Referencing data from Worldsteel Association, February global crude steel production totaled 126.6 million tonnes (Mt) (note February was a 29 day month) at a capacity utilization rate (CUR) of 70.3%. This was a 4.1% year on year (y/y), increase and the highest CUR since March 2016. China’s production was 61.2 Mt, a 4.2% increase y/y, while the US produced 6.4 Mt, a 1.0% y/y decline compared to February 2016.
Crude steel production reached 1,628.6 Mt in 2016, up 0.8% compared to 2015. Of this 1,125.1 Mt or 69.1% was produced in Asia with China contributing 808.4 Mt of it. China’s ratio of the global total crude steel production was 49.6% in 2016 up 0.2% from 2016. The next largest producing region was the EU28 at 10%, followed by Japan at 6.4%, India at 5.9%, and the US at 4.8%. Russia and South Korea were next at 4.3% and 4.2% respectfully. Rounding out the top 10 producers in 2016, Brazil at 1.9%, Ukraine at 1.5% and the rest of the world at 11.4%.
The Worldsteel Association’s short range outlook portends that 2017 crude steel production will increase by 0.5% to 1,509.6 Mt. It predicts a 2.9% increase for the NAFTA region to 137.4 Mt of which the US typically accounts for about 59% of the NAFTA total or 80.8 Mt.
Figure 1 charts the total CUR on the left hand axis in red. The right hand axis in blue-bars illustrates annualized production. Global capacity was reduced by some 200 million tonnes in 2016 bringing the total to 2.1 billion tonnes. The net result is that the CUR has stabilized at 69.0% plus or minus 0.5 point. Another way to say this is that there is 31% overcapacity in the world or approximately 630 Mt. This translates into eight times the 78.6 million Mt that the US produced last year. Needless to say there is a lot more obsolete excess capacity that needs to be curtailed to bring demand and supply closer to equilibrium.
The Organization of Economic Development (OECD) recently warned that excess steel capacity will likely get worse in the years ahead as more new capacity is brought on-line at a faster rate than obsolete capacity is shuttered. Currently some 94 Mt of new capacity is either under construction or in the planning stages. Of particular concern is China which commands close to 50% of global capacity. In 2016 through September, China exported 83.6 Mt, for an annualized rate of 111.5 Mt. This was roughly one third of the total 300 Mt of steel exports from all countries combined. China economy is gradually transitioning to a consuming society with less focus on the vast steel consuming infrastructure sector. This would suggest that Chinese will look to export a greater percentage of its capacity in the years to come
At Gerdau we keep a keen eye on Global crude steel production and capacity utilization because of its huge impact on global trade and its influence on domestic pricing.