Nerds of Steel

US long products import licenses stayed low at 207,000 short tons in September, compared to August actual imports of 232,000 tons.  Licenses granted up to October 15th indicate that rebar imports in October will decline significantly compared to typical monthly levels (16,000 tons of rebar licenses to October 15th compared to 83,000 tons of actual imports in August).   In contrast, wire rod imports should increase significantly in October (78,000 tons of wire rod licenses to October 15th compared to 78,000 tons of actual imports for the whole of August).

The tumult in financial markets will spill over into the ‘real’ economy in a number of ways not least of course in slowing economic growth on regional and global levels. Slower economic growth means less steel consumption and production so it’s worthwhile, if a little sobering, to contemplate just how hard steel might be hit.

There have been three periods of significant global steel production decline in the last 50 years. The first covers the period of 1974-75, the second from 1979 to 1982 and the third 1989 to 1992. The respective cumulative declines in production were 9%, 14% and 8% respectively.

If the current slowdown in the industry were to be as deep as the deepest of the declines (14%) we would see steel production off some 190MT from 2008 levels. But if we take the average percentage of the three declines for each region we get an aggregate global steel production decline of just 5% or 70MT. A drop of 190MT would imply global capacity utilization in the mid-70%’s; a drop of 70MT would imply a utilization rate in the low 80% range.

But while it’s necessary to look at worst case scenarios there’s reason to believe that things won’t be as bad in the next couple of years as these prior declines might suggest. The current steel industry environment enjoys a number of signficant differences when compared to those of 20 and 30 years ago.

1. First, global economic growth in  each of those earlier periods was between 1% and 2%. The October GDP forecast from the IMF shows global growth dipping to about 3% in 2009 but sustaining growth at about 4% over the three year period through 2011.
2. Second, in those earlier periods, outside of Korea there were few large rapidly industrializing economies. In fact, the global economic order was changing dramatically. The Eastern Bloc collapse in the third period of decline marked the end of centrally planned economies and the obliteration of a large portion of industrial demand. In contrast today many of the major steel producing regions of the world are industrializing and, even if very slowly in some cases, liberalizing with expectations of continued robust growth for some time. In the examples mentioned above China and India grow at -1% in the worst case scenario and 0% in the ‘average’ decline scenario. The last World Steel Association (IISI) short term forecast (from April) showed Asia & Oceania growing at 8% p.a. in apparent steel use. Even if this rate is halved in the revised forecast to 4%, then our Far East production growth would amount to 30MT reclaiming in one year almost half the ‘average’ scenario decline of 5% . Read the rest of this entry »

July wire rod imports reported in our earlier post have been revised to 94,000 tons. The earlier figure was incorrect because it did not account for a change in wire rod import codes put into effect in July. See the updated spreadsheet below.

There has been a lot of news lately about how the largest iron ore producers want to change the traditional yearly contract negotiations with their biggest customers.  If you are trying to follow what’s going on and you need some background on the iron ore market and history, you can get some answers online through the sources below.  All the sources are free except the subscription pricing data described at the end of the post.

Who are the biggest iron ore producers?

USGS (U.S. Geological Survey) publishes the Mineral Commodity Summary on iron ore which lists the output of the largest producing countries and their reserves.  I have already mentioned the publications of the Raw Materials Group and UNCTAD in an earlier post, but RMG also have a good summary of the largest producing companies (as well as a general view of what’s going on) in the abstract describing their report The Iron Ore Market 2007-2009.

How much seaborne trade in iron ore is there?

The Australian Bureau of Agricultural and Resource Economics (ABARE) has a quarterly report called Australian Commodities where it lists the largest importing and exporting countries, describes the current pricing issues, and gives market and pricing forecasts.  Metallurgical coal is also discussed in that document, for those who are interested.

Read the rest of this entry »

Crude steel production in China declined 5% from 44.9 million metric tonnes in July to 42.6m tonnes in August. Net exports increased from 5.8m tonnes to 6.4m tonnes, and the export share of finished steel production continued its climb from 18% in July to 20% in August.