Global iron ore prices continue to ease and seem to be drifting towards the $US120 a tonne mark as fears about the health of emerging economies (which make up six of the world’s top 10 steel producers) and especially the Chinese economy, grow among investors.
Just how long this unease persists is the big imponderable insofar as markets are concerned and their prospects for 2014.
Certainly the new year is off to a weaker start than 2013 when world iron ore prices remained buoyant, only to fade into the second quarter, before rising more strongly than anyone had forecast and finishing the year well above $US130 a tonne as demand from Chinese steelmakers exceeded expectations.
That saw steel production in China and a number of other countries push global production higher than expected for the year. But hopes of that buoyant activity continuing into 2014 have been scotched for the time being by the sell-off in emerging markets on the back of fears about the strength of the various economies.
Fortescue and Atlas Iron both release December quarter production reports this week.
Fortescue’s will be especially important for any comments on iron ore pricing, seeing there were reports last week that it was discounting shipments to maintain production levels.
The growing volatility in iron ore will raise questions about the value of Fortescue, BHP Billiton and Rio Tinto shares.
Seeing they have been quite strong so far this month, it could hit the market’s strength.
Not helping will be forecasts by the World Steel Association for 2014 which suggest that Chinese steel consumption will slow this year to where growth falls below that of the rest of the world.
A big imponderable is the pace of closure of old and polluting steel plants by the central government.
Over six million tonnes of such capacity was shut late in the year in the Beijing region, and there are suggestions more plants will close this year as the government tries to move steel production to less polluting, more productive plants.
That however will require deals with many state and local governments and possibly the payment of aid and other subsidies.
The Steel Association expects world steel demand excluding China to rise by 3.5 % year on year, surpassing growth of 3% in China.
If this happens, it will be the first time since 2006 that Chinese demand has not keep pace with, or exceeded, total global growth.
Overall global demand grew by 3.1% last year, while output rose a better than expected 3.5%.
Coming at a time when more iron ore will appear on the world market from the likes of BHP, Rio Tinto, Vale of Brazil and a string of smaller producers in Australia, Africa and perhaps India and Canada, analysts say the weakness in iron ore prices could persist for most, if not all the year.
A look at the top 10 producers in 2013 tells us why.
Of the 10, six are emerging markets – China is Number one, India is four, Russia is five, Turkey, Brazil and Ukraine are eight, nine and 10.
The six produced 1.031 billion tonnes of crude steel in 2013, 60% of global output.
These emerging markets are taking the brunt of the latest round of selling and concern among big investors.
(Although it has to be pointed out that if China’s two surveys of manufacturing, due for release on Thursday, are solid and show no real surprise, then the concerns about the economy could steady for a while.)
Top 10 steel-producing countries
A report from the World Steel Association late last week revealed that world production of crude steel rose 3.5% from 2012 to a new record of 1.607 billion tonnes last year.
Higher production from China, India, the Middle East, Japan and Taiwan, helped push up output, despite the lingering recession in Europe and weak demand in some emerging markets.
Share of crude steel production
In December, world crude steel production for the 65 countries reporting to the Association was 129.2 million tonnes, up 6.3% compared to December 2012. It was up one million tonnes on November’s figure, but around seven million tonnes under the all time high of 136 million produced last May.
The crude steel capacity utilisation ratio of the 65 countries in December 2013 declined to 74.2% from 75.8% in November 2013. It is 2.2 percentage points higher than December 2012. The average capacity utilisation in 2013 was 78.1% compared to 76.2% in 2012.
Annual production last year in Asia was 1.080.9 billion tonne of crude steel up 6% compared to 2012. The region’s share of world steel production increased slightly from 65.7% in 2012 to 67.3% in 2013.
China’s crude steel production in 2013 reached 779 million tonnes, an increase of 7.5% on 2012 and a much higher figure than anyone had forecast a year ago when most outlooks were for a rise of 3% or thereabouts.
As a result, China’s share of world crude steel production increased from 46.7% in 2012 to 48.5% in 2013. Japan produced 110.6 million tonnes last year, up 3.1%, but South Korea’s crude steel production was 66.0 million tonnes down 4%.
Even though the EU economy is back growing slowly, it wasn’t enough to boost steel demand and production, even though there were some encouraging signs late in the year.
The EU saw a 1.8% fall in crude steel production last year, compared to 2012 to 165.6 million tonnes. Germany produced 42.6 million tonnes of crude steel last year, which was unchanged from 2012. Italy saw a near 12% plunge to 24.1 million tonnes as the severe recession hit home. France’s crude steel production in 2013 was 15.7 million tonnes, up half a per cent and despite the recession. Recovering Spain produced 13.7 million tonnes, up 0.7% year on year as the economy’s improvement gathered pace late in the year.
North American crude steel output fell 1.9% to 119.3 million tonnes. The US produced 87 million tonnes down by 2% compared to 2012.
And in eastern Europe, Russia produced 69.4 Mt of crude steel, down 1.5% and the Ukraine saw a half a per cent fall in output to 32.8 million tonnes.
Annual crude steel production for South America was 46 million tonnes last year, down 0.8% with Brazilian production falling 1% to 34.2 million tonnes.
Production in India jumped 5.1% to 81.2 million tonnes, the highest yet. India’s rise came despite a weak economy and currency fears towards the end of the year.
Besides Asia’s 6% rise in total production, the Middle East was the only other major region to have increased its output – by 6.8% to 26.3 million tonnes.
This was a notable outcome given the instability in countries such as Egypt, Tunisia and Libya.
Crude steel production in Australia and NZ fell to 5.5 million tonnes from 5.8 million. Much of that had to do with the extensive restructuring at BlueScope Steel.
