By Josh Spoores
Global steel production through May is 7.5% higher year-to-date and running at record levels of over 1,500 million mt (metric tonnes) annually based on data from the World Steel Association. Higher levels of steel production will create higher demand and prices for raw materials which will serve to support steel prices outside of seasonal or inventory pressures.
China is the obvious leader in steel production with production running at 1.943 million mt per day in May. Just recently, CISA (China Iron & Steel Association) noted record production of over 2 million mt per day for the second half of June.
These continued gains in production will be volatile due to electricity rationing in China as well as recent PMI data suggesting slower levels of growth in manufacturing. Over the next several years, barring a collapse in China’s urbanization drive, global steel production and demand are set to increase by as much as 250 million tonnes by 2015.
Recent gains in global steel production have occurred even as Japan has struggled in production due to the March earthquake and tsunami limiting electricity. Japan, the second largest steel-producing country, was able to increase steel production in May by 4% over April, though it remains 8.5% lower than pre-quake production in February.
The issue arising from constantly increasing steel production is the pressure placed on raw materials such as iron ore, coking coal, and steel scrap. Approximately 1.6 tonnes of iron ore and .56 tonnes of coking coal are required to produce 1 tonne of steel. The case with raw materials is that once they are dug out of the ground and used, miners need to dig out even more the next year.
Scrap is a highly used alternative, though it is primarily produced through manufacturing, demolition, and product replacement. The lifecycle of scrapped items has been 12 years for automobiles, 15 years for appliances, and 30+ years for buildings. Scrap supply may expand through shorter life cycles in emerging economies such as the BRIC nations, though without this expansion, scrap prices in the United States will continue to rise due to global demand for our scrap.
The next big stress on steelmaking raw materials is India. Indian GDP is set to grow by 8-9% annually through 2020, setting the stage for a 10% compound average growth rate through 2020. India currently uses around 53kg of steel or 116 pounds of steel per capita. The previously mentioned growth rates (source: OECD Steel Committee) would more than double Indian steel consumption by 2020, making India the second largest steel-producing country.
Josh Spoores is the founder and Chief Analyst of Steel Reality, a market analysis firm covering flat rolled steel. Prior to founding Steel Reality, Spoores spent six years in a strategy role as Market Research Manager at Majestic Steel USA – one of the largest buyers of flat rolled steel in the U.S. Spoores has spoken at various steel and raw material conferences throughout the country as well as internationally.
A graduate of Bowling Green State University, Mr. Spoores’ prior experience includes analyst and product management positions at a financial institution and in the local search media industry.
Steel Reality publishes reports covering weekly market and steel futures data, as well as a report covering the economic data that drives the steel market.
George E. Krauter
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