Boom in Asian Steel Mill Construction Could Hit Japan in Over-Supplied Market

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Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Sugar Land, Texas)--Chinese and South Korean steelmakers will begin operations at large-scale steel mills throughout Asia from 2013, which will possibly cause a huge oversupply that, combined with falling steel prices, could hurt Japanese steelmakers, according to a report in Yomiuri.

Hyundai Steel Company (KSE:004020) (Seoul), South Korea's second-largest steelmaker, will complete construction of a third blast furnace in September at the Dangjin mill. The company will add 4 million tons of crude steel output annually for a domestic total of 24 million tons.

In China, the steel mill construction boom will continue mainly in the southern coastal region. In May 2012, the world's sixth-largest steelmaker, state-owned Wuhan Iron and Steel, began construction on a 10 million-ton mill in Fangcheng, a city in the Guangxi Zhuang autonomous region. Last spring, the world's fourth-largest steelmaker, state-owned Baosteel Group (Shanghai, China), began constructing a 10 million-ton-per-year mill. A total of about $21 billion has been invested in these projects.

In Southeast Asia, the world's fifth-largest steelmaker, South Korea's POSCO (NYSE:PKX) (Seoul), and major Chinese steelmakers that have partnerships with local companies plan to build steel mills in at least five locations. These mills will have capacities ranging from 3 million to 20 million tons each.

Some economists believe that in a few years the output capacity in Asia will increase by about 100 million tons, equal to about 10% of the current total.

China accounts for nearly 50% of global steel demand. However, oversupply has become a serious problem due to the slowdown in the Chinese economy. In 2011, China's steel demand totaled about 600 million tons annually, but the country's output capacity was about 900 million tons. Trade experts expect China to increase pressure on Southeast Asia as an export destination.

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