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Although the automobile and construction sectors persistently support demand, the steel industry is reeling from the economic slowdown in China, and the continued weakness in the manufacturing sector and the glut of foreign steel imports into the U.S.
In the seven months of 2016, per the World Steel Association, global steel production decreased 1.2% to 929.6 metric tons (Mt) as production shrank across all regions. China, the world’s largest steel maker, again disappointed with a 0.5% decline.
Economic slowdown in China has dealt a massive blow to the global steel industry. Overcapacity and lower steel prices are hurting margins of Chinese steel producers. To mitigate these factors, efforts have been undertaken to reduce overcapacity and upgrade production in China''s steel industry.
China’s economy grew at an annual rate of 6.7% in the second quarter of 2016, unchanged from the first quarter. For the fourth quarter, the growth rate is expected at 6.5%. Having stubbornly remained below 50 for the past two years, the Purchasing Managers’ Index (PMI) for the Chinese steel industry has remained above 50 in July and August. A reading above 50 marks growth, while that below 50 indicates contraction. However, it is still too early to predict a recovery for certain.
Meanwhile, according to the World Steel Association’s short range outlook published in April, steel usage in China is estimated to fall 4% in 2016. The severe depression in construction activities is leading to a slowdown in the manufacturing sectorsas well as to slower growth in the automotive sector, especially metal products. A recovery in the Chinese construction sector does not seem likely in the near future either.
In addition, the steel industry is challenged by waning investments, turbulence in the financial market and geopolitical conflicts in many developing regions. Lower oil prices have pulled down prices of steel as well, given the industry’s 10% exposure to the energy sector.
Steel demand from energy companies continues to be weak due to declining capital expenditure budgets. United States Steel Corp. (X), which is the biggest supplier to energy companies in North America, along with AK Steel Holding Corp. (AKS) and ArcelorMittal (MT), remains affected by the slowdown.
U.S. steel mills remain impacted by depressed capacity utilization and a torrent of unfairly traded imports. The domestic market continues to be inundated with cheap imports from overseas producers, especially from China. American steel makers including Nucor Corp. (NUE), United States AK Steel, Steel Dynamics Inc. (STLD) and ArcelorMittal USA, a part of ArcelorMittal, have borne the brunt of high levels of cheap imports. This has resulted in declining orders, idling of mills and layoffs across the board.
U.S. steel makers thus continue to actively press the U.S. regulators to stop unfair trade practices and enforce new trade laws to rescue the crisis-hit American steel industry. Consequently, steel market conditions have been recovering lately, driven by favorable developments on steel trade cases in the recent past. This has resulted in a year over year fall in steel imports in the first seven months of 2016. Steel prices also have rebounded partially of late, helped by punitive trade actions that led to levy of tariffs on imports.
-The 18th China(Guangzhou)Int''l Stainless Steel Industry Exhibition
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