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Steel: An inferno of unprofitability

July 4, 2013

THE importance of steel is in no doubt. It is the material from which much of the modern world is made, from skyscrapers to washing machines. Governments everywhere regard a strong steelmaking business as a sign of economic virility, and thus hover anxiously over their domestic producers. A French minister recently threatened to nationalise ArcelorMittal?s Florange plant if it pursued plans to cut jobs and close two blast furnaces. Despite a weak world economy, global production of steel rose by 1.2% last year to a record 1.55 billion tonnes.Yet importance does not always translate into financial success. Steelmaking scrapes by on microscopic margins that make even airlines look like paragons of profitability. This is most apparent in Europe, whose steelmakers are the most beleaguered. Yet China, where the industry is booming?it has enjoyed almost all of the global production growth in the past decade?faces many of the same problems.The most pressing concern is an old one: overcapacity. In Europe especially, the drive to build lots of vast steelworks in the post-war reconstruction effort continued into the booming 1960s, only for demand to hit a wall in the oil...

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