What Slower Near-Term Growth In China Has To Do With Steel Overcapacity

Ewen Cameron Watt, senior director at BlackRock Investment Institute, sees slower near-term growth in China coupled with steel overcapacity as raising concerns of a possible pricing war, according to a report on CNBC.

Since China owns half of world's steel production, Watt questioned emphatically, "So, with the overcapacity of 300 million plus tons in China, were they closing down the worst stuff?"

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"It is more about capacity utilization more than anything else. The labor costs are part of it. It is so fantastically capital heavy," Watt added.

"At the end of the day, the production engineering and amount of capital you have in play sick."

Watt noted that 25–30 years ago, there were two or three plants that were really competitive and two or three that "absolutely weren't."

"The ones that weren't, simply weren't filling their capacity, and the yield wasn't really high enough. And that is the ultimate story. If you operate a steel plant at 75 percent capacity or 78 percent capacity, you make proportionately a lot more than an extra 3 percent if you operate at 78 versus 75."