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Dealing with Overcapacity in Steel

The rapid growth of the Chinese economy, particularly in fixed-asset investments, drove a massive increase in worldwide steel production and led to unprecedented levels of global capacity utilization.

But that period of prosperity was ended by a combination of overinvestment, a slowdown in fixed-asset investment, a global economic crisis, and changes in raw-materials pricing schemes. Now companies must cope with overcapacity and low margins, the same conditions that led to long-term value destruction from the late 1980s until the China boom.

It’s unlikely that anything like the China boom will happen again, either in China or elsewhere. But in the years ahead, overcapacity is likely to decline in most regions as demand will slightly outgrow capacity additions. The make-or-break question will remain whether China will be able to balance its domestic supply and demand—which is being driven by its further overall growth and growth composition as well as the consolidation of the vast Chinese steel production landscape.

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