Total world steel production almost doubled between 2000 and 2014, mostly driven by increases in Chinese output, according to a U.K. parliamentary briefing paper. Growth in production has slowed considerably since then, but this has proved insufficient to compensate for the slump in demand.
In the case of China, heavy investment in infrastructure in the last decade raised demand for industrial goods like cement and steel, encouraging manufacturers to expand production capacity. However, capacity now exceeds demand in several sectors, with steel, cement, aluminum, glass panels and shipping among those affected.
"Resolving overcapacity is not an easy task: It may be unfeasible to halt planned or in-progress projects and reducing capacity may mean job losses and risk social unrest," Alberto Gallo, head of macro credit research at Royal Bank of Scotland, said in a research note on Monday.
Stocks of major steel producers around the world have slumped this year. Frankfurt-listed shares of ArcelorMittal are down 69 percent since the start of 2015, while U.S. Steel Corporation has plunged 60 percent. In addition, China's state-owned Sinosteel delayed an interest payment due on 2 billion yuan ($0.3 billion) of 5.3 percent notes last week, highlighting the difficulties facing Chinese steel, coal mining and shipbuilding companies.
"While Sinosteel's potential default is reflective of the growing inefficiency of state-owned enterprises, it also points to slowing local demand as China continues its transformation into a consumption-based economy," Gallo said.