Global Steel Production Hits Record High in March

Written by Peter Wright

Global steel production was at an all-time high in March and declined only slightly in April. Production declined by 0.07 percent in April month over month and grew by 4.0 percent in three months through April year over year, according to the latest Steel Market Update analysis of World Steel Association data. China grew by 5.2 percent. Excluding China, the growth for world steel production was 2.8 percent. In 2018, China is increasing its share of global steel production, which now stands at an all-time high of 51.7 percent.

In 2017, total global steel production hit 1.645 billion metric tons, up by 5.0 percent from 2016. Production in the month of April 2018 totaled 148,322,000 metric tons, down from 148,422,000 in the month of March. Capacity utilization in April was 75.0 percent. The three-month moving averages (3MMA) that we prefer to use were 142,963,000 metric tons and 74.1 percent, respectively. Figure 1 shows monthly production and capacity utilization since January 2000. The summer slowdown that occurred in each of the seven years 2010 through 2016 was delayed until November last year. On a tons-per-day basis, production in April was 4.944 million metric tons with a 3MMA of 4.817 million metric tons. This was an all-time high on both counts. 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 2.4 billion tons.

As we dig deeper, we start with seasonality. On average, global production peaked in the early summer in the years 2010 through 2016, but last year the second half downtrend was delayed until November. Figure 2 shows the average tons per day of production for each month since 2008. In those 11 years, on average, April has been up by 1.55 percent; this year April was up by 3.26 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 5.1 percent in October last year, then leveling off at 4.6 percent in January through April this year.

Table 1 shows global production broken down into regions, the production of the top 10 nations in the single month of April, and their share of the global total. It also shows the latest three months and 12 months of production through April 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 4.0 percent in three months and 4.6 percent in 12 months through April. When the three-month growth rate is lower than the 12-month growth rate, as it was in April, we interpret this to be a sign of negative momentum. On the same basis, China grew at 5.2 percent and 5.3 percent. On a regional basis, other Europe led by Turkey had the highest growth rate in 12 months year over year.  The CIS had negative growth in both three months and 12 months year over year. Table 1 shows that North America was up by 4.8 percent in three months. Within North America, the U.S. was up by 4.2 percent, Canada was up by 4.9 percent and Mexico was up by 7.1 percent. In the 12 months of 2017, 115.3 million metric tons were produced in NAFTA of which 70.8 percent was produced in the U.S., 11.9 percent in Canada and 17.3 percent in Mexico.  

Figure 4 shows China’s production since 2005 and Figure 5 shows the year-over-year growth. In the three months through January 2018, China’s growth rate was lower than the rest of the world. That changed in February through April this year when China’s growth exceeded the rest of the world by 0.5, 1.3 and 1.2 percent, respectively. China now has an all-time high share of global production at 51.7 percent. 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.

The April WSA Short Range Outlook (SRO) for apparent steel consumption in 2018 and 2019 is shown by region in Figure 6. The WSA forecasts global steel demand will reach 1,616.1 million tons in 2018, an increase of 1.8 percent over 2017. In 2019, it is forecast that global steel demand will grow by 0.7 percent to reach 1,626.7 million tons. Commenting on the outlook, WSA Economics Committee Chairman T.V. Narendran said, “In the next couple of years the global economic situation is expected to remain favorable with high confidence and strengthening recovery of investment levels in advanced economies. Benefitting from this, steel demand in both developed and developing economies is expected to show sustained growth momentum with risks relatively limited. However, possible adverse impact from rising trade tensions and the probable U.S. and EU interest rate movements could erode this current momentum. The outlook for steel demand in the U.S. remains robust on the back of the strong economic fundamentals – strong consumption and investment due to high confidence, rising income and low interest rates. The manufacturing sector is being supported by a low dollar and increasing investment, while rising housing prices and steady non-residential sector growth point to a healthy construction sector. Though the recent tax reform is further expected to boost steel demand through its positive impact on investment, there is some concern over a possible overheating of the economy. The announced infrastructure plan is unlikely to affect steel demand in the short term.”

WSA is one of the largest industry associations in the world. Members represent approximately 85 percent of the world’s steel production, including over 160 steel producers, national and regional steel industry associations and steel research institutes.

SMU Comment: If present trends continue, Chinese pressure on the global steel market will worsen. In three months through April, China’s production grew by 5.2 percent, almost twice as fast as the rest of the world. It looks as though all the talk about cutting capacity is just a smoke screen. Reality seems to be that old plants are being closed as existing ones increase production and new plants come on stream. WSA increased its forecast for steel consumption in 2018 from 1,548.5 million metric tons in its April 2017 forecast to 1,616.1 million metric tons in its April 2018 forecast. In its April forecast, the IMF raised its projection for global economic growth in 2018 and 2019, which will have a positive effect on global steel consumption, particularly in the developing world.

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