The tables have turned in the steel industry - Views on News from Equitymaster

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The tables have turned in the steel industry

Aug 25, 2010

The steel industry is closely linked to the overall economy. Hence, it comes as no surprise that it witnessed an unprecedented downturn in 2009 in the aftermath of the global financial meltdown. In this article we shall look at the recent production and consumption patterns in this important industry.

Asia, the hub of steel production
Source: worldsteel

World crude steel production declined 8% YoY from 1,329 m tonnes in 2008 to 1,223 m tonnes for the year of 2009. In 2009, steel production declined in nearly all the major steel producing countries and regions including the European Union, North America and the CIS, countries forming the erstwhile USSR. However, it was different in Asia. China, India and the Middle East showed positive growth during the year. Asia produced 799 m tonnes of crude steel during they year, a 4% YoY increase. Its share of world steel production increased to 65% in 2009 from 58% in 2008. Much of the incremental production within Asia came from China which continues to dominate the industry by a large margin.

Source: worldsteel

Emerging markets out-consume the West
Source: worldsteel

The global economic slowdown also affected steel consumption. Demand declined 7% YoY from 1,202 m tonnes in 2008 to 1,121 m tonnes in 2009. There are two major categories of steel products - flat products (demand led largely by consumption of auto and consumer durables) and long products (demand led largely by infrastructure creation). Of the consumption during 2009, 50% was flats and 50% was long products. Steel consumption of the leading emerging countries - Brazil, Russia, India and China (Brics) - grew by 18% YoY during the year. It was largely led by the massive consumption from China whose domestic demand responded to the government's economic stimulus package. If we exclude the Brics, world steel demand fell by a whopping 27% in 2009.

Source: worldsteel

Clearly Asia and especially China is now the epicenter of the steel industry. The emerging countries are looking more and more towards domestic consumption of steel instead of depending on demand from the developed nations. In fact, during 2009 Chinese and Indian demand took over a large part of the market space vacated by the Western nations. Little wonder then, global steel trade declined by nearly 30% during 2009.

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