12 Percent Decline in Global Steel Production Forecasted for 2009

In its recently published global steel review, MEPS (International) Limited (South Yorkshire, United Kingdom), has predicted that global steel production in 2009 will be about 1.165 billion tons, a 12 percent decline from production figures in 2008. Industrial Info Resources (Sugar Land, TX) reports that the study also states that production cutbacks were at their highest in the first quarter of 2008. The global capacity utilization of steel mills during this period was about 71.6 percent, with an incremental increase to 75 percent in the second quarter of the same year. The study indicates that the worst phase for the steel industry is finished, and the sector is expected to see steady and sustained growth during the next five years.

During the same period, the global maximum steelmaking production potential (MSPP) was about 1.518 billion tons. The MSPP is computed from data on highest average output on a daily basis, collected during the last three years across all steel-manufacturing countries. This is converted into quarterly and annual figures. Steel production worldwide stood at 71.6 percent of the MSPP in the fourth quarter of 2008 and at 71.9 percent of the MSPP in the first quarter of 2009. The slump has been attributed to the economic slowdown and dips in commodity prices. The MEPS review forecasts that while new steel production facilities in the Middle East, South Africa, India and China will positively impact the MSPP, closures of plants in the U.S. and Europe would bring down the overall global production capacity.

On a positive note, the study indicates that levels of steel stock with distributors and steel mills have remained low. The production cuts carried out by most steel manufacturers worldwide during the last three quarters have helped keep inventories in check and balance the demand-supply ratio. With the automotive industry showing signs of growth and the construction sector picking up in China and other emerging economies, the demand for steel is expected to rise. However, the construction and building industry in developed and industrialized countries is not expected to grow. The announcement of tax rebates and incentives in many countries for the household appliances sector will also spur demand for steel.

According to the report, quarterly crude steel production declined 43-45 percent to about 30.5 million tons during the first half of this fiscal year. The region is expected to show gradual increase in steel production. Some of the closed plants are set to begin operations to cater to the automotive sector. Many steel buyers are expected to reorder stock to keep minimum level inventories.

The rest of Europe is slowly recovering from a shaky start in early 2009. Steel production in Turkey is expected to spur growth in this region. The study has forecast that the Commonwealth of Independent States (CIS) region will produce about 93 millions tons of crude steel in 2009, which is a decline of 18.3 percent from last year's figures. Countries in this region are expected to gain foreign exchange benefits from exports of semi-finished steel products. Crude steel production in North America has taken a beating because of weak markets. The review indicates that this region's production is expected to slump by at least 33.3 percent this fiscal year in comparison to 2008 to 83 million tons. South American steel production dipped in the first quarter of this year, and the region is expected to produce about 11 million tons this fiscal year, a decrease of 23.5 percent from last fiscal year. Development of new residential projects in South Africa is expected to put the construction sector back on track. Crude steel production this year is expected to see a decline of 10 percent from 2008. Asia has the lowest predicted decline in crude steel production. The region will witness a reduction of 2 percent in iron production and a slump of 3 percent in steel output in 2009.

The steel production utilization rate (SPUR) in Europe was bout 53.9 percent in the first three months of 2009. The review forecasts that at least eight of the European Union member countries would have a SPUR of less than 50 percent in the second quarter of this year. In the first half of 2009, while the North America region reported a SPUR of around 50 percent, the U.S.' utilization rate fell below 50 percent. In the second quarter of this fiscal, the combined SPUR of Australia and New Zealand was also less than 50 percent. Middle Eastern and Asian countries showed signs of improvement, with capacity utilization exceeding 85 percent.

According to the World Steel Association (Brussels, Belgium), the total crude steel production across 66 countries during January-June 2009 was 547.981 million tons. Asia was on top the leader board producing 360 million tons. The E.U. and rest of Europe produced 61.59 million tons and 13.18 million tons, respectively, while the CIS nations and North America produced 44.08 million tons and 35.29 million tons, respectively. Crude steel production in South America, Middle East and Australia/New Zealand during this period was 15.89 million tons, 8.4 million tons, and 2.3 million tons, respectively. Asia contributed 65.73 percent to the global crude steel production during January-June 2009, while the E.U., CIS countries and North America accounted for 11.24 percent, 8.04 percent and 6.44 percent, respectively, of the worldwide production.

China, which produced 226 million tons, recorded the highest crude steel production globally. Japan, India, Russia, the US and South Korea produced 36.69 million tons, 27.9 million tons, 26.8 million tons, 24.54 million tons, and 22.85 million tons, respectively, during the January-June 2009 period. In the E.U., Germany and Italy were the top two steel makers, producing 13.78 million tons and 9.7 million tons, respectively. Turkey, with a production of 11.76 million tons, was the only country in the rest of Europe with significant steel production. In South America, Brazil topped the list with 10.56 million tons of crude steel production.