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Global Steel Production in January and Forecast through 2017

Written by Peter Wright

The Global steel industry is on a roll with the y/y growth in the three month moving average (3MMA) of production increasing from negative 5.5 percent in January last year to positive 6.0 percent in January this year.

Production in the month of January was 136,514,000 metric tons with a capacity utilization of 69.2 percent. The three month moving averages (3MMA) that we prefer to use were 134,503,000 and 69.1 percent respectively. Capacity is 2.35 billion tonnes per year. Figure 1 shows monthly production and capacity utilization since January 2000.

On a tons per day basis, production in January was 4.404 million tonnes with a 3MMA of 4.386. Growth month on month was 1.8 percent but the 3MMA was down by 0.26 percent from December. Since 2011, capacity utilization has been on a steadily downward trajectory with a leveling out in the last four months. On October 9th the OECD’s steel committee reported that global capacity is expected to increase by almost 58 million tonnes/year between 2016 and 2018 bringing the total to 2.43 billion tonnes.

As we dig deeper into what is going on we start with seasonality. Global production has peaked in the summer for the last seven years. Figure 2 shows the average tons/day monthly production since 2008.

In those nine years on average, January has increased by 4.2 percent, this year January increased by 1.8 percent. Figure 3 shows the monthly year over year growth rate on a 3MMA basis since January 2005.

Production began to contract in March 2015 and the contraction accelerated through January 2016 when it reached 5.5 percent. In the next four months contraction slowed and in May growth became positive. Since then growth has accelerated every month to reach 6.0 percent in January 2017. For the first time since August 2015, the rest of the world is now expanding faster than China with 6.0 percent and 5.2 percent growth rates respectively. This will take a little bit of pressure off the global market.

Table 1 shows global production broken down into regions and also the production of the top ten nations in the single month of January and their share of the global total. It also shows the latest three months and twelve months production through January with year over year growth rates for each period. Regions are shown in white font and individual nations in beige.

The world as a whole had positive growth of 6.0 percent in 3 months and 2.4 percent in 12 months through January. If the three month growth rate exceeds the twelve month we interpret this to be a sign of positive momentum which has been the case for the last twelve months. In January China’s share of global production was 49.2 percent, the first time below 50 percent since July last year.

Figure 4 shows China’s production since 2005 and Figure 5 shows the y/y growth.

China’s production after slowing for 13 straight months year over year returned to positive growth each month in May through January on a 3MMA basis. The slowdown in Chinese steel production that they have been promising is not happening.

In 3 months through January y/y every region had positive growth. Asia as a whole was up by 5.5 percent with India up by 11.1 percent. Other Europe (mainly Turkey), was up by 10.7 percent and North America was up by 5.5 percent. Within North America the US was up by 6.9 percent, Canada was down by 5.2 percent and Mexico up by 13.1 percent.

The October 2016 version of the World Steel Association Short Range Outlook (SRO) for apparent steel consumption in 2016 and 2017 forecast a global growth of 0.2 percent in 2016 and 0.5 percent in 2017. Note this forecast is steel consumption, not crude steel production which is the main thrust of what you are reading now. As it turned out global production in 2016 beat this forecast which suggests that the surge in the 4th quarter was unexpected. Based on this forecast, NAFTA was supposed to contract by 0.1 percent in 2016 and it actually broke even. China’s demand was expected to decline by 1.0 percent in 2016 when in fact it grew by 1.5 percent and is forecast to grow by 2.0 percent in 2017. The WSA forecast for the top 10 steel producing nations has the US up 3.0 percent this year. The next short range outlook will be published in April.

SMU Comment: Global production returned to positive year/year growth in May and has accelerated to 6.0 percent since then. On the same basis China has accelerated to a 5.2 percent growth rate which suggests that global demand is expanding slightly faster than is China’s production, however China is still exporting more than the total US steel production. An acceleration of plant closures will be necessary to make a real dent. At the same time new plants are coming on stream world wide, the net result of closures and startups according to the OECD will be an additional 58 million tons of capacity by the end of 2018. To make matters worse the IMF in its October update was not optimistic about a pick up in global economic growth and the Chinese currency is weakening. The next forecast of global economic growth by the IMF will be reported in April.

Source: World Steel Association with analysis by SMU.

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