Many steel industry raw materials trades have experienced an
enormous setback over the past 12 months, amid severe global
economic recession. Steel production declines in Europe, Japan
and other countries were extreme, savagely cutting iron ore and
coking coal imports. Fortunately China’s requirements continued
rising. But signs are emerging of a revival beginning soon in the
badly affected areas.
Figures for pig iron production at blast furnace steel mills,
shown in the table below, emphasize the downturn’s huge scale.
In the first seven months of 2009, Japan’s pig iron production was
33% below last year’s same period. European Union output
suffered an even larger collapse, falling by 47%. South Korea saw
an 18% decrease. By contrast, China’s volume strengthened,
rising by 7%.
POSITIVE POINTERS
News and indicators have become a little more cheerful during
recent weeks. It now seems possible to envisage that European,
Japanese and some other steel producers will see improvements
in their output volumes in the final months of this year,
continuing into 2010. Benefits for raw materials import volumes
could be visible.
Tentative signs of an approaching global economic revival
support cautious optimism. Economic output (GDP) around the
world seems to be levelling off after several quarters of large
contractions, and there are hopes that an improving trend will
begin soon and gain momentum through 2010. However, the
IMF’s latest update warns that the world economy, although
stabilizing, is likely to experience only a sluggish recovery.
A more specific positive indicator for steel production is a
prospective change in the stock cycle. In most countries the
impact of the downturn in steel consumption has been amplified
by heavy destocking by users and merchants. Reports suggest
that the destocking phase may fade or cease in the fairly near
future, necessitating additional steel output. Further ahead,
stronger actual consumption plus restocking can be expected to
give an extra boost.
EUROPE AND JAPAN
Production of crude steel in the European Union in the January-
July 2009 period was down by 42%, to 73.5mt (million tonnes),
with blast furnace pig iron output declining faster. Among the
largest producing countries, Germany’s pig iron output was 44%
lower, France saw a 45% fall, Italy’s volume fell by 52% and the
UK reduction was 38%.
Nevertheless, resumed GDP growth in Germany and France
in this year’s second quarter, and some other positive economic
indicators, provides encouragement for steel mills. This news
reinforces recent Eurofer (European Confederation of Iron &
Steel Industries) estimates pointing to the EU’s steel
consumption decline bottoming-out in the final quarter of this
year, followed by an improving trend.
According to Eurofer, demand for steel within the EU during
third quarter 2009 will continue to be affected by weak
consumption and destocking. But “the negative effect of the
stock cycle will start to ease from the fourth quarter onwards”.
In 2010 a return to a slightly positive phase of the stock cycle is
expected to be reflected in Europe’s steel demand rising by
almost 14%, a great improvement after the estimated annual 33%
decline in 2009.
Steel products exports and imports flows will also have an
impact on how much European mills can raise their output. This
year steel exports are expected to be sharply down, but imports
may decline steeply as well. For next year, export prospects are
not very bright as many foreign markets may remain fairly
subdued, while imports could increase markedly as domestic EU
steel demand strengthens.
In Japan, crude steel output was 39% lower in the January-July
2009 period, at 44.3mt. Blast furnace mills were not quite so
badly affected though, and consequently the pig iron production
fall was less steep.
Japanese economic activity also picked up in the second
quarter of this year, leading to expectations that a recovery is
beginning. Signs of several manufacturing industries reviving have
been reflected in the statistics, but it is not yet clear how solid or
sustainable the emerging improvement will be. However, higher
steel output in the current quarter already seems achievable.
An official government estimate revealed at the end of July
indicated that Japan's crude steel production in the July-
September 2009 quarter could jump sharply by over 20%,
compared with the previous quarter’s volume. Japanese steel
companies planned to produce 23.1mt during the current period,
compared with 19.1mt in the April-June quarter. July monthly
output rose to 7.7mt, seemingly putting that higher quarterly
figure within reach.
CHINA AND KOREA
The huge downturn in Japanese and European steel production,
and in iron ore and coking coal imports, has been greatly offset
by further growth in China. During the first seven months of this
year, Chinese crude steel production was 3% higher at 317.3mt.
Pig iron output was up by 7%. Iron ore imports into China rose
by 32%, as domestic ore output was displaced and stocks rose.
But potential for further expansion in the immediate future
seems limited.
South Korea saw a 17% crude steel output reduction, to
26.9mt, in the January-July 2009 period, while pig iron production
declined similarly. Forward looking indicators are becoming
brighter, however. The Korean economy’s prospects seem to have
improved, after a bounce back from recession in the second
quarter of this year. Recent reports suggest that steel mills may
raise their production over the months ahead.