World Steel Production Rebounds By 2 Per Cent In July 2012
DSIJ Intelligence / 27 Aug 2012
The World Steel Organization has released the steel production numbers for July 2012, indicating that the total world steel production has seen a rebound and is up by 2 per cent on a YoY basis to 130 million tonnes.
The World Steel Organization has released the steel production numbers for July 2012, indicating that the total world steel production has seen a rebound and is up by 2 per cent on a YoY basis to 130 million tonnes. This rebound seems to be in anticipation of a pick-up in demand following the end of the slow summer period. Major growth in production has come from the Chinese economy which has grown by 4.2 per cent as against the same period last year. However, we believe that the current demand situation across the globe is still quite subdued and therefore any increase in production will further hurt the steel prices internationally.
| Global Crude Steel Production (In Mn Tonnes) | ||||
|---|---|---|---|---|
| Months | 2012 | 2011 | % Change | Utilisation Levels (%) |
| Jan | 123.71 | 128.05 | -3.4 | 75.4 |
| Feb | 120.98 | 118.37 | 2.2 | 79.8 |
| March | 132.6 | 129.85 | 2.1 | 81.0 |
| Apr | 129.47 | 126.69 | 2.2 | 81.2 |
| May | 131.28 | 129.97 | 1.0 | 79.7 |
| June | 127.59 | 127.67 | -0.1 | 79.0 |
| July | 129.73 | 127.25 | 1.9 | 78.7 |
The utilization levels have come down from 80 per cent in June to 78.7 per cent in the month of July 2012, pointing towards a subdued demand scenario across the globe. In fact, most of the Chinese steel companies are holding on to inventories due to slowdown in infrastructure and construction activity. This has resulted into an oversupply situation, resulting in the de-stocking of this inventory at lower prices. This ultimately impacts margins and profitability.
The global output grew by 0.7 per cent in May and there was a 0.1 per cent drop in June as the global economic slowdown put pressure on the outlook for demand and dragged the prices to a lower level. We do not expect any major recovery immediately in 2012. The problem of oversupply is going to persist over the year. The China Iron & Steel Association had earlier said that the demand for steel this year would slow down to 5.7 per cent, which is almost half the average growth rate of 11.1 per cent over the past three years. China has also reduced its projected GDP growth rate to 7.5 per cent - the lowest in the last three years. With the slowing economy, we expect the steel demand growth to follow a similar trend in 2012.
As far as the steel production of other countries is concerned, Germany’s crude steel production for July 2012 was 3.6 million tonnes, a decrease of -2.1 per cent as compared to July 2011. The U.S. produced 7.4 million tonnes of crude steel in July 2012, up by 9.7 per cent on a YoY basis. Spain produced 1 million tonnes of crude steel in July 2012, which was 7 per cent higher on a YoY basis. We believe that the global slowdown in demand will continue in the coming quarters since debt problems continue to persist for many of the world’s economies. High inventory pile-up and subdued demand will lead to price pressures internationally.
In the meantime, the domestic consumption has remained steady in the last couple of months. However, with the revival of the monsoon and persisting economic problems we may see a decline in consumption in the coming quarter. The economic indicators are still showing a weak sign except for the inflation numbers which have cooled off slightly to 6.87 per cent in the month of July 2012. However, this is still above the RBI’s comfort zone of 6 per cent and therefore one may not expect any major cut in the interest rate in the near term.
On the raw material side, the coking coal prices have come down to USD 210 per tonne as against USD 230 per tonne in the last two months. However, due to rupee depreciation all the benefits have been negated and steel companies have to buy at higher prices. Moreover, in a recent move, the NMDC has raised the iron ore prices by 8-13 per cent on lumps and fines.
Steel demand will continue to remain subdued across the globe and in India while high interest rate, rising raw material cost and higher Freight charges, will dent the margins of the domestic steel companies in the coming quarter.
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