Steel production dip
But capacity continues to outstrip demand by some margin
Global crude steel production posted its first drop in more than three years in September, reflecting a global economic slowdown.
The World Steel Association counted 151.5m tonnes of production for the 64 countries that report to it last month, a 0.3% decrease compared with September 2018.
Those trading on steel fortunes now need to wait another month to see whether this is a blip or truly the start of a wider downturn.
So far, 2019 has been a strong year for global steel with production at 1.391bn tonnes in the first nine months of the year, up by 3.9% compared with the same period in 2018. Asia has accounted for the lion’s share in 2019, producing 1.000bn tonnes of crude steel, an increase of 6.3% over the first nine months of 2018. The European Union produced 122.5m tonnes of crude steel in the first nine months of 2019, down 2.8% compared with the same period of 2018 and North America’s crude steel production was 90.6m tonnes, an increase of 0.3% compared with the same period of 2018.
Tensions running high
The figures come at a time of political tension in the steel world. An international forum aimed at reducing excess production may have had its day after China called last week for the Global Forum on Steel Excess Capacity to be dissolved.
The Forum was a non-binding initiative launched by the G20 and other industrialised countries to control the world’s steel output. With China accounting for production of 82.8m tonnes of steel in September 2019 – an increase of 2.2% compared with September 2018, according to World Steel Association figures – the real target of the Forum was clear: reduce China’s output. For comparison, India produced 9.0m tonnes of crude steel in September 2019, while Japan produced 8.0m tonnes.
Members of the Forum have openly complained that China has not adhered with reduction targets, despite promising to reduce capacity. China claims otherwise.
Its Ministry of Commerce said in a statement that it had made “the greatest and most outstanding” contribution to global efforts to reduce excessive steel capacity as it was the only country that had imposed a mandatory target upon itself.
“China has slashed total steel production capacity by more than 150m tonnes since 2016, or 114% of the global steel capacity cut,” the Ministry said. “China has redeployed 280,000 steel workers, which is more than the combined deployed number of steel workers in the US, the EU and Japan.” It also laid the global excess steel capacity issue at the door of all producers, stating that the excess was caused by a demand slump following the financial crisis of 2008 and therefore a combined effort to address it is needed by all countries, not just China.
It also pointed to World Trade Organisation rules, stating that its steel industrial policies were in line those and therefore “did not distort the market to cause excessive capacity”.
“While China’s steel capacity and output accounted for half of the world’s total, China’s domestic steel consumption accounted for nearly half of the world’s total as well – 93% of China’s steel output is used at home with only 7% being exported, and China is not disrupting global markets,” the Ministry said.
While China “regretted that the ministerial meeting failed to reach consensus”, the failure to come to agreement was “sufficient basis and reasons” to dissolve the Forum, said the Ministry.
The US had already questioned the usefulness of the Forum back in September 2018, saying that what they have seen to date “leaves us questioning whether the Forum is capable of delivering on these objectives”. In a pointed salvo at China, it continued: “We do not see an equal commitment to the process from all Forum members. More importantly, we have yet to see any concrete progress toward true market-based reform in the economies that have contributed most to the crisis of excess capacity in the steel sector.”
It is worth noting that in just over three years since its establishment the Forum has had a positive impact. The gap between global steelmaking capacity and demand fell from 700m tonnes in 2015 to 400m tonnes in 2018, largely down to China’s efforts in reducing capacity, coupled with rising demand.
China’s actions
China has a programme in place to shutter outdated, more polluting steel capacity. But there are claims that plants that have been closed for many years have not been pulled down so that they offset construction of newer and more efficient steel plants.
In September-October 2019, China approved eight steel capacity replacement projects, adding 17.18m tonnes per year of pig iron and 13.56m tonnes per year of crude steel capacity over the next three to four years. And then there is concern that actual output from new facilities is greater than stated, sometimes as much as 20% more.
There’s also not a great deal of incentive for China to reduce its production.
Official data from the Ministry of Industry and Information Technology reports business revenue growth from the country’s iron and steel industry of 8.9% year-on-year in the first eight months of the year. Business revenue reached 5.58tr yuan ($788.7bn) in that period, according to a statement from that Ministry.
However, there are still workings behind the scenes to get China back on side, if not from the US then at least from Japan. Japan’s Ministry of Economy, Trade and Industry has said that it will push for high level talks with China about the excess steel capacity.
While China will leave the Forum in December, Japan is looking to broker high-level bilateral trade talks to keep the conversation on excess steel capacity open with the world’s largest producing nation.
With its steel producing dominance undisputed, the remaining Forum members will have a hard time addressing global steel excesses without China.