For Australia, the most important global indicator isn’t the prices of copper, gold or oil, or even Chinese GDP.
It’s the performance of the global steel industry and the level of demand for iron ore and coal.
That’s not to say the prices of other commodities aren’t useful — they are, but nowhere near the importance of what’s happening in the world’s steel industry.
And leading the way, the steel sectors in China, India, Japan, and South Korea which are our major trading partners and the source of most of the accelerated demand (and price hikes) for iron ore and coking coal in the past five years.
It’s why we at Air concentrate on the monthly performance of the steel industry, China’s trade figures, especially imports, and other news involving iron ore and coal.
The common view now among many investors is that steel, iron ore and coal are facing much tougher times in coming years as China’s industry slows and global demand and output weaken.
That’s partly right, although many analysts fail to see the surge in demand for both commodities coming from India (in the next couple of years) as its industrial revolution gathers pace (though not at China’s recent explosive level of growth).
But a maturing in the growth rate for steel should be expected give the explosion expansion in the past five years which has seen a one third jump in output, led by China’s 60% growth.
But it’s not necessarily all gloom. Certainly BHP Billiton and Rio Tinto are expanding their iron ore interests as though there will be little easing in demand for the next five years.
That’s a result of a deliberate strategy to expand their output to make sure they (and Vale of Brazil is doing something similar) maintain their current positions as the lowest cost producers, so when demand does stagnate, the more recent higher cost rivals in WA and other countries will be the first to encounter financial strains.
Looking at how the global steel industry performed in 2011, figures out this week show that crude steel production hit a new record in 2011, but the pace of growth fell sharply in the second half of the year as the eurozone crisis and the slowing in the Chinese economy hit demand and output.
Global steel production was at 1.527 billion tonnes in 2011, up 6.8% from 2010, data from the World Steel Association showed, down sharply from the 15% rise in 2010 which was driven by the surge in Chinese output.
All the major steel-producing countries apart from Japan and Spain showed growth in 2011.
Growth was particularly strong in Turkey, South Korea and Italy.
Annual production for Asia was 988.2 million tonnes of crude steel in 2011, an increase of 7.9% compared to 2010.
The region’s share of world steel production increased slightly from 64.0% in 2010 to 64.7% in 2011.
China’s share of world crude steel production increased from 44.7% in 2010 to 45.5% in 2011.
China’s crude steel output increased 8.9% in 2011 from 2010 to 683.27 million tonnes. That’s slightly slower than the 9.3% growth rate in the previous year, but there was a much sharper 12% fall in second half output compared to the first.
Chinese crude steel production finished the year at 52.16 million tonnes in December, slightly lower than the 52.8 million tonnes produced in the same month of 2010 and 13.3% down from the all time high of 60.2 million tonnes reached in May.
After a very strong first half (as exemplified by the record 60 million tonnes plus output in May), steelmakers in China and worldwide were forced to cut production as the global and Chinese economies slowed.
But in the final quarter, US demand and growth improved noticeably and as a result crude steel output grew by 7.1% last year in the US to 86.2 million tonnes.
Annual crude steel production for South America was 48.4 million tonnes last year, with Brazilian output climbing 6.8% to 35.2 million tonnes from 2010. But like so many other economies, slowing demand saw growth ease in the second half of the year.
But for the 27-nation EU, the world second-largest steel producer, a different story with a steeper slowdown.
It produced 177 million tonnes of crude steel in 2011, 2.8% more than in 2010, when steel output jumped by almost 25%.
Second half production in the EU fell by more than 5% from the first half level and the fall was getting faster in the final quarter when demand usually picks up.
Weakening demand from the car and appliance industries, as well as from construction, allied with too much capacity, aggressive imports of basic steel and the financial strains in banking and credit markets will mean the EU steel sector faces a difficult 2012.
Italian output though was especially strong, with production up more than 20%, despite the economy’s slowdown and the financial strains in the final five months or so of 2011.
In fact Italian crude steel output was up 11.3% in the year to 28.7 million tonnes. In contrast Spanish production dipped by more than 4% to 15.7 million tonnes
Japan is the world’s third-largest steel producer after China and the EU, and production fell by almost 2% last year to 107.5 million tonnes, thanks to the impact of the March 11 quake and tsunami which saw some mills shut for a period of time and demand fall as the car industry cut output.
The strengthening yen over the year
