India alone records growth in crude steel production among top five in Jan-May'24

• High inventories, decarbonisation limit China output
  
  
• Turkiye sees steepest increase amid fresh capacities
  
  
• Japan, Korea flayed by dull demand, Chinese exports
  
  
• The US hit by high rates, but demand improving
  
  

Morning Brief: Global crude steel production rose 1.5% y-o-y to 165.1 million tonnes (mnt) in May 2024, as per worldsteel data. Of the top five producing countries, only India showed an increase over January-May, 2024 while five of the top ten showed a y-o-y decline in this period.

Turkiye recorded the steepest growth of 19.8% while South Korea fell the most, by 6.3%.

China cuts production amid high inventories, decarb issues

China, the leading steel producer globally and far ahead of the rest of the world, saw its production dip 1.4% to 438.6 mnt over January-May, 2024. Mills have seen inventories piling up for the better part of the first five months. For instance, the first three months saw stocks idling. End-April and early-May fared slightly better. But mid-May saw inventories up by 3.36% compared to early May and 3.45% y-o-y.

The inventory burden is a function of sustained inadequate demand. A large number of construction steel buyers delayed their pre-Labour Day restocking in late April. Plus, several high-profile festivals like the Lunar New Year in the second week of February, and a few more, kept buyers away from an already lacklustre market. China's macro-indicators were bearish in the period under review, underscoring the reasons for the low demand.

Plus, China is keen to reach its decarbonisation targets and has issued special action plans for energy conservation and carbon reduction in four industries that include steel.

India sees restocking, higher domestic realisations

India, the second-highest producer, saw volumes rising 7.7% to 61.9 mnt. Some amount of production cuts happened towards the initial part of the year but which paid off. A major bout of restocking ahead of the elections in April helped to keep the production tempo up. Mills were also able to command higher prices in comparison to export offers. For instance, benchmarked trade-level domestic HRCs averaged INR 53,540/tonne ($641/t) in the period under review against $586/t over January-April, 2024. Mills did not offer in May.

Japan's output dips on lower domestic demand, exports

Japan, the third highest producer, witnessed production falling 2.3% to 35.7 mnt y-o-y. In fact, The Japan Iron and Steel Federation announced in May that domestic production in that same month fell 6.3% y-o-y to 7.17 mnt, marking the third consecutive month of y-o-y decline. Sluggish demand has forced Japanese mills to curtail output. Daily production in May decreased by about 4,000 tonnes compared to April. It was the lowest level so far this year.

Construction steel demand was slack amid soaring material prices and labour shortage. Plus, China has dealt a heavy blow to Japan's steel exports, taking away its markets. Data reveals steel exports in May fell 8.3% y-o-y and for the fourth month in a row to 2.75 mnt. Steel exporters are navigating a complex and demanding negotiation environment. Moreover, a slump in Japan's auto production after a safety test issue at a leading automotive manufacturer further slowed demand in the January-March quarter.

Korea's production drops amid high costs, imports

Amongst the top 10, Korea's fell the steepest, by 6.3%, to 26.4 mnt over January-May, 2024. Because of the sluggish domestic demand, two of the steel majors, POSCO and Hyundai, undertook facility management at their respective works over April-May. Increased cost burdens have shrunk downstream demand. Imports from China are a huge challenge while exports have declined. Exports of heavy plates fell nearly 15% in May whereas imports of the same from China surged 50% m-o-m.

US production down but demand improving

Production in the US dropped 2.4% y-o-y to 33.4 mnt. Mills here have been hamstrung by steep interest rates which have kept the cost of production high. This forced buyers to delay projects and thus off-take. However, demand has improved since the middle of the year, especially from infrastructure, renewables and construction. Since the US market is well protected from imports through various safeguard measures, its mills are not under pressure as of now.

Turkiye stages smart comeback with fresh capacities

This country has staged a stark rebound after ending 2023 with a 4% decline in production. worldsteel has predicted a 5% increase in steel consumption in Turkiye in 2024, based on factors like expected increase in global steel demand and newer capacities that have come up in the second half of 2023 as well as fresh investments. Post-earthquake reconstruction demand rose but exports have shrunk amid slack European demand while sales of 54 items to Israel, which is among its largest markets for such products, including rebars and wire rods, have been restricted. Also, because of the export challenges, mills are investing in high-margin, value-added products.

Outlook

China's crude steel production may be limited to 2023 levels amid a highly weakened realty sector. The US is still facing the challenges of high interest rates, which is impacting housing construction along with labour shortage. The EU may remain challenged by geo-politics, high inflation, monetary tightening, and energy prices that are still high if compared to the pre-Ukraine war era.

India is bracing for a demand rebound from the third quarter (October-December), when weather becomes supportive.