Reuters India has very helpfully provided a chronology of recent steel industry production cuts going back to the middle of September. This is the link to the article. While the FT today reports the slowdown of Chinese steel production. The essence of the FT report is this…
Shan Shanghua, secretary-general of the China Iron and Steel Association, said he expected China to produce about 500m tonnes of steel this year, up only 10m tonnes from last year and short of earlier forecasts of 520m-550m tonnes.
And this…
Mr Shan said Chinese mills had already begun contacting iron ore suppliers ahead of the 2009 price negotiations, adding that they would seek a unified price from Brazilian, Australian and Indian iron ore companies and would seek to unify spot and contract prices.
AK Steel reported Q3 results today. You can see the results here. EBITDA for Q3 was $246/ton while operating income was $210/ton. AK projects Q4 shipments will be down 5% and operating income will fall to around $100 per ton. AK’s results are tracked against its peers on the Nerds of Steel earnings spreadsheet.
Nucor and Steel Dynamics announced Q3 results last week. Nucor’s results can be found here and Steel Dynamic’s here. Nucor’s EBITDA was very strong at $206/ton and included for the first time a full quarter’s impact of the David J. Joseph acquisition. Steel Dynamics result’s were also strong, with EBITDA of $161/ton. Check out these results on the Nerds of Steel earnings spreadsheet.
Yesterday, I made a presentation at the American Metal Market conference on wire & wire rod. The title was “How low can we go?” and my purpose was to provide a few heuristics for relating GDP projections to steel demand, both globally and in the US. I tried to avoid making a specific forecast because of the uncertain prospects for the global and US economies. Unfortunately, one journalist in the room wrote an article giving readers the impression that I forecast low growth for 3-4 years. I did not. What I said was that if you want to use history to develop a worst case planning scenario, look at the period 1990-1994 when global steel demand declined for 4 out of 5 years. However, for the reasons cited by James Moss in a posting on this blog I don’t believe there is a very high probability of such a dire outcome.
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.
- 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.
- 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% . [click to continue…]
