Industry Market Trends

Global Steel Production Increases, Despite Overcapacity Concerns

Nov 29, 2012

Global crude steel production increased on both a month-to-month and year-over-year basis in October. However, output from U.S. steel manufacturers has declined slightly, while international markets may face an overcapacity problem in the near future.

Worldwide crude steel production rose from 124 million tons in September to 126 million tons in October, according to the latest report from the World Steel Association (worldsteel). In addition, total steel output for the 62 countries tracked by worldsteel, which represent approximately 85 percent of global steel production, was up 1.3 percent from the total for October 2011.

The latest figures indicate that steel production is on an upward trend in most of the major steel-producing regions of the world. In 2011, production declined between September and November. Output has been generally higher so far in 2012 than in the same period last year.

Steel output from China, the world's largest steel producer, rose to 59.1 million tons in October, up from 58 million tons in September and 6 percent above the total for October 2011.

"China's steel industry, the world's largest, will face better operating conditions this quarter and next year after posting nine months of losses," Bloomberg BusinessWeek reports. "China's government approved a $158 billion subways-to-roads construction plan in September. While the infrastructure program will boost steel demand in the final quarter, mill overcapacity may limit gains in steel prices..."

These pricing issues are likely to have a widespread effect. As China's production rates increase and the global steel supply rises, producers across the globe will face tougher conditions.

"Steel is a worldwide market. Excess supply in China, or in China plus Europe, is bound to sour pricing and margins worldwide, especially taking into account that China holds almost 50 percent of the entire world's steel production capacity," Seeking Alpha explains. "As such, China steel pricing resuming its downward trend is a renewed negative for steel producers everywhere, including the U.S."

Elsewhere in Asia, Japanese steel production totaled 8.8 million tons last month, relatively unchanged from September but 6.7 percent lower than the total for October 2011. South Korea's crude steel production for October was 5.8 million tons, up from 5.6 million tons the previous month but down 4.9 percent from the same month last year.

So far this year, Asian countries have produced 831 million tons of crude steel, 12.9 percent more than in the first 10 months of 2011.

Meanwhile, major steel producers in the European Union posted mixed results in October. Germany's crude steel production totaled 3.7 million tons, up from 3.6 million tons in September and a 0.3 percent gain over October 2011. Italy produced 2.4 million tons, the same as in September but 10.4 percent below the total for October 2011. In France, October steel output was also unchanged at 1.3 million tons, but dropped 7.2 percent from the same month last year.

Manufacturers in the E.U. produced a combined total of 144 million tons of crude in the first 10 months of the year, a 1.1 percent decrease from the comparable period in 2011.

Monthly crude steel output in the United States inched down last month, falling to 6.9 million tons from 7 million tons in September and marking a 3.3 percent drop from the total for October 2011. However, U.S. steelmakers have produced 74.9 million tons of crude steel so far this year, 11 percent more than in the same period last year.

U.S. steel products have also rebounded, with steel product shipments from metals service centers climbing to 3.5 million tons in October, a 14 percent increase over September and a 3.9 percent improvement on the October 2011 shipment total, according to the Metals Service Center Institute (subscription required). Steel product shipments in the U.S. totaled 35.6 million tons in the first 10 months of 2012, marking a 3.4 percent increase over the same period last year.

Despite positive signs in recent months, the global steel industry may be facing an overcapacity problem. Steel mills around the world have an estimated production capacity of 1.8 billion tons, but are projected to receive orders for only 1.5 billion tons. Yet instead of pursuing consolidation that could improve efficiency, the industry is growing more fragmented worldwide.

"The oversupply issue has reduced steel prices and profits, as seen in the latest round of earnings, and led to renewed calls for consolidation and rationalization among industry officials and investors...But at this point, there appears to be little industry progress toward doing so - and much opposition politically from governments," the Wall Street Journal reports. "Without consolidation, big steel companies say they will have to rely on other methods to stay healthy. Those include developing better high-margin, high-tech, light-steel products for the auto sector, cutting costs and selling more in emerging markets."