There’s been a hint that the downturn in steel production see for most of this year may have steadied.
But there could be a steel price correction and a knock on to lower iron ore prices in early 2011, according to a leading steel industry analyst.
If that happens, it could puncture, temporarily, Australia’s iron ore boom.
Figures from the World Steel Association show that crude steel production last month eased for a fourth successive month to 111.748 million tonnes from 113.141 million in August and the 2010 high of 124.5 million tonnes in May.
But capacity utilisation figures show the first rise in half a year (See the above graph from World Steel).
The crude steel capacity utilisation ratio of the 66 countries in September 2010 rebounded slightly to 74.4% compared to 73.3% in August 2010.
Compared to September 2009, the utilisation ratio in September 2010 decreased by 3.8 percentage points.
The small improvement could indicate that the slowdown has bottomed out and output will start rising slowing in coming month.
But it is still very healthy and the annual rate is close to 1.33 billion tonnes, which is not to be sneezed at.
However it is hard to see production rebounding strongly in the next year as demand from Asian steel users seems to have peaked
But with much of the reason for the surge in output in the past year of so being the strength of the rebound in Asia, figures on growth from China, Japan and South Korea all show a slowing economic growth, although production of cars remains solid.
September’s production of crude steel was around 1% above the level for the same month last year and 3.5% higher than in September, 2008.
All up, global crude steel production rose 19.4% percent in the January to September of 2010 period to 1.046 billion tonnes, compared with the same period a year ago.
Steel production worldwide in September rose 0.9 percent year-on-year to 111.75 million tonnes.
China’s crude steel production for September 2010 was 47.9 million tonnes, down 6% from September 2009.
Elsewhere in Asia, Japan produced 9.2 million metric tonnes (mmt) of crude steel in September 2010, up 11.7% compared to the same month last year. South Korea’s crude steel production for September 2010 was 4.7 mmt, 3.2% up compared to the same month last year.
In the EU, Germany’s crude steel production for September 2010 was 3.3mmt, an increase of 4.1% on September 2009. Italy produced 2.3 mmt, 19.8% more than the same month in 2009. Spain produced 1.4 mmt, down 1.2% from September 2009.
Turkey produced 2.5 mmt of crude steel in September 2010, 17.9% higher than September 2009.
The US produced 6.6 mmt of crude steel in September 2010, an increase of 15.0% compared to September 2009.
Brazil produced 2.7 mmt of crude steel in September 2010, a -1.2% decrease over the same month last year.
Indian production was steady on August at 5.64 million tonnes. That puts it 4th globally among steel producing countries behind China, Japan, the US, with Russia a touch under India production levels.
According to a speech earlier this week from a leading industry analyst, world steel prices are due for a sharp correction in the coming months, followed by a recovery early next year.
"Long term, the price outlook is blue sky, but short-term we think prices will decline through December," Peter Marcus, director of research firm World Steel Dynamics, said in prepared remarks at the Latin American Iron and Steel Institute’s annual congress on Monday.
Dow Jones reports his remarks.
"The odds are 2-1 that there may be a price crash in the next couple of months, a spiraling of prices. But it’s a V-pattern decline and prices should start recovering rapidly," he said, adding the crash will probably last less than a month."
Iron ore prices may be in for a particularly bad drop because of a surplus of 110 million tons on the market, according to estimates by Marcus.
"We think iron ore prices will crash, be crushed, then recover quickly," he said.
Today, the world has "tremendous excess capacity" in iron ore in Brazil, South Korea, Japan, Taiwan and Turkey, Marcus said.
However, several factors are supporting iron ore prices, he said, citing a weak U.S. dollar, strong demand from Russia’s transportation industry and growing demand in Brazil.
Marcus expects 2011 to be a "fair" year for the steel industry, though he said 2012 may see sharply higher prices for metals in general due to tight supply.
In the case of steel, Marcus expects global demand to expand at an annual rate of 3% starting in 2012.
Meanwhile, China’s booming steel industry is set to cool as the country puts greater focus on fomenting domestic consumption at the cost of lower levels of investment in capital goods.
"China’s ability to grow fixed-asset investment rapidly is coming to an end," he said. "So GDP growth will slow and so then will growth in steel output."
That’s a gloomy outlook and if it comes to pass, Australian iron ore companies could have a touch first two quarters in 2011.
