In Commodity News 29/05/2015
Global crude steel production shrank in April on lower output across all major producing countries barring India – according to the latest monthly report from the World Steel Association (“WSA”). The steel industry continues to reel under sluggishness in China – the world’s largest steel consumer.
The international trade body for the iron and steel industry said that crude steel production for 65 reporting nations fell 1.7% year over year to 135.4 million tons (Mt) in April. This follows a 2.7% decline in Mar 2015 that also saw lower output across all major producers except India.
The April reading for Asia showed lower output in China, Japan and South Korea that more than offset a rise in India, leading to a 1.2% contraction in overall output for the region to 92.5 Mt.
Steel production in China – the world’s biggest steel maker – slipped 0.7% year over year to 68.9 Mt in the reported month after falling 1.2% in March. A slump in the housing market, persisting credit crunch and weak infrastructure investment continue to weigh on steel demand in the world’s second-largest economy.
The sluggishness in China’s economy is further evident from contraction in its manufacturing sector in May. The HSBC Purchasing Managers’ Index (PMI) showed a preliminary reading of 49.1 for the month, indicating subdued domestic and overseas demand. A reading less than 50 indicates contraction in manufacturing activity.
Output also fell 6.1% to 8.4 Mt in Japan – the second-largest producer. India, which is now the third-biggest steel maker, produced 7.4 Mt. of crude steel for the month, a 2.1% gain. Production in South Korea tumbled 6.6% to 5.8 Mt.
In North America, crude steel production slid 9.8% to 6.5 Mt in the U.S. – the fourth-biggest producer. The U.S. steel industry remains plagued by a flood of cheap imports. Output in Canada, however, rose 2.7% to around 1 Mt. Overall production for the region sagged 7.5% to roughly 9.1 Mt.
The Europe Union (EU) saw a modest rise of 0.3% in production to around 14.4 Mt in the reported month. Output fell 1.9% to around 3.6 Mt. in Germany – the biggest producer in the region. Output sank 8.5% in Italy to 1.9 Mt while rising 6.4% in Spain to around 1.3 Mt. Production tumbled 9% in France to around 1.3 Mt while remaining essentially flat in the UK at roughly 0.9 Mt.
Production in the Middle East contracted 7.7% to 2.3 Mt on a double-digit decline in Iran. Output in Africa also dropped 13.2% to 1.2 Mt in April.
Among other notable producers, production from Turkey went up 3.9% to 2.8 Mt. Russia recorded a 3.2% gain to 6.1 Mt while Ukraine – which have been rattled by geopolitical tensions – saw a 24.9% plunge in output to 1.9 Mt, leading to a 4.7% fall in overall production in the C.I.S. region to around 8.7 Mt. Production from Brazil, the biggest producer in South America, rose 4.4% to around 2.9 Mt.
According to WSA, crude steel capacity utilization ratio for the reporting countries was 72.5% in April, down from 75.7% a year ago and up from 71.6% in Mar 2015.
Steel makers including ArcelorMittal MT , U.S. Steel X , Nucor NUE , AK Steel AKS and Steel Dynamics STLD remain hobbled by challenging steel market conditions and weak pricing. Overcapacity remains a drag for the steel industry.
The outlook for the steel industry reflects deceleration in global demand growth this year. According to the WSA’s short range outlook (published in Apr 2015), global apparent steel use is expected to rise 0.5% in 2015 after a 0.6% growth last year. Recovery in the Eurozone economy and encouraging steel usage trends in certain developing economies including India is expected to be eclipsed by slowdown in China which accounted for almost half of the overall steel output in 2014.
The steel industry faces challenges in form of an expected fall in steel usage in China in 2015 due to weaker infrastructure investment growth and a slowdown in the country’s property market that account for a significant part of its steel consumption.
After witnessing high demand levels over the past few years, steel usage in China is expected to cool down this year. Zhang Guangning – chairman of the China Iron & Steel Association (“CISA”) – said in Jan 2015 that the country’s steel production has already hit peak levels, sending tremors to companies providing key steel making raw materials such as iron ore and coking coal. WSA sees steel usages to fall 0.5% in both 2015 and 2016 in China with no significant rebound is expected in the medium term.
The U.S. steel industry, on the other hand, witnessed a barrage of imports during the first quarter of 2015. The estimated market share for finished steel imports was as high as 34% of the market in the quarter.
While the steel market environment appears less favorable in the U.S. this year, a gradually healing economy, strength in the automotive market and a rebound in construction activity represent tailwinds for the country’s steel industry. While steel usage is forecast to clip 0.4% in the U.S in 2015, it is expected to rebound to a 0.7% growth next year.
WSA’s outlook for the Eurozone is encouraging. The European economy is on the mend as evident from a 0.4% growth in the Eurozone GDP in first-quarter 2015, helped by a weak euro, lower crude oil prices and central bank’s support. Steel demand in the EU is expected to go up 2.1% this year and 2.8% in 2016.
The Indian steel industry is also expected to pick up steam this year (with a projected 6.2% rise in steel demand in 2015), driven by structural reforms from the new government and increasing urbanization. Indian government’s strong focus on development is expected to perk up steel usage in that country.
