Data just released by the AISI shows raw steel capacity utilization at 67.3% during the last week of October, down from close to 90% a couple months ago. How does utilization below 70% compare to previous recessions? And how long might it last? A review of historical data is always a good place to start when pondering such questions.
The graph below shows annual capacity utilization for the US industry back to 1915. Utilization dropped below 70% only four times: During the depression of the early 1920s, in the great depression of the 1930s, in the period of global economic slowdown between 1958 and 1962, and finally during the severe recession of 1982 and its aftermath. In other words, history suggests that sustained periods of steel industry capacity utilization below 70% are rare, but not unheard of, and occur only when the US and global economies are in severe recession.
Though we do think we’re in a recession in the US, we don’t believe we’ll see a prolonged period of utilization below 70%. There are two reasons for our relative optimism.
First, this global downturn is not expected to be as severe as some we have experienced in the recent past, for the reasons cited in this post by fellow nerd, James Moss.
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Crude steel production in China dropped 7% between August and September, falling to 39.61 million metric tonnes. This is the lowest crude production level since the June peak of 46.94mt. Net exports dropped from 6.35mt to 5.39mt in September due to a 1mt decline in exports.
Some of you may have caught this article from China Daily as it passed through the newsfeed in the Nerds sidebars. It’s an account of the current downturn in the Chinese steel industry. For example:
According to China Iron and Steel Association, most large steel firms have only managed to break even since July and most small- and medium-sized mills were already in the red. By October, the whole steel industry started to suffer losses and more than 40 percent of small- and medium-sized steel companies in Hebei and Henan provinces have shut down.
The story also has links to a variety of other recent articles covering the steel industry in China including this one from yesterday that refers to the merger binge likely to be promoted by the current unprofitability. What’s happening to the steel industry where you are?
As we get set to start measuring the change in global steel production in the fourth quarter, we’ve loaded a useful file to the Freeloads page. It contains all World Steel Association (IISI) crude steel production data back to 1998. It’s annual 1997-2007 and monthly for 2008 through September. The latest data release was October 22nd. You’ll need to be registered to get the whole file here on Nerds, but for those who just want the latest monthly data here’s 2008 through September. October should be available late in November when we’ll update this spreadsheet. If you’d like to download the file, click on the triangle (upper left, or the words World Steel Association in the upper right) and the data will be yours to play with. Data are in thousands of metric tonnes.
Yesterday US Steel announced Q3 2008 earnings. According to the press release this was the most profitable quarter in the company’s history. EBITDA was $229/ton and operating income was $206/ton. You can see US Steel’s 2007 and 2008 quarterly EBITDA and operating income per ton and compare the company’s performance to some of its peers by checking out the Nerds of Steel earnings spreadsheet.
The temporary malfunction from yesterday is fixed. Sorry to those of you who were online when things went pear-shaped. However, Nerds is once more operating as it should. It’s also now running on the very latest version of WordPress so various things have been improved including the behavior of tags in the sidebar here.
Also, you will notice that when you go to a particular post (by clicking on the title) there is now a “print this” link at the top of the post. This allows a formatted, print-ready version of the post to boot so you don’t get all the sidebar data when you print. Finally, we’ve opened it up so that anyone can comment – you don’t have to be registered. So go comment crazy.
