Posted on 25 Feb 2015
The year got off to a rocky start for the steel industry with global crude steel output sliding in January as sharp declines across China and Japan more than offset modest gains in the U.S. and India - according to a recent World Steel Association ("WSA") report.
The international trade body for the iron and steel industry said that crude steel production for 65 reporting nations shrank 2.9% year over year to 133 million tons (Mt) in January. This follows a modest 0.1% gain in Dec 2014.
The January reading paints a glum picture in Asia with output falling in China, Japan and South Korea while rising narrowly in India, leading to a 3.9% contraction in overall output for the region to 89.4 Mt.
Steel production in China - the world's biggest steel maker - tumbled 4.7% year over year to 65.5 Mt in the reported month after rising 1.5% in December. A rapid cooling of the country's housing market, persisting credit crunch and tepid infrastructure investment continue to weigh on steel demand there.
China's economy started the new year on a weak note with disappointing manufacturing sector reading, providing fresh evidence of sluggishness in the world's second-largest economy. The HSBC Purchasing Managers' Index (PMI) showed a final reading of 49.7 in Jan 2015. A reading less than 50 indicates contraction in manufacturing activity.
Output also sagged 4% to 9 Mt in Japan - the second-largest producer. India continues to cling to fourth place with production edging up 0.3% to roughly 7.1 Mt. Production in South Korea skid 5% to 5.8 Mt.
In North America, crude steel production inched up 0.4% to 7.4 Mt in the U.S. - the third-biggest producer. Output in Canada, however, tanked 5.5% to around 1 Mt. Overall production for the region fell 1.3% to roughly 10 Mt in January.
The Europe Union (EU) saw a decline in production in the reported month with output slipping 1.1% to around 14.4 Mt. Germany - the biggest producer in the region - produced 3.7 Mt, up 0.5%. Output plummeted 11.3% in Italy to 1.9 Mt while climbing 11.8% in Spain to around 1.3 Mt. Production tumbled 10.6% in France to around 1.3 Mt while the UK saw a 1% decline to roughly 1.1 Mt.
Production in the Middle East jumped 13.1% to 2.3 Mt on gains across Iran, Saudi Arabia and UAE. Output in Africa, however, clipped 3% to 1.3 Mt in January.
Among other notable producers, production from Turkey dropped 10.4% to 2.6 Mt. Russia recorded a healthy 6% gain to 6.1 Mt while Ukraine - which have been rattled by geopolitical tensions - witnessed a 25.2% plunge in output to 1.9 Mt, leading to a 3.1% fall in overall production in the C.I.S. region to 8.5 Mt. Production from Brazil, the biggest producer in South America, jumped 7.7% to around 3 Mt.
January data also showed a decline in steel capacity utilization. According to WSA, crude steel capacity utilization ratio for the reporting countries was 72.5% in January, down from 76.9% a year ago and 72.9% in Dec 2014.
Steelmakers including ArcelorMittal, U.S. Steel, Nucor, AK Steel and Steel Dynamics remain hamstrung by challenging steel market fundamentals and weak pricing. Overcapacity remains a drag for the steel industry.
Per the WSA, global steel production went up 1.2% to 1,662 Mt in 2014 as modest gains across Asia, EU and North America coupled with strong growth in the Middle East masked declines in the C.I.S. and South America. China accounted for almost half of the overall output. According to the WSA's short range outlook (published in Oct 2014), global steel demand is expected to rise 2% in 2015.
The steel industry witnessed a flood of imports during the second half of last year. Adding to the pain is descending crude oil prices given the industry's 10% exposure to the energy sector. Several energy companies are dialing back drilling plans in the face of the oil price slump, thereby affecting steel demand in the energy space.
The steel industry faces challenges in form of an expected deceleration 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 and rise just 0.8% this year.
Nevertheless, a gradually healing economy, strength in the automotive market and a rebound in construction activity are expected to provide a thrust to the U.S. steel industry. The automotive sector will gain from lower fuel prices and improving job market while the housing market is expected to continue its recovery momentum this year.
The European economy, on the other hand, appears to be on the road to recovery as evident from a 0.3% growth in the Eurozone GDP in the final quarter of 2014, thanks to a healthy 0.7% gain in the region's biggest economy - Germany - that offset a slowdown in France. This augurs well for steel usage in the region.
Steel demand in India is also expected to pick up speed this year, driven by structural reforms from the new government and increasing urbanization.
