World crude steel production up 4% in June

by James Moss on July 20, 2009

in Data,Geography,Nerds Only

The World Steel Association’s crude steel production report published today shows a 4% rise for June over May. Global production is running 21% lower year to date versus 2008, but that varies significantly by region. The developed world is down 45%. The non-China developing world is down 23%. China, by contrast, is up 2%. China was over 50% of crude steel production in June and accounted for about 75% of the growth over May. You can make your own calculations from the data, shown in the Nerds of Steel spreadsheet below:

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US long products imports rise 9% in June

by Jessica Wagner on July 17, 2009

in Data,Geography,Nerds Only,Products & Markets

Based on reported import licenses, US long products imports rose 9% from 98,000 short tons in May to 108,000 tons in June. To put this in perspective, long products imports in June 2008 were 269,000 tons and in June 2007, 496,000 tons.

There were some significant changes within the product categories. Rebar imports dropped 59% to 18,000 tons, wire rod imports rose 67% to 43,000 tons, parallel flange sections imports rose 175% to 15,000 tons, and all other structural sections imports rose 161% to 15,000 tons.

Licenses reported up to 14 July indicate that long products imports will remain at June levels for the full month of July.

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US steel industry capacity utilization over 50%

by James Moss on July 14, 2009

in Data,Nerds Only

Lots of people are watching the AISI’s weekly utilization data very closely, including us. I referred in a recent post how anemic the improvements in capacity utilization have been and the improvement is indeed slow. But we passed a kind of milestone last week. According to the AISI, the US steel industry got above 50% crude steel capacity utilization for the first time since the end of November last year. To put this in some sort of context, here are two charts.

The first chart shows (in the red line) the weekly crude steel utilization rates since August of last year. The yellow line shows a twelve-week rolling average. Steep decline, slow recovery. We’ve seen this before.

The second chart is a little more interesting. It shows the rate of change in crude steel output in week 12 versus output in week 1 in rolling twelve-week spans starting in October of last year through to July of 2009. The chart shows that since the beginning of 2009 there has been a steady slowing of decline in output until we reached the “doldrums” of March and April. Since then, production has moved steadily up in each twelve-week span until the last period in which production is up about 24%.

As I’ve written before, this does not a recovery make and there’s no knowing where the data will go. But if there’s going to be a recovery at all we have to see persistent improvement. Be glad that the patient is, for the moment, showing a pulse.

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China should get out of steel not strong arm iron ore

by James Moss on July 10, 2009

in Articles,Geography,Nerds Only,Raw Materials

Things have got serious in the iron ore negotiations in China with spurious ‘espionage’ charges levelled against domestic steel producers and Rio Tinto executives – or here if you don’t have an FT subscription. It’s a stretch to call any iron ore information a state secret, so what might have prompted Chinese officials to take such drastic steps?

However it might look, China doesn’t care about iron ore. China cares about iron ore’s impact on the steel industry and steel’s impact on Chinese economic growth. The concern is understandable, but the latest move is misguided and will likely backfire. The charges are clumsy and extreme and because they’re international in scope they are dangerous. Besides such strong arm tactics don’t work as other governments have found out.

In April 1952, Harry Truman siezed control of the American steel industry because he thought a strike would hobble the Korean war effort. He was overruled by the Supreme Court a month later and had to give the industry back.

The Kennedy administration had a fractious relationship with the steel industry as this remarkable presidential press conference about rising steel prices illustrates:

And LBJ carried on the feisty (and profane) tone of that relationship when in 1965 he threatened to hold industry and union leaders hostage in the White House until they came up with a labor agreement. Though he won that round, (China officials take note), the industry reasserted itself the following year.

There are many other examples around the world of the steel industry and governments getting in each other’s way. Governments will always be frustrated when trying to bully any industry into submission. In the end the economics of the industry will assert themselves no matter what government does. One of the major reasons for the great improvement in steel industry performance in the recent past has been the general retreat by governments (outside China) from ownership of steel industry assets.

If Chinese officials want to improve the prospects of their steel industry they shouldn’t be locking up iron ore executives on trumped up ‘espionage’ charges. The raw material input price will be what it will be and any forced benefit will be only temporary (as LBJ found out). A much better idea is to privatize all steel industry assets in China and, in doing so, let foreign producers own some of them. There is no faster way to improve the performance of the steel industry, unify it on a global basis and support the growth of the Chinese economy and global trade.

And a note to Western steel industry lobbyists. This is a much more important issue than either currency or trade.

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Profile of the German Steel Industry in 2009

by James Moss on July 7, 2009

in Geography,Nerds Only

The German Steel Federation (VDEh) is one of the best sources of information about its national steel industry (and lots of others too) anywhere in the world. Take for instance, this excellent recent profile of the German Steel Industry (in PDF) by Herr Dr-Ing Carl-Dieter Wuppermann. If you send them to us, we’ll be happy to feature other profiles of national steel industries or major companies so long as they’re as good as this one.

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Could the steel industry recession be over?

by James Moss on July 1, 2009

in Articles,Data,Nerds Only

Well it might be – technically. Plenty of people seem to want to say it is in the broader economy. On June 10th the UK’s Guardian newspaper reported the UK recession as being over. Then a week later Liz Sonders, Chief Investment Strategist at Charles Schwab said the US recession is over.

There have been enough upward blips in the steel industry data to make headline writers giddy. Metal Bulletin offered, (so tentatively that it scarcely qualifies), “12 indicators which we believe are important enough to point in the direction of an easing in the recession.” And as posted here, the World Steel Association crude steel production report showed a bounce in May over April of over 7% with Chinese production particularly robust. Likewise, the AISI’s US weekly production data has shown an improvement in crude steel capacity utilization even though the chart below shows how slight this is.

In addition to the output data, prices seem to have passed the bottom, raw material prices are rising and some US mills are attempting their own price increases in response. Some consuming markets promise signs of life. The passage of the “Cash for Clunkers” bill is expected to boost automotive sales by about 250K units before the end of the year. Finally new home construction made a 17% gain in May after the record low in April.

But there are (at least) two troubling aspects to speculation about the end of the recession. It’s likely wrong. It’s largely irrelevant, especially to corporate strategies.

First, there are still plenty of contradictory data as to whether the recession is over (see today’s Wall Street Journal). Recently the Financial Times’ Martin Wolf drew attention to the work of two economists who have been making a monthly comparison of this recession with that of the Great Depression. Economists Eichengreen and O’Rourke compare the two economic downturns by their impact on industrial production, trade and stock valuations. Their most recent observations from early June are here. Their data don’t provide much encouragement.

On the three measures of industrial output, trade and stock market valuations the current recession after 12 months is no better than or (in the case of trade and stock markets) is worse than the Great Depression at a similar point. And as they point out, on a regional basis:

The North Americans (US & Canada) continue to see their industrial output fall approximately in line with what happened in the 1929 crisis, with no clear signs of a turn around.

It should be remembered that while US steel production in the Great Depression declined 28% in 1930, it fell another 36% and 47% in 1931 and 1932. Capacity utilization in 1930 was 62%, but fell to 38% in 1931 and then to 20% in 1932. So the start of the Great Depression was by no means the worst part.

The important difference between our current recession and The Great Depression is a very different policy response from governments modelled on the perceived mistakes of the 1930’s. In other words, we have to hope that what governments around the world have done will be sufficient to prevent a multi-year event of the depth of the Great Depression by bridging the gap until private investment and consumer demand revive.

But there’s not much comfort that important steel industry markets will return soon. The automotive and construction industries, the two most critical to the steel industry’s overall health, are not forecast to reach pre-recessionary activity levels in North America until 2013 or beyond. The impact of this prolonged and sluggish return to anything like recent demand levels will put pressure on (meaning it could close) about 20MT of existing North American steel making capacity.

Besides all this contrary data, any joy around the technical end of the recession must be short lived and useless. It wouldn’t be long before we suspected any kind of recovery of being hollow with a resulting dampening effect on its impact.

The exact end of the recession is irrelevant. We know enough. The environment for North American steel businesses is going to be difficult for some time to come. It took us a good while to get into this mess and it will take a good while to get out. We can already envisage the range of scenarios in recovered and non-recovered economies that we could face in future and that we need to build strategies for.

So far this year the US is 5% of global steel production. China is 50%. US demand is likely to be significantly less than 10% of global demand for the foreseeable future. China’s demand looks like it will persist and even grow. The slope of the recovery curve and the position of the US in the world industry mean that corporate strategies – in ways that they have not hitherto – need to focus on the world market and world opportunities if North American companies are to play the role they should in the world industry. Making progress on those strategies shouldn’t be tied to the end of the recession. They need to be built out of it.

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