled coil prices have risen by about a 10th so far this year brings little relief to steelmakers.
Near-term steel outlook remains uninspiring. The disturbing phenomenon for which China, which accounts for nearly half of global steel production, is largely responsible is due to supply staying in excess of what the market could absorb.
The 2.8 per cent contraction in world steel output at 1.62 billion tonnes last year that happened for the first time since 2009 was not enough to stir the market as industrial production and construction activities in major and emerging economies remained lacklustre.
To accentuate the problem, China in spite of producing 2.3 per cent less steel at 803.8 million tonnes (mt) became an aggressive seller in the world market in the face of waning domestic demand particularly from construction and housing sectors.
Last year saw China's steel exports rising 20 per cent to 112.4 mt provoking many countries hosting bruised steel industries to invoke trade defences from minimum imports price (MIP) to anti-dumping duty. Incidentally, China's exports were 105.2 mt output in Japan, where production fell 5 per cent.
No wonder, the difficult steel market inflicted a record loss of $7.9 billion on ArcelorMittal, the world's largest steel producer with manufacturing presence in five continents. The loss includes impairment charges of $4.8 billion mostly on mining assets that suffered value erosion.
The Lex column in Financial Times says: "Given that losses have eaten away the company's equity over five years, bolstering its balance sheet is sensible." The reference is to ArcelorMittal's announcement of a $3 billion rights equity issue in which the Mittal family, which has a 37.4 per cent stake in the company, will fully participate.
Things for ArcelorMittal are to get worse as guidance of $4.5 billion earnings before interest, tax, depreciation and amortisation in 2016 will leave it in net loss for five years in a row. The company's shares have received resounding thumbs down in the past year with the price down 60 per cent.
Referring to the challenge China faces in restructuring its steel industry to a "lower growth economy," chairman Lakshmi Mittal finds the news of capacity closures in that country "somewhat" encouraging.