China Pushes Up Global Crude Steel Production in August

Posted on 25 September 2017
 

Source: Zacks

Global crude steel output expanded in August on the back of a surge in production in China – the world’s biggest steel maker – according to a World Steel Association (“WSA”) report released yesterday. Healthy gains across India and the United States also supported the production growth.

According to the international trade body for the iron and steel industry, crude steel production for 67 reporting nations went up 6.3% year over year for the reported month to 143.6 million tons (Mt). This follows a 6.3% gain last month.

August Readings Show Broad-based Gains

By regions, August production data shows gains across all areas barring the Commonwealth of Independent States (“CIS”) where output declined 4%.

Growth was seen across major Asian producers except Japan. Output from China, which accounts for around half of the global production, shot up 8.7% year over year to a monthly record of 74.6 Mt in August. This follows a 10.3% rise to 74 Mt in July.

China’s steel juggernaut continues to gather steam notwithstanding the global production glut. Steel mills in the country are ramping up production to take advantage of a spike in steel prices that translates to higher profits for the industry.

Nevertheless, production cuts are expected later this year as Beijing pushes forward with supply-side structural reform to streamline its burgeoning steel sector. China, earlier this year, announced plans to cut its steel production capacity by around 50 million metric tons in 2017 in a bid to reduce overcapacity and control pollution.

Meanwhile, Japan saw a 2% decline in production to 8.7 Mt, the third straight month of decline. Production in India went up 4.1% to 8.5 Mt in August. A sharp rise in domestic steel prices and higher local demand are benefiting Indian steel mills. South Korea raked in a 4.9% gain to 6.2 Mt. Consolidated output were up 7.2% to 101.2 Mt in Asia.

In North America, crude steel production rose 6.3% to 7.1 Mt in the United States. Output in Canada climbed 11.3% to around 1.1 Mt. Overall production for the region was up 6.5% to roughly 10 Mt.

In the Europe Union, production from Germany – the biggest producer in the region – rose 3.3% to 3.6 Mt. Output ticked up 0.4% in Italy to 1.1 Mt while climbing 15.5% to 1.1 Mt in France. Spain saw a 2.7% decline to 1.1 Mt. Total output rose 3.6% in the European Union to 12.6 Mt.

Output in the Middle East moved up 9.6% to 2.7 Mt with gains witnessed across all steel producing countries, notably Iran that saw a 15.1% rise. Africa logged a solid 20.9% gain to 1.2 Mt in the reported month.

Among other notable producers, production from Turkey was up 13.3% to 3.2 Mt. Output from Brazil, the largest producer in South America, increased 1.2% to 3 Mt.

Crude steel capacity utilization ratio for the reporting countries was 72.2% in August 2017, up from 69% a year ago and down from 72.4% in the previous month.

Demand Outlook Suggests Steady Recovery

The WSA sees global steel demand to expand 1.3% in 2017 following a 1% rise in 2016. A cyclical upturn in steel demand is expected to be supported by an ongoing recovery in the developed economies along with an accelerating growth momentum in the emerging and developing economies.

The United States is expected to lead growth in the developed world thanks to strong fundamentals, measures related to fiscal stimuli and rising infrastructure spending. Steel demand in the United States is expected to rise 3% this year.

The Eurozone economy has also gained traction of late. Steel demand in the European Union is expected to go up 0.5% in 2017. This augurs well for companies like ArcelorMittal MT , which generates almost half of revenues from this region. United States Steel Corporation X also has a significant presence in Europe.

Demand in emerging and developing economies (barring China) is also expected to rise 4% this year. India is anticipated to act as the next growth engine, given its progressing construction and manufacturing sectors along with rapid urbanization and structural reforms.

An upswing in the world economy and strength across automotive and construction markets – two major steel consumers – should also provide a thrust to the steel industry this year.

The Zacks Steel Producers industry has outperformed the broader market in a year’s time. The industry has gained around 33.8% in this period, higher than the S&P 500’s corresponding return of around 15.1%. 



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