LONDON: Global crude steel production hit a new record in 2011, but the pace of growth fell sharply as a deepening sovereign debt crisis in the European Union and slowing economic growth in top consumer China dented demand.
"Despite the doom and gloom that we have seen in the last few months, we still had growth in most regions," said Peter Fish, managing director at Meps, a UK steel consultancy.
"We expect growth to continue at slightly more than 6 percent in 2012. It's much less than in 2010, but it's still growth and there aren't too many industries that can show that sort of number at the moment."
Global steel production was at 1.527 billion tonnes in 2011, up 6.8 percent from 2010, data from the World Steel Association showed on Monday.
This compared with a 15 percent increase in 2010.
"Production cuts have helped tighten the global market, but the upward price impact may be limited given numerous downside risks to demand growth in the coming months," said CRU steel research manager Chris Houlden.
"Excess capacity will remain an issue, especially in steel sheet markets."
CHINA SHARE
In 2011, China, the top consumer and producer of the alloy, produced 695.5 million tonnes of crude steel, up 8.9 percent from the previous year.
China's steel production expanded by 9.3 percent in 2010.
After a very strong first half, steelmakers in China and worldwide were forced to reduce their production rate as a gloomier economic situation started to take its toll on demand for metal and steel.
China will continue to be the world's largest steel producer and will account for up to 70 percent of global steel production in 2012, up from about 45 percent in 2011, according to a Meps forecast.
"Production in China looks to have bottomed out, with an end to destocking providing some upside to demand prospects after Chinese New Year," said Chris Houlden.
"We expect steel demand and production growth to strengthen into the second quarter, though we have slightly downgraded our growth expectations for 2012 as a whole."
The 27-nation EU, the world second-largest steel producer, is facing a steeper slowdown.
It produced 177 million tonnes of crude steel in 2011, 2.8 percent more than in 2010, when steel output expanded by almost 25 percent.
"It was no surprise to have seen output in the EU 27 fall further in December, but it does now look like production cuts have helped stabilise steel prices in the spot market," Houlden said. "In the coming weeks, some renewed buying should see the market tighten a little further, though demand fundamentals and sentiment remain very fragile. 2012 will remain a tough year for the region's producers."
US ACCELERATION
Overcapacity, ever more aggressive imports of basic grades of steel and a dim credit situation have hard hit European steel demand, and many industry experts say European production might fall in the next few years.
Europe is likely to rely more and more on imports of basic grades of steel from lower-cost regions such as the CIS and Turkey, while domestic producers will have to focus on higher-end products to remain profitable, analysts said.
The US market, on the other hand, has proved very resilient. Steel output grew by 7.1 percent last year in the United States.
Boosted by better-than-expected economic growth, steel demand has improved in the last few months and prices have also moved upwards.
"A slight acceleration in US economic activity helped support steel demand in Q4 2011 and into the New Year," Houlden said. "With production increases and imports limited, this has helped spur larger price rises than seen elsewhere."
Looking at other areas, Japan, the world's third-largest producer of steel after China and the EU, saw its production fall by almost 2 percent in 2011.
Steel production was affected by halts in operations after a massive earthquake and tsunami hit the east coast of the country last March.
A particularly strong yen made it more difficult for Japanese exporters to compete with other Asian regions and higher costs pushed many manufacturers to move abroad, crippling domestic steel demand.
Steel production in the CIS grew by 4.0 percent, down from 11 percent in 2010.
It grew by 10.2 percent in South America and by 6.9 percent in the Middle East, but it fell by 13.8 percent in Africa, were political turmoil and violence in some key producing areas weighed on growth.
The first half of 2012 promises to be slightly better for steel producers as a restocking cycle begins, analysts said.
"2011 was a year of destocking as people were worried about getting stuck with inventories that could lose value," Fish said.
"Although there hasn't been a great improvement in the market situation yet, people are struggling to meet a slightly higher demand, so we should certainly see some restocking at least in the first few months this year," he said.
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