12:45 AM Jul 25, 1996

WARNING OF STEEL GLUT BY 2000

Geneva 23 July (TWN) -- The UN's Economic Commission for Europe (ECE), has warned about a 76 million tonne rise in crude steel making capacity between 1995 to 1999, resulting in an oversupply which cannot all be absorbed in Asian countries where there has been a strong increase in steel consumption.

The ECE warning of over-capacity in the industry is in its annual review, "The Steel market in 1995 and Prospects for 1996".

According to the ECE, due to the success of new technology in steel production and continuing robust growth in steel demand, there are significant plans to construct new steel plants based on DR (direct reduction), Corex/EAF (electric arc furnace) or BF (blast furnace/BOF (basic oxygen furnace" and to expand crude steel-making capacity in North America and Asia.

New crude steel making capacity from 1995 to 1999, ECE estimates, will amount to about 76 million tonnes -- 18 million in North America and about 58 million in Asia. Of this total, new electric arc furnace capacity will reach 18 million tonnes in North America and 36 million in Asia.

But the only region in the world where there has been a strong increase in steel consumption is Asia, particularly in South Korea, Taiwan province of China, the Asean countries, India and China.

But it will be difficult for these countries alone to absorb all the steel supply arising from this new capacity, ECE says, and notes that there are still many expansion plans to go into effect after 1999/2000.

Also, by 1999/98, when 18 million tonnes of new capacity will go into effect in North America, US imports are expected to be reduced by half the current level.

Of the key factors determining future oversupply is how much China's steel consumption will grow towards 2000. China's consumption has stagnated at almost zero growth between 1985-1990, but has started to increase sharply from 1991, with an annual average growth rate of about 11% between 1990 to 1995.

Chinese steel consumption varies from year to year, with apparent crude steel consumption jumping from 82 million tonnes in 1992 to as much as 122 million tonnes in 1993, and then contracting to 95 million tonnes in 1995. But China is expected to increase its steel consumption, though in the years when its consumption fluctuates downwards, there will be massive overcapacity.

But the discrepancy between growth of world steel production capacities and world steel consumption raises fears about over-capacities in the near future, the ECE warns.