If the latest reports are anything to go by, the market for steel, a critical material in construction, remains sluggish and is likely to do so for some time.
The most recent report from the World Steel Association (WSA), released last week, showed at 630.3 million tonnes, the overall value of crude steel produced throughout the world in the five months to May is up by less than one per cent when compared to the same period last year.
Furthermore, these figures make things look better than they really are: take out the 6.4 million tonnes that over-producing China added to its production numbers during that time and overall production levels are actually down elsewhere.
Moreover, even as production rates stall, the world remains awash with supply. With WSA figures showing global steel capacity utilisation ratios standing at 79.6 per cent – down from 81 per cent in May, 2011 – the world is consuming less than eight-tenths the amount of steel it has the capacity to produce.
In light of this, it is hardly surprising that prices continue to fall. At 788, the All Products Global Prices index in May was near 17 month lows and was down almost 14 per cent compared with May last year (912), according to steel information services provider MEPS International Ltd.
Furthermore, with few imminent signs of any form of abatement in the primary driving forces behind current conditions – weak demand in Europe as well as slowing demand, continued overproduction and a huge build-up of inventories in China – a near term recovery seems unlikely.
In China, the volume of iron ore – the most important raw material in steelmaking – sitting at the country’s ports has risen from around 90 million tonnes one year ago to more than 100 million tonnes now, recent China Daily News reports say. Yet Chinese steel mills continue to increase production, flooding overseas markets with product they can’t sell at home.
Bad News for Steelmakers, Good news for Construction Firms
For steelmakers around the world, the findings revolve around limited volume growth and intense pressure on profit margins.
In Australia, these difficulties are being exacerbated by the continuing strength of the dollar, which remains at around par compared with the greenback.
Indeed, steel production in Australia over the first five months of the year was down more than 35 per cent, though this number is admittedly primarily a reflection of an intentional drop in output as domestic steelmakers close plants and pare back operations.
Indeed, in Australia, recent reports suggest that manufacturing conditions remain weak across many forms of construction inputs. While cement manufacturing, for example, seems to be holding up reasonably well, the latest indications are that brick and tile manufacturing conditions are well down.
On the flip side, however, continued downward pressure on prices is helping to ease the cost burden for the building and construction industry – albeit with a fair degree of consternation about the loss of domestic steelmaking capacity in Australia.
For steelmakers, the near-term outlook does not look good. For construction firms, subdued prices for steel and other production inputs are one part of the silver lining in otherwise challenging operating conditions.