Steel’s Slow Rise

By: Anthony_David

The World Steel Association reported a global steel production increase of almost 8% in June, y-o-y. China reported a y-o-y production increase of 11.9% in June, and a m-o-m production increase of 1.7%. The nation’s slow economic period did not seem to affect its steel industry significantly. Analysts believe the government’s incentives to steel makers for increasing production have borne the right results. The US, Africa, India, Japan and the Middle East also reported production increases but both Australia and Europe reported sharp falls in their y-o-y production in June. However, in a complete reversal, the China Iron and Steel Association (CISA) reported a 3.1% m-o-m production fall in early July.

The July figures have not dampened the potential for the future. As the construction sector continues its rapid growth, consumption during the first half of the year increased by 9%. In fact, China is expected to produce almost 729 million tonnes of crude steel this year. Social housing projects, high speed railway projects and water conservancy projects in addition to other infrastructure projects are expected to keep China’s crude steel production levels at record highs over the next few months. Wang Dezhi, an analyst at Shanghai’s Orient Futures, said, “Strong demand from social housing and infrastructure investments have driven long product mills to run at near 100% utilization rates, and the bull-run may extend to the coming months.”

Asian steel makers are expected to report lower profits in the April to June quarter because of weak demand, high input costs, the natural disasters in Japan and tighter monetary policies in India and China. However, the third quarter is expected to be more fortunate for everyone as seasonal demand increases. The gains are not expected to be very high.

Chris Park, a senior credit officer with Moody’s in Hong Kong, commented, “Persistent overcapacity in China, sizeable capacity expansion in Korea and longer term capacity increases in India, as well as a current glut in a sluggish Japanese market, should constrain price increases and trim margins.”

Metals analyst Kamlesh Bagmar at Mumbai’s Prabhudas Lilladher, recently said, “The demand environment has deteriorated substantially in the past quarter owing to elevated inflation and interest rates.” Growing competition in hike capacity, and rising prices of iron ore and coking coke in India are expected to adversely affect the steel sector’s bottom line.

By Anthony David

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