Hiap teck - From massive losses into profits



Steel is an interesting space. Supply has contracted due to the slowdown in 2015-2016. There was a large slowdown and many companies went bust. The figures are somewhere, google is your best friend. In addition, China has a new policy called supply side reform. It's a huge cut, capacity cut has been more than

Global capacity of steel is about 2000million tonnes. There have been shutdowns of 168million tonnes of BOF/EAF by the government, and another 110million tonnes of induction furnace. This means approximately 14% of global steel capacity has been shut down. I've borrowed CRU's graph below to illustrate the capacity changes in China.




Steel prices are a function of utilization. The higher the utilization and the industry as a whole is able to commend higher prices as supply becomes tighter. In addition, a higher utilization translates to lower costs per tonne, as fixed costs are spread out over additional tonnage.


Steel demand has continued growing in 2017 and 2018.

In addition to the cuts in steel production imposed by China, there has been a huge capacity shutdowns in 2015-2016 as the steel market went into large losses. This is on top of weaker markets from 2012-2014 and has led to many closures among steel producers around the world.

Shrinking supply and growing demand is a good recipe for higher prices.


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