A slowing economy in China, and recession or near-recession in the European Union, trends which may persist for some time, have created a subdued backdrop for the steel industry and its raw material trades recently. Japan’s recovery from last year’s natural disasters, and positive progress in South Korea, are giving some support, however.
Yet despite only sluggish growth in steel production during the first half of this year, China’s iron ore and coking coal imports increased strongly. Over the remainder of 2012, a continuation of this pattern probably will be crucial for the global raw materials trades and the bulk carriers extensively employed. Other importing countries may not offer much additional impetus.
 
RECENT STEEL INDUSTRY TRENDS
Figures for steel output in the January–May 2012 period, compiled by the World Steel Association, underline the mediocre performance evolving. In Europe a deteriorating picture is quite clear. Across the entire European Union, crude steel production, at 74.2mt (million tonnes), was 3.4mt or over 4% lower than seen in last year’s same period.
In Japan a marginal reduction of just under 1% to 44.9mt was seen in this year’s first five months. Taiwan, a smaller producer,
saw a 9% fall to 8.9mt. But the picture among raw materials importers was not completely negative because China’s vast crude steel production rose by 6.4mt (2%), to reach 296.3mt. Also, there was a 0.9mt (3%) increase in South Korea, raising output to 29.3mt.
Based on these results, coupled with cautious expectations for the period ahead, forecasts for 2012 as a whole (summarized in the table below) show only very limited growth in steel output for the group of countries which account for about 95% of global seaborne iron ore trade and over 80% of seaborne coking coal trade.
Another significant country, because of its role as a major coking coal (but not iron ore) importer is India. Steel production at Indian mills developed positively in the first five months of 2012, but growth was only just over 1%, raising the total to 30.2mt.
 
IMPORTS INTO CHINA
In China, the decelerating economy casts a shadow over all industrial activity and steel production is reflecting these circumstances. However the Chinese government recently has taken steps to stimulate economic activity, which improves the outlook. During the second half of this year signs of a pickup inmomentum may begin to emerge, with benefits for steel demand in construction and manufacturing.
Although steel production in China has been increasing only modestly, iron ore imports have continued to expand vigorously. In the January–May 2012 period, Chinese importers received ore volumes totalling 308.7mt, a 25.5mt or 9% rise compared with the same period a year earlier.
Domestic iron ore mines within China supply a large proportion of the country’s requirements, and output of this mainly inferior-quality material still appears to be on an upwards trend. It seems obvious, however, that foreign supplies from Australia, Brazil, India and a variety of other sources were highly competitive over the past few months. Steel mills favoured the mostly much higher-specification ore available from these suppliers.
Prospects in the months immediately ahead are always difficult to assess, because temporary, often unforeseen, influences can have a big impact on the outcome. What seems fairly clear is that underlying support for iron ore imports into China is still firm, and that a substantially increased volume, compared with last year’s 687mt, could be seen over the entire year. Higher coking coal imports (45mt in 2011) also are foreseeable.
 
EUROPE, JAPAN AND KOREA
The European Union’s economic weakness and ongoing sovereign debt and banking crisis does not suggest an encouraging outlook for the steel industry. At the beginning of this year it seemed
possible that regional steel production would be flat, or only marginally lower, in 2012 but now a sizeable reduction is becoming a more plausible expectation.
Until fairly recently forecasters have been indicating a gradual strengthening of the EU economy over the next six months, which would be beneficial, if only on a limited scale, for steel demand and production. That expectation now seems to be fading amid the uncertainty about eurozone events.
Japan’s circumstances are more favourable. After the severe setback caused by the earthquake and tsunami over a year ago, and negative effects from later floods in Thailand, which disrupted supply chains, Japanese economic activity is rebounding.Together with rebuilding work in the damaged Tohoku region, advantages for steel production are emerging.
Recent calculations by Japan’s ministry of economy, trade and industry pointed to the country’s crude steel production rising to 27.5mt in the current April–June 2012 quarter, well above the level seen in the past four quarterly periods. Both domestic and export demand could contribute positively. Iron ore imports are already showing some signs of a pick up, increasing by 6% in this year’s first five months, to reach 54.8mt.
Last year South Korea saw a remarkably rapid expansion of steel production, which surged by 16%, facilitated by new steelmaking capacity which had been introduced. Another increase looks achievable in 2012, but it probably will be much smaller. Domestic demand and exports are proving supportive.
 
Richard Scott