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Global Steel Production Continued Its Losing Streak in May

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Global steel production

Steel production figures help you understand the steel industry’s supply-side dynamics. Global steel production has fallen on a YoY (year-over-year) basis for 17 consecutive months. In May, production fell 0.09% YoY. However, the rate of decline is the lowest we’ve seen in the last 17 months.

So far, in the first five months of 2016, global steel production has fallen 2.2% as compared to the corresponding period last year.

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Capacity utilization

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 a utilization rate below 80%.

The global steel industry’s capacity utilization ratio was 71.3% in May. This is the highest capacity utilization we’ve seen since June 2015. In contrast, the US steel industry is currently operating at a utilization rate of ~75%. US-based steelmakers Steel Dynamics (STLD) and Nucor (NUE) have ramped up their production this year to cater to the spot flat steel demand.

Global scene

In May, steel production fell 3.5% and 0.9% YoY in Korea and Japan, respectively. Note that Korea has emerged as a major steel exporter to the United States (DIA). While China has been slapped with strict antidumping duties in recent trade cases, Korean companies, including POSCO (PKX), have been let off with lower duties.

We’ll explore the impact of trade cases on the US steel industry later in this series. 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 more than half of the company’s revenues.

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