Global steel output sluggish; market outlook weak

LONDON (Reuters): Global and Chinese crude steel production growth was sluggish in April, data from an industry body showed, and could slow further in the next few months as steelmakers tackle weaker demand and falling prices in what should be the most active period of the year.

Global steel production rose by only 1.2 per cent in April compared with the same month last year, to 128 million tonnes, according to data released on Monday by the World Steel Association (Worldsteel).

Steel output in China, the world’s largest producer and consumer of the alloy, rose by 2.6 per cent to 60.6 million tonnes in April, a slower growth level compared with most previous months.

An even steeper slowdown in production is expected in China in the next few months though, analysts said.

“It’s remarkable that China is still expanding its production even though we know that demand has been low,” said Patrick Cleary, principal steel analyst at Wood Mackenzie.

“This extra production is not feeding additional demand; a lot of that has gone into stocks and additional exports and obviously this can’t continue forever. The market is oversupplied and prices are still falling. At some stage soon we should start to see some reaction in China.”

Steel consumption generally peaks in the northern hemisphere spring, as construction and manufacturing activity quickens in the warm, dry months preceding the summer break.

Global steel consumption growth will slow in 2012, hit by weaker economic growth in top consumer China and uncertainties about the debt crisis in the euro zone, Worldsteel forecast last month.

EU steel production was at 14.9 million tons in April, down 5.2 per cent from the same month last year.

Although European steelmakers have been among the first to react to weakening demand by cutting their production, prices have continued to decline and the fragile economic state of the region means further production cuts are possible.

In Germany, the region’s largest steelmaker, April output fell by 5.5 percent while in Italy, Europe’s second-biggest producer, output fell 3.2 percent.

Electricity prices, among the highest in Europe, put Italian steel makers at a competitive disadvantage against their main rivals, especially from outside the EU, the Italian industry body Federacciai said.

All indicators remain bearish in the global steel market and in Europe in particular, analysts said.

“Weak steel demand in Europe and slowing growth in Asia has sent global steel prices plummeting recently,” said Martin Evans, metals products director at the CME group, in a note.

“With fewer buyers, the trend is expected to continue over the next three months, as stocks at steel mills continue to rise, and order turnaround for steel quickens.”

Production fell in the CIS too, down by 4.7 percent to nine million tons.

In the United States, April steel output was 7.7 million tons, up 9.3 per cent from April last year.

Higher US steel prices earlier this year pushed steelmakers to increase their output but the price trend has started to reverse in the last few weeks.

“We have seen the prices move down in the last few weeks and this is an indication that even in North America production is not quite in balance with demand,” Cleary said.

Japan boosted its April steel output by 7.6 per cent to 9.1 million tons compared with the same month last year.

Last year however, the Japanese steel industry was hit hard by the earthquake and tsunami in March.