Global steel production
Steel production figures help you understand the steel industry’s supply-side dynamics. Global steel production has fallen on a year-over-year (or YoY) basis for 14 consecutive months. In February, the production fell 3.3% YoY. Note that lower global steel production helps US steel companies, as it helps reduce the glut of steel in international markets.
Capacity utilization ratio
The capacity utilization rate is a key indicator of the steel industry’s health. In simple terms, the capacity utilization rate refers to actual production as compared to the maximum production possible using existing plants. According to analysts, steel companies’ profitability is negatively impacted if plants operate at less than 80% utilization rates.
The steel industry’s capacity utilization ratio was a dismal 66.2% in February. Though the utilization rate improved marginally over January, it is 5.7% percentage points lower as compared to the corresponding month last year. However, the US steel industry’s capacity utilization has moved to the 70s in the recent weeks. This will help US steelmakers like US Steel (X) and AK Steel (AKS).
Production fell in India and Japan
February steel production fell 3.6% and 1% YoY, respectively, in India and Japan. However, Korea (EWY) produced 5% more steel in February as compared to the corresponding month last year. Note that Korea has emerged as a major steel exporter to the United States. While China has been slapped with strict anti-dumping duties in the recent trade cases, Korean companies including POSCO (PKX) have been let off with much fewer duties.
We’ll explore the impact of trade cases on US steel imports later in this series. But before that, let’s see how steel production is shaping up in Europe. Note that Europe is the key market for ArcelorMittal (MT), accounting for almost half of the company’s revenues.