As the Chinese economy weakens and Europe continues to struggle, the global market for steel – a key input in manufacturing and construction – continues to deteriorate as production levels contract, oversupply worsens and prices fall, the latest report indicates.
At 123.7 million tonnes, the overall volume of crude steel produced throughout the world last month was down by 1.7 per cent when compared with the same month last year according to the August 2012 Crude Steel Production report from the World Steel Association (WSA).
Although production levels remain reasonably high in a historic context – volumes are up 9.1 per cent over the same month in 2010, for example – overall levels of output for the first eight months of this year are up only 0.9 per cent compared to the same period last year, indicating that any long-term rise in production has slowed.
Making mattes worse, prices continue to fall amid rising levels of stock. At 730, the All Products Global Composite Steel Price came in lower in August than at any other time over the past two years.
That price drop comes because, despite the pull-back in production, the world remains awash in steel. With a global capacity utilisation ratio of just 75.5 per cent (down from 78.7 per cent in August, 2011), the world is using only three quarters of the steel it produces.
While price reductions are helping to alleviate input cost pressures for Australian builders at a time of weak demand in the short term, they are placing enormous pressure on steel manufacturers, who must cope with reduced selling prices and volumes even as manufacturing costs continue to rise. This is all happening at a time when competition from imports is intensifying as a result of continued strength in the Australian dollar.
That remains a concern for the Australian builders, who fear the potential loss of capacity in the domestic supply chain. Production in Australia is down almost by almost one third over the first eight months of this year, though this is no doubt partially a reflection of BlueScope’s decision last year to quit the export market. With no sign of an end to the pressure on domestic steelmakers, genuine fears about the domestic steel industry remain.
Steelmaking is not the only area of building product manufacturing facing challenges. The latest Performance of Manufacturing Index (PMI) report shows that overall levels of activity in the making of building products continue to fall, and the latest ABS data indicates that while production volumes of cement remain reasonably high amid strong demand in resource construction and associated infrastructure, that of products such as bricks and tiles is falling back due to the building downturn.