The world steel association released its July production report overnight and the news is not especially good:
World crude steel production for the 62 countries reporting to the World Steel Association (worldsteel) was 130 million tonnes (Mt) in July 2012, an increase of 2.0% compared to July 2011.
China’s crude steel production for July 2012 was 61.7 Mt, an increase of 4.2% compared to July 2011.
Elsewhere in Asia, Japan produced 9.3 Mt of crude steel in July 2012, up by 1.2% compared to the same month last year. South Korea’s crude steel production for July 2012 was 5.9 Mt, an increase of 4.4% compared to July 2011.
In the EU, Germany produced 3.6 Mt of crude steel in July 2012, a decrease of -2.1% on July 2011. Spain’s crude steel production for July 2012 was 1.0 Mt, 7.0% higher than July 2011. In July 2012, the UK produced 0.9 Mt of crude steel, up by 6.6% compared to July 2011.
Turkey’s crude steel production for July 2012 was 3.1 Mt, an increase of 9.7% compared to July 2011.
In July 2012, Russia produced 5.9 Mt of crude steel, an increase of 3.6% compared to the same month last year.
The US produced 7.4 Mt of crude steel in July 2012, up by 0.9% on July 2011.
Brazil’s crude steel production for July 2012 was 3.0 Mt, -4.1% lower than July 2011.
The crude steel capacity utilisation ratio for the 62 countries in July 2012 declined to 78.7% from 80.4% in June 2012. Compared to July 2011, it is 0.8 percentage points lower.
So, why is an increase of 2% in annual output and 4.3% in China bad? Well, it’s growth ain’t it? Lower growth than we’re used to, but growth nonetheless. If steel and, more to the point, iron ore prices are going to get monstered in circumstances of growth then that says something pretty telling about overcapacity in the supply of both. Capacity utilisation is only down 0.8% over the year yet prices are down 40%.
And overnight the plunge in the complex continued:
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That’s a break of the neckline on the huge post-GFC head and shoulders pattern for 12 month swaps. And spot looks like it has a fatal attraction for $100.
The ore market needs production cuts. If they come locally, it will be end of stronger for longer, the end of volumes offsetting price. It’s a rude shock that’s looming.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
