There is no denying that steel moves economies forward—feeding into building construction, infrastructure, transport, and several other downstream industries—making its swelling consumption a pretty solid indicator of how fast global economies are growing. While here at home, at a dismal consumption per capita, the outlook on steel is flourishing on the back of government’s push to revive the construction industry, global steel may take longer, having been brought to a serious halt due to the ongoing trade war between rivalling China and US as well as the sudden collapse in supply chains and production from the novel coronavirus.
According to World Steel Association, crude steel production slipped 2.5 percent in July (year on year) noting pandemic challenges despite China’s substantial growth in the month of 9 percent. The biggest steel producer (accounting for nearly 60% of global production) is well on its way to expand steel manufacturing as Beijing injects large investments into infrastructure. In Aug—global steel has started to revive (up 0.6% year on year), but not still slower than China’s 8.4 percent growth during the month against the same last year. Other major producers: India (down 4.4%), Japan (down 20%), United States (down 24%) and major European steel giants continue to experience a downturn. China may be driving the cart almost entirely after exhausting its steel inventories capturing more and more of the pie as months roll on.
Pandemic scenarios and economic downturns are sapping demand from the US and several European countries as demand in automotive, machinery and construction industries dried up leading to steel producers operating at very low utilization rates. The EU is also in the midst of a heavy-duty change in its environmental policies leading to cut in traditional production and exploring new avenues for steel-making. However, demand remains the primary bane. The biggest challenge for producers then becomes oversupply—a long standing global issue, now only exacerbated due to covid—which has already wreaked havoc on earnings.
As plants open and blast furnaces are fired up again, it will come down to—at least in the start—on governments’ respective responses to revving back up their economies. The fastest way to do that is through spending on infrastructure. But however much fiscal injection comes from the governments (and surely they cannot be at par with China) which will mostly feed long steel, the real test is the revival of demand from other industries which will come when consumers do what they are supposed to—consume.
Meanwhile, analysts believe steel oversupply despite old mills being shut down across the world (particularly in China) will continue to affect production and keep plants idle. The solution will be to offload capacity and do away with a good chunk of it to bring prices and profits back up. For now, global stimulus injections or no, China will sit on the drivers’ seat and have the first pick while other steel producers will remain fragile in the face of their many demand-supply challenges with covid have a lasting impact.