Economy

WSA: Global Steel Production Grows by 3.8 Percent

March 26, 2018

Global steel production grew by 3.8 percent in the three months through February. Excluding China, the pace of growth for world steel production was 3.2 percent, according to the latest Steel Market Update analysis of World Steel Association data.

In 2017, total global steel production hit 1.687 billion metric tons, up by 5.2 percent from 2016. Production in the month of February 2018 totaled 131,791,000 metric tons, down from 144,861,000 in January due to the reduced number of days in the month. Capacity utilization in February was 73.3 percent. The three-month moving averages (3MMA) that we prefer to use were 138,017,000 metric tons and 71.8 percent, respectively. Figure 1 shows monthly production and capacity utilization since February 2000. The summer slowdown that has occurred in each of the last seven years was delayed until November last year. On a tons-per-day basis, production in February was 4.707 million metric tons with a 3MMA of 4.604 million metric tons. The all-time 3MMA high was in June 2017 at 4.695 million metric tons. In three months through February, production was up by 3.8 percent year over year. Capacity utilization was on an erratically downward trajectory from mid-2011 through February 2016 when it bottomed out at 65.5 percent. In December 2016, the OECD’s steel committee estimated that global capacity would increase by almost 58 million metric tons per year between 2016 and 2018 bringing the total to 2.43 billion tons. That forecast is coming to pass as capacity is now 2.39 billion tons.

As we dig deeper, we start with seasonality. On average, global production has peaked in the early summer for the last seven years with April and June having the highest average volume. Figure 2 shows the average tons per day of production for each month since 2008. In those 11 years on average, February has been up by 3.6 percent; this year February was up by 0.73 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 negative 5.4 percent. Growth became positive in May 2016, reached a rate of 6.9 percent in September last year, then slowed every month through February when it had declined to 3.8 percent. In the 14 months through May 2017, China’s growth rate was lower than the rest of the world. That changed in the five months through October when China began to pull away again. In November through January, China once again expanded by less than the rest of the world. Then in February China pulled ahead again. That rather laborious description is meant to illustrate that all the hoopla about China cutting back for ecological reasons has been greatly overdone. In February, China produced 49.3 percent of the global total.

Table 1 shows global production broken down into regions, the production of the top 10 nations in the single month of February, and their share of the global total. It also shows the latest three months and 12 months of production through February with year-over-year growth rates for each period. Regions are shown in white font and individual nations in beige. The world overall had positive growth of 3.8 percent in three months and 4.7 percent in 12 months through February. When the three-month growth rate is lower than the 12-month growth rate, as it was in February, we interpret this to be a sign of negative momentum.

Figure 4 shows China’s production since 2005 and Figure 5 shows the year-over-year growth. After slowing for 13 straight months year over year, China’s production returned to positive growth each month from May 2016 through February 2018. On March 5, the National Development and Reform Commission (NDRC) said in a work report that China will reduce steel capacity by around 30 million metric tons and coal output by about 150 million tons this year, putting the country on track to beat its long-term targets, as Beijing reinforced its vow to beat smog and make “skies blue again.” The cuts would put the world’s top steelmaker and coal miner on track to meet its 2020 targets in the government’s five-year plan about two years ahead of schedule. The 2018 cuts were higher than expected, said Zhang Min, a coal market analyst at China Sublime Information Group. “Setting a high target this year showed the government is not slowing down the pace of reform for the two industries.”

As we have said before in these SMU updates, cutting capacity is not the same thing as cutting production when capacity utilization is as low as it is today.

Table 1 shows that in three months through February year over year, every region except the CIS had positive growth. At the national level, only Russia and Japan contracted. North America was up by 0.8 percent in three months. Within North America, the U.S. was up by 1.0 percent, Canada was up by 0.4 percent and Mexico was up by 0.3 percent. In the 12 months of 2017, 115.3 million metric tons were produced in NAFTA of which 70.8 percent, 11.9 percent and 17.3 percent were produced in the U.S., Canada and Mexico, respectively. Other Europe led by Turkey had the highest regional growth rate in three months through February year over year followed by South America in second place. Asia was up by 4.0 percent.

The World Steel Association Short Range Outlook for apparent steel consumption in 2017 and 2018 was revised and published on Oct. 14, 2017 (see graphic below). Commenting on the outlook, World Steel Economics Committee Chairman T.V. Narendran said: “Progress in the global steel market in 2017 has been encouraging. We have seen the cyclical upturn broadening and firming throughout the year, leading to better than expected performances for both developed and developing economies, although the MENA region and Turkey have been an exception. The risks to the global economy that we referred to in our April 2017 outlook, such as rising populism/protectionism, U.S. policy shifts, EU election uncertainties and China deceleration, although remaining, have to some extent abated. This leads us to conclude that we now see the best balance of risks since the 2008 economic crisis. However, escalating geopolitical tension in the Korean peninsula, China’s debt problem and rising protectionism in many locations continue to remain risk factors. In 2018, we expect global growth to moderate, mainly due to slower growth in China, while in the rest of the world steel demand will continue to maintain its current momentum.”

SMU Comment: On a 3MMA basis year over year through February, the world as a whole had a growth rate of 3.8 percent, but China grew at 4.5 percent and the rest grew at 3.2 percent. Hopefully this trend does not continue. If it does, Chinese pressure on the global market will worsen. WSA increased its forecast for production in 2018 from 1,548.5 million metric tons in April to 1,648.1 million metric tons in its October forecast. This would be a projected growth of 1.6 percent in 2018, which based on the present momentum seems low. Globally, steel is back on a roll, driven primarily by construction in the developing world. The emerging and developing economies saw their GDP decline from 2010 through 2015 after which there was a turnaround that the IMF believes will continue through the 2022 forecast. We expect the IMF to raise the forecast of global growth in its April update.