World steel production
The WSA (World Steel Association) releases data for the 65 countries that are responsible for ~98% of the world’s raw steel production. Therefore, it is a key indicator to watch for investors in iron ore companies like BHP Billiton (BLT), Rio Tinto (RIO), Vale SA (VALE), Cliffs Natural Resources (CLF), and Fortescue Metals Group (FSUGY). It’s important to note that about 98% of the iron ore goes into steelmaking.
According to data released on May 25 by the WSA, world crude steel production totaled 135 million tons in April. This is a decline of 1.7% YoY (year-over-year). However, looking at global steel production, excluding China, the decline has been even more severe. Higher steel exports from China are negatively impacting steel production in other countries as well. For example, US steel production has declined 8.5% in the first four months of 2015. The above graph shows the trends in global steel production.
Lower steel production reflects the weak final consumption demand. This is negative for steel companies like U.S. Steel (X) and AK Steel (AKS). In turn, it’s negative for iron ore companies that supply raw material to these companies. Cliffs Natural Resources is a major iron ore provider to the US steel industry. Currently, AK Steel forms 4.5% of the SPDR S&P Metals and Mining ETF (XME) and 0.14% of the iShares Core S&P Small-Cap ETF (IJR).
The global steel industry is clearly divided between China and the rest of the world. In the next part of this series, we’ll analyze the latest trends in China’s steel production.