Chinese Continue to Lead Global Steel Production

Written by Peter Wright

Global steel production in July hit an annual rate of 1.855 billion metric tons. Capacity is calculated to be 2.38 billion metric tons; therefore, capacity utilization was 78 percent, according to the latest Steel Market Update analysis of World Steel Association data.

In three months through July, Chinese production grew by 10.5 percent year over year as the rest of the world grew by 2.3 percent. In 2018, China has increased its share of global steel production, which in June hit an all-time high of 52.7 percent, declining slightly in July to 52.6 percent.

Figure 1 shows annualized monthly production on a 3MMA basis and capacity utilization since January 2000. May, June and July were the first months for the annualized production rate to exceed 1.8 billion metric tons. On a tons-per-day basis, production in July was 4.986 million metric tons with a 3MMA of 5.017 million metric tons. June and July were the first-ever months to exceed 5 million tons per day on a 3MMA basis. 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 2.38 billion tons.

As we dig deeper, we start with seasonality. On average, global production on a tons-per-day basis 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, July has been down by 2.8 percent; this year July was down by 1.7 percent. Note: July had one extra day over June, which is why tons per day were down as total monthly production was up. 

Figure 3 shows the monthly year-over-year growth rate of global production on a 3MMA basis since January 2005. Growth was 5.0 percent in May, 5.7 percent in June and 6.2 percent in July.

Table 1 shows global production broken down into regions, the production of the top 10 nations in the single month of June, and their share of the global total. It also shows the latest three months and 12 months of production through June 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 6.2 percent in three months and 5.1 percent in 12 months through July. When the three-month growth rate exceeds the 12-month growth rate, as it did in June and July, we interpret this to be a sign of positive momentum. These were the first months of positive momentum since October last year. On the same basis, China grew by 10.5 percent and 6.5 percent. All regions had positive growth in the three months through July. India had the second highest growth rate, (second only to China). Table 1 shows that North America was up by 2.8 percent in three months. Within North America, the U.S. was up by 4.6 percent, Canada was down by 6.9 percent and Mexico was up by 1.5 percent.

In the 12 months of 2017, 115.3 million metric tons of steel 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.

Figure 4 shows China’s production since 2005 and Figure 5 shows the year-over-year growth. China is increasingly dominating the global steel market. The much publicized capacity reductions in China are not the same as cutting production.

The April WSA Short Range Outlook (SRO) for apparent steel consumption in 2018 and 2019 is shown by region in Figure 6. WSA forecasts global steel demand will reach 1,616.1 Mt 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 Mt. T.V. Narendran, chairman of the WSA economics committee, commented: “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: In three months through July, China’s production grew more than four times as fast as the rest of the world. We don’t doubt that old plants are being closed for environmental reasons, but modern plants are increasing production and new plants are coming on stream. 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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