Steel output falls, more cuts needed

LONDON: Global steel production fell slightly in August, the global industry body said, but deeper cuts are necessary, especially in top producer China, to tackle falling prices as demand remains poor.
Global crude steel production fell by 1 percent in August from the same month last year to 124 million tons, according figures released by the World Steel Association(Worldsteel).
“The mood in the steel market is very depressed at the moment and very few people want to think about building up inventories because the end users’ market is difficult,” said Peter Fish, managing director at Meps, a UK steel consultancy.
“The Chinese have got an oversupply problem while in Europe and elsewhere the buyers don’t have orders to place.”
In China, the world’s top steel producer and consumer, production fell 1.7 percent to 58.7 million tons.
Cuts were steeper in Europe, where the daily production rate in August was at its lowest since Dec. 2009, according to a Reuters calculation.
“The extent of underlying finished steel demand weakness and price falls suggests that greater output cuts across the board are required to stabilize the market,” CRU principal steel consultant Chris Houlden said.
Chinese steel output, often subsidized by the government, has grown much quicker than demand over the last decade.
Slowing construction and industrial activity in the last few months though, hit Chinese steel demand and prices hard, forcing it to export more aggressively.
Steeper steel production cuts in China are necessary to balance the market but they have so far been slow to come as authorities worry jobs losses could provoke unrest.
“In China oversupply remains a prominent issue; inventory levels held by stockists and end users are stable, with many unwilling to purchase large orders for fear of further price cuts,” said Metal Bulletin Research analyst Kashaan Kamal.
“Although August crude steel production is down, output actually rose during the first ten days of September, so it looks as if there’s no quick fix in sight and markets will remain in oversupply in the near term.”
Data from the China Iron & Steel Association showed this week that China’s average daily crude steel output rose 1.2 percent to 1.895 million tons in the first 10 days of September from Aug. 21-31.
Japan, the world’s second largest producer of steel saw its production rise by 3.3 percent to 9.2 million tons in August from the same month last year, when the industry was still recovering from a powerful earthquake and tsunami which hit the country in March 2011.
South Korea’s production was up 2.8 percent to 5.7 million tons and India’s production was also up, 2.6 percent to 6.4 million tons.
The EU steel production fell to 12.2 million tons in August, down 4.4 percent from the same month last year. The top two producers in the region, Germany and Italy, lost, respectively, 7.1 percent and 15.5 percent of their output last month, compared with August 2011.
According to consultancy Wood Mackenzie over 30 million tons of capacity has been taken off line in Europe since 2008 and remains offline pulling the EU steel capacity utilization down to around 75 percent.
“The European producers have been much more responsive to the demand decline. But there is still a lot of excess capacity which will put pressure on the mills to take more long-term actions including permanent closures,” said Patrick Cleary, principle steel analyst at Wood Mackenzie.
“The steep production decline in Italy is almost certainly an indication that the Ilva plant, which dominates the hot metal production within Italy, has been badly affected.”
Production disruption due to a clamp-down on pollution at Italy’s Ilva, Europe’s biggest integrated steel plant, weighed on the country’s performance, together with slower demand.
In the CIS, August production was down 3.8 percent to 9.1 million tons compared with August 2011 while in the same period, the United States saw a slight increase in production: up by 1.2 percent to 7.5 million tons.
“Demand in the US started quite well this year but has certainly been moderating in the last few months. I think we are going to see softer numbers in the next few months,” Cleary said.