Final Thoughts

May 20, 2016

In this evening’s issue we have quite a bit of information about China and the debate regarding Chinese exports, over-capacity and perhaps implosion of steel prices by the end of June. We also have a letter from a manufacturing company who asked the question, why don’t we accept the transfer of wealth from China to US manufacturing companies?

I expect the combination of the articles and the letter will spur some comments from our readers – whether member companies or not. We encourage industry participation as we feel all sides to an issue need to be heard and evaluated.

I do have a personal opinion. It has been my view for many years that the Chinese were building way too much steel capacity and that the short term job benefit outweighed any thoughts about market fundamentals. I am not a steel historian (maybe we have one out there who can respond) but, I am not aware of any time in history where an industry has grown to a point in just a couple of decades where they dominate the world’s steel industry. In this case the Chinese have 51 percent of the world’s steel capacity. It is not healthy for the Chinese economy (or their own security – what happens when they have no choice but to shut mills and employees have no place to go?) and it certainly is not healthy for the rest of the world to just roll over and let their own steel industries die which has national security and other implications.

The Chinese excuse that – Whoops, there it is (800 million metric tons plus of steelmaking capacity) and it is our problem to deal with it doesn’t quite cut it. China walked away from negotiations on the subject recently and they do not appear to be willing to confront the problem they created. I hope that the Chinese will return to the negotiating table with the understanding that what is good for the world is also good for them as well (my opinion).

At the same point in time we cannot afford to have U.S. manufacturing companies leave the United States due to high steel prices and other costs (and regulations) which negatively impact a company’s ability to make money in the United States.

The domestic mills do have a right to make money and with the shut down or outdated or unneeded capacity it appears for the first time the domestic mills have reigned in their excesses and we have perhaps a more balanced industry (again, the historians among us may want to weigh in). The difficulty always seems to be finding the balance between supply/demand and domestic vs. foreign price.

I welcome your thoughts on this or any other steel related subject. You can reach me at: John@SteelMarketUpdate.com.

I will be in the office all week this week as we head toward the upcoming Memorial Day Holiday here in the U.S. on Monday, May 30th.

As always your thoughts, comments and especially your business are appreciated by all of us here at Steel Market Update.

John Packard, Publisher