Steel production numbers reveal that large parts of the steel producing world are still reeling under a slowdown in demand, one that should worry global steel makers. It may seem as a puzzle then that steel prices are holding firm, and iron ore prices are scaling new heights every month (but have quietened a bit since mid-January).
One reason for that optimism could be a curbing of steel supply, as capacity utilization in the December quarter fell to 73.2% from a high of 82% earlier this year. Companies have chosen to idle plants, especially the more inefficient ones, to cut losses and provide a floor under steel prices.
The other bright spot is that China, which produces about 46.3% of the world’s steel output, has seen a change in fortunes. Its output rose by 7.7% in December from a year ago, and what’s more, output was stable sequentially. Earlier, steel output had been crimped by the Chinese government’s desire to slow down economic growth. China’s production grew by 3.1% in 2012, compared with 8.8% in the previous year. But that appears to have changed, at least based on its growing appetite for steel.
That is also visible in surging iron ore prices, and data on Chinese imports from Bloomberg show a 40% increase in price since early October. Flat steel prices, on the other hand, have risen by a more sedate 13.4%. That is partly due to the tighter hold of a few large miners on the iron ore market, compared with steel which is a more fragmented market.
What does this mean for Indian steel companies? Data from the Joint Plant Committee on finished steel production gives a better idea. In December, steel production rose 4.8%, with the larger steel companies doing better to raise output than the smaller ones.
But the problem for Indian steel companies is that demand is rising at a slower pace, especially so in the third quarter. In the December quarter, production has risen 3.9% but consumption has risen by only 0.9%. An increase in international steel prices is good, but an improvement in demand is what will help Indian steel companies the most at this juncture.