Steel Industry Is Suffering

According to a recent article in The Wall Street Journal, the steel industry is facing its worst prospects in four years, with prices and demand falling. The European financial crisis and slowing construction in China is mostly to blame, representing a sharp contrast from earlier this year when, buoyed by the automotive and energy-extraction industries, steelmakers were able to push through price increases and step up production. That represented its first real hope of recovering from the 2008 financial crisis, which had already severely dented profits.

Lakshmi Mittal, chief executive officer of ArcelorMittal, the world’s largest steel company, said the industry can do little to boost demand, making it “crucial” for producers to reduce costs and supply.

Last month, RG Steel LLC, based in Sparrows Point, MD, filed for Chapter 11 bankruptcy protection and closed the massive Sparrows Point plant near Baltimore and two other plants, eliminating more than 4,000 jobs. Germany’s ThyssenKrupp is looking to sell a massive sheet-mill complex in Alabama, which has been losing money. ArcelorMittal closed a plant in Belgium last year and has been idling other plants.

Prices have fallen 12% since February to $723 a ton for the benchmark hot rolled steel, from $827 a ton, and are expected to fall below $700 a ton this summer, according to industry researcher World Steel Dynamics. Capacity utilization — the tonnage produced compared with the actual production capacity — has fallen to 76% from 80%. Some analysts said more production needs to be eliminated to keep prices firm.

“The momentum gained until the spring has been lost,” said Philipp Englin, an analyst with World Steel Dynamics, an Englewood Cliffs, N.J., consulting firm.