Output has far exceeded demand.
The collapse in oil prices following the shale revolution has stolen the limelight for investors mulling the end of the commodities supercycle.
But the real “poster child for problems in commodities markets is perhaps the global steel industry,” according to Macquarie analysts led by Colin Hamilton, the firm’s global head of commodities research.
The front-month contract for U.S. hot-rolled coil steel futures traded on the New York Mercantile Exchange is down nearly 40 percent year-over-year.
Forecasts for a boom in Chinese consumption helped spur a rise in production that left the segment with a massive glut. The successful realization of economic rebalancing in China, meanwhile, necessarily entails a material slowdown in that nation’s demand for steel.
Macquarie observes that global steel consumption has contracted on an annual basis throughout 2015.
“With 1.6 billion tonnes of consumption globally, steel remains the lynchpin of industrial growth,” wrote Hamilton. “However, the growth part of this equation is an increasing problem, and not only in China.”
India, which has the potential to buoy demand for steel, is also contributing significantly to supply growth. Bloomberg Intelligence’s Yi Zhu notes that 37 million metric tons of production capacity in India are currently under construction or in planning to be added.
“The only people who still seem to think there is significant upside in global steel consumption akin to the past decade are the major iron ore producers—for example BHP’s belief global steel consumption will hit 2.5 billion tonnes by 2030—just a further 50 percent upside required there!” Hamilton wrote in a separate note.
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