Average daily steel production globally in April rose 2.9% from March, coming in at 4.1 million tonnes a day, breaking through the June 2008 high of 3.95 mt a day for the first time.
Steel production is hitting new record levels despite ongoing worries of surging raw material costs as well as overproduction in China which caused Chinese exports last month to triple from year-ago levels. Annualized April production comes to 1.5 billion tonnes, which would be a 22% increase from 2009 peak levels. For all of April, production posted a 0.4% drop due to one fewer day in the month. On a tonnage basis, China was the single largest factor in the global increase, contributing an extra 73,605 tonnes a day. Production rose globally in most regions with the notable exception of the United States, down some 1% and Japan, down 0.6%.
Chinese Production Tops Expectations
Chinese production hit a new high again in April, up 4.2% from March to 1.85 million tonnes a day, running at an annual pace of 675 mt, or up nearly 20% from last year's record production level. European steel production rose 2.5% in the month; strength was equally evident from the Middle East, up 12.9% and South Korea, up 4.1%.
Pouring Steel Into Inventory?
Last month, the World Steel Association revised upwards the 2010 global steel consumption forecast by 3% for this year to 1.24 billion tonnes, up 11% from apparent steel consumption in 2009. To the extent that historically the consumption and production data vary by about 7% to 8% with production coming in around 1.4 billion tonnes, the discrepancy between apparent consumption and production comes to about a potential extra 100 million tonnes.
Steel prices globally are declining due primarily to worries that these extra tonnes are being put into inventory, particularly in certain regions like China where anticipation of all-time record iron ore prices is most likely encouraging a certain amount of hoarding behavior.
With overproduction out of China accelerating, we view this as a meaningful risk for the West, since the Chinese typically export their production excesses when pricing begins to crack at home and we have already seen this trend pick up in the past few months.
We expect to begin to see global steel production increases moderating in coming months, particularly in China as the Chinese producers begin to get more fully in touch with the reality of higher raw material costs and declining steel prices.
Michelle Galanter Applebaum spent more than 20 years as a managing director at Salomon Brothers in New York and was the No. 1-rated steel analyst from 1988-2003, according to Institutional Investor magazine. In 2003, Ms. Applebaum formed Steel Market Intelligence, a 5-person Chicago-based equity research boutique providing advisory services to institutional investors. In addition to publishing 10-15 reports/week, Ms. Applebaum sponsors numerous CEO-level meetings for her investor clients during the year. She is regularly quoted on Bloomberg, Dow Jones, The New York Times and makes frequent appearances on CNBC and other news programs. Ms. Applebaum lives near Chicago with her husband, visiting children and 2 dogs.