Global steel production rose by 1.9% from a year ago in August, up from the 1.5% growth seen in July, according to the World Steel Association (Worldsteel). China is the main reason why steel output has risen by this much, but global output ex-China too has risen in the past few months. Still, China dominates the steel discussion; in August, for instance, its output rose by 3% versus 0.9% for the rest of the world.

The rise in output may seem problematic, for Worldsteel had predicted in April that the global demand for steel would decline by 0.8% with China’s demand declining by 4%. That appears to have changed, especially as China has taken steps to stimulate economic growth. ArcelorMittal said, in its June quarter results statement, that it expects global steel consumption to grow slightly in 2016, without giving a number. It said Chinese steel demand will benefit from growth in the infrastructure and automotive sectors, although real estate has lost momentum.

Not just China, India too is contributing to global output growth. The ramp-up of new capacity at its major steel plants has seen its crude steel output increase by 9.4% in August. Sadly, its domestic demand is unable to absorb this level of steel output, as demand for finished steel increased by only 1% in August, according to data from the Joint Plant Committee. In the April-August period, it rose by only 1.3%.

Thus, producers have been forced to export finished steel, although domestic sales fetch higher realizations. Exports of finished steel in April-August were up by 23.6%, with August alone seeing an increase of 87.3%. On the positive side, the government’s steps to prevent the dumping of steel have benefited local steel producers on the pricing front.

Globally, as in India, the main worry is when demand will recover to healthier levels to support this increase in output. Else, it will eventually lead to excess steel on the market that will spill into the global market and upset prices. While everyone appears to look to China to rein in its steel output, it has not shown much sign of relenting so far, although it has been promising to do so.

In a move towards consolidation, this week came news that Baoshan Iron and Steel (part of the Baosteel Group) will acquire Wuhan Iron and Steel, combining to create 60 million tonnes of steel capacity, according to Reuters. If this form of consolidation leads to more discipline on the production front, that is good for the world but if it leads to lower costs for the group while output grows unhindered, then it is of little use for the global steel industry.

 

Source : livemint.com

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