Steel's recovery and the global supply vs. demand equation
The Organization for Economic Cooperation and Development (OECD) said Friday that it sees the global steel market in a state of recovery, but that it has concerns that it may face excess capacity in the coming years.
At a Paris meeting, the OECD said that the sharp decline in global steel demand that began in the second half of last year is now tapering off, and that the leaders of the recovery are, and will continue to be, emerging nations such as China and India. The World Steel Association (worldsteel) gave a similar assessment of the market last month, stating that although, for the year as a whole, global steel demand is expected to be down roughly 8.6 percent compared to 2008, we are in the midst of a slow recovery, in which we'll see demand improve by 9.2 percent next year. Worldsteel also expects that growth in steel demand in the coming years will come primarily from emerging markets while the rebound of developed nations will be much slower-going. However, while emerging markets are currently leading the global recovery in steel demand, it is just these markets that could pose a threat in the long-term due to their burgeoning steelmaking capacity.
The OECD warned that projections to 2012 show that global capacity may exceed demand "by a wide margin", and that most of this capacity will be in emerging markets. The OECD is not alone in its concerns; although China and others have taken a giant step back from the international steel market in the last couple of years, many in the steel industry fear that overcapacity, particularly from China, could eventually result in a flood of exports to developed countries, threatening to undo the global steel market's fledgling recovery.
The good news is that cumulative global steel production this year has, on the whole, remained consistent with the drop in demand, and perhaps even overshot the mark somewhat. Worldsteel figures show that for the first ten months of 2009, total worldwide steel production is down 13.5 percent compared to the corresponding period of 2008. However, the production figures for recent months may show the emergence of a different trend.
Global steelmaking capacity utilization rates have generally followed an upward trend since last spring, with current rates standing at 76 percent (see accompanying graph from worldsteel). October was the second month in a row in which overall production increased compared to the previous month, with October figures of 112 million metric tons (mmt) reflecting an increase of 13.1 percent from October 2008. In China, crude steel production for October 2009 totaled 51.7 mmt, 42.4 percent higher than the October 2008 figure. Although recently-released figures from China's National Bureau of Statistics show that China's crude steel output did slow slightly in November over October, YTD January to October production is still on pace to reach the China Iron and Steel Association's 2009 production forecast of 565 mmt in 2009 - which would set a new historical record. Although China's steel market has seen an arguably strong pick-up in domestic demand this year, many question such a robust increase in production in the wake of the world's worst recession of the post-WWII era.
For now, at least, the US and other developed nations are seeing little threat from imports from China or elsewhere, due in part to year's pile-up of trade cases against steel imports, and also due to the strength of China's domestic steel market this year, and other factors, including the weakening USD. YTD steel imports through October by the US total 12,181,538 mt, less than half of the 24,905,160 mt imported in 2008. Of these 12 million tons, 1.2 million came from China, compared to 3.4 million in the same period of 2008. So, while it may not remain the case forever, for now, the US steel market remains, primarily, a domestic game.
