By Bowdeya Tweh, Times of Northwest Indiana
bowdeya.tweh@nwi.com
While many global economic sectors are showing signs of weakness, data reveals China's steel industry isn't in a funk, and one analyst says the industry has benefitted from its government-stimulus package.
Crude steel produced in China accounted for nearly half of all steel produced in the world in May, and the country was one of the few to have increased production between May 2008 and May 2009, the World Steel Association said.
Last year, China produced more steel than the next top seven steel-producing countries -- including the United States -- combined, according to the association's annual report. The steel powerhouse produced 500.5 million tons of crude steel last year, up 1.1 percent from 2007.
The United States ranked third in the world in production with 91.4 million tons in 2008, down 6.8 percent from a year earlier.
Last year was the first time since 1997-98 there was a year-over-year steel production decline worldwide. There were 1.33 billion metric tons of steel produced in 2008, down 1.5 percent from 2007.
Steel analyst Charles Bradford said China isn't showing "doom and gloom" in the steel sector, even though the country imports more steel than it exports. He said the country has heavily invested in infrastructure projects, and in the United States, construction is one of the weakest parts of the economy.
"China did the stimulus correctly; we didn't," Bradford said. "In the U.S., we had a lot of the stimulus go to savings; it doesn't stimulate the economy. We have a very high savings rate right now."
The Alliance for American Manufacturing released a report in March that said between 2000 and 2007, China quadrupled its steel-production capacity. However, the report criticized China for having one of the worst pollution records as it has increased production.
Some domestic steel producers and labor unions have railed against China, claiming it has dumped products in the United States and manipulated its currency to make its products more affordable in other countries.
The World Steel Association predicted the long-term prospects for the steel industry are strong, but steel producers would have a turbulent remainder of the year.
"2009 will be a difficult year in terms of profitability," said Ian Christmas, the association's director general, in the report. "There will be restructuring in the industry, and this will be hard on those involved."
The report said industry consolidation will reinforce China's position in the global market, and that emerging markets will continue to expand their production capacities. Steelmakers in developed countries -- including the United States -- will continue shifting their focus from volume to producing steel that has more applications and provides greater benefit, the report said.
U.S. steel mills operated at nearly 49 percent capacity in the last week of June, which is up from the less-than-40-percent capacity in January, according to the American Iron and Steel Institute. Mills operated at 90 percent capacity in the same period last year.
Bradford said the global steel industry is going to perform poorly in June and July, but by August, there could be small improvement in the United States. He said the rebound will be driven by inventories needing to be replenished.
Michelle Applebaum, a Chicago-based steel analyst, said in her Steel Market Intelligence July report that "domestic steelmakers have announced steel price increases on the back of an increase in domestic order activity and have ramped up production to meet the increased demand as buyers have limited purchases of imports and completed the nine-month inventory purge."
The report said there are concerns about restarts in the U.S. market coming too fast, but demand overseas will support a pickup in exports.