Global crude steel production continues its downward spiral with output falling for the third straight month in May on declines across all major producers barring India – according to the latest monthly report from the World Steel Association (“WSA”). The beleaguered steel industry continues to reel under sluggish demand in China – the world’s top steel consumer.
The international trade body for the iron and steel industry said that crude steel production for 65 reporting nations shrank 2.1% year over year to 139.3 million tons (Mt) in May. This follows a 1.7% decline in April that also saw lower production across all key producers except India. Steel production for the first five months also fell 1.9% to 675.6 Mt.
The May reading for Asia showed lower output in China, Japan and South Korea that more than offset a rise in India, leading to a 1.8% drop in overall output for the region to 94.6 Mt.
Steel production in China – the world's biggest steel maker – went down 1.7% year over year to 70 Mt in the reported month after falling 0.7% in April. China continues to see lower output as a slump in the country’s housing market, persisting credit crunch and weak infrastructure investment continue to weigh on steel demand there.
Sluggishness in the world’s second-largest economy is further evident from contraction in its manufacturing sector for the fourth consecutive month in June. The HSBC Purchasing Managers' Index (PMI) showed a preliminary reading of 49.6 for the month, indicating subdued demand. A reading less than 50 indicates contraction in manufacturing activity.
Output also contracted 7% to 8.9 Mt in Japan – the second-largest producer. India retained its place as the third-biggest steel maker with a production of 7.7 Mt. of crude steel for the month, a 4% gain. Production in South Korea fell 2.6% to 6 Mt.
In North America, crude steel production slid 8.5% year over year to 6.8 million tons in the U.S. (the fourth-biggest producer), marking the fourth straight month of decline this year. The U.S. steel industry remains rattled by a torrent of unfairly traded imports. Output in Canada, however, jumped 8.3% to around 1.2 Mt. Overall production for the region dropped 6.7% to roughly 9.5 Mt.
The Europe Union (EU) saw a meager 0.7% rise in production to around 15.1 Mt in the reported month. Output slipped 5.4% to around 3.7 Mt. in Germany – the biggest producer in the region. Production tumbled 12.6% in Italy to 2 Mt while rising 1.9% in Spain to around 1.4 Mt. Production climbed 5.8% and 10.2% in France and the UK, respectively, to around 1.4 Mt and 1.1 Mt, respectively.
Production in the Middle East edged up 0.6% to 2.5 Mt with Iran gaining 2.4% to 1.5 Mt. Output in Africa also clipped 2.2% to 1.1 Mt in the reported month.
Among other notable producers, production from Turkey went down 4.3% to 2.9 Mt. Russia logged a 1.9% decline to 6.1 Mt while Ukraine saw a 23% plunge in output to 2.2 Mt, leading to a 7.6% decline in overall production in the C.I.S. region to around 9 Mt. Production from Brazil, the biggest producer in South America, went up 3.8% to around 3 Mt.
Per WSA, crude steel capacity utilization ratio for the reporting countries was 72.1% in May, down from 75.5% a year ago and 72.5% in April 2015.
The outlook for the steel industry calls for deceleration in global demand growth this year. The WSA expects global apparent steel use 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 masked by slowdown in China.
The steel industry faces challenges in form of an expected fall in steel usage in China in 2015. After witnessing high demand levels over the past few years, steel usage in China is expected to cool down this year 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.
Zhang Guangning – chairman of the China Iron & Steel Association ("CISA") – said earlier this year 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. This is particularly bad news for big iron-ore miners such as BHP Billiton BHP, Vale VALE and Rio Tinto RIO as they continue to invest heavily to beef up their output in anticipation of higher demand.
China accounted for almost half of the overall steel output in 2014. 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, is struggling to cope with a flood of subsidized imports of steel products. Domestic steel makers including Nucor NUE, U.S. Steel X and AK Steel AKS are feeling the pinch from falling steel prices as unfairly traded imports continue to flow into the domestic market. Oversupply and depressed capacity are hurting the American steel industry.
Although steel market fundamentals appear 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 contract 0.4% in the U.S in 2015, it is expected to rebound to a 0.7% growth next year.
Outlook for the Eurozone is encouraging as the WSA sees steel demand in the EU to rise 2.1% this year and 2.8% in 2016. The Indian steel industry is also expected to pick up pace with a projected 6.2% rise in steel demand in 2015. Indian government’s strong focus on development is expected to perk up steel usage in that country.
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