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Steel Industry: 2018 Year in Review

The steel industry is vital to the success of the US economy. Over the past decade, many steel companies have struggled to remain profitable. While last year’s steel tariffs left the fate of the industry uncertain, 2018 definitely ended on a high note.

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Chinese Steel Industry Faces Huge Boom

In the recent past, China’s stock market has been dwindling due to the trade wars with the US. However, steel prices have been indicating a positive state of the economy. Although China is transforming from manufacturing to consumption economy, steel is still an essential part of the economy. For instance, Baosteel, one of the biggest steel manufacturing companies in the country, reported a sixty-two percent year-over-year increase in profits.

The steel market seems undisturbed by the numerous tariffs, internal economic issues, and government controls. For instance, according to the National Bureau of Statistics (NBS), steel production increased by 7.2% in July. Production in 2018 is ahead by 6.3% compared to the records set last year. The growth may have slowed slightly in August as the purchasing managers’ index (PMI) reduced by 1.4% but stayed above fifty percent.

According to the World Steel Association, China accounted for 49.2% of the global steel manufacturing. Recent data indicates that China accounts for 50.7% of the world steel production. China’s output in a month is more than the United States produces in a year.

 

Lower Production, Higher Prices

 

In the past three years, the government has been running a campaign to reduce production capacity. This is in attempts to curb environmental pollution. Also, the overproduction has been blamed for low prices and losses. In 2016, the government cut the annual production by sixty-five million tons. In 2018, by fifty million tons.

This year, the government is looking forward to cutting output by thirty million tons. Apart from the cut in production, the government has also been issuing temporary suspensions in the Beijing area. This is to prevent steel factories from producing fog during the heating seasons. However, the suspension that could have cut production by fifty percent is not deterring overall production. This is because production doubled in other parts of the country.

On the other hand, the downsizing and production cut attempts by the government caused steel prices to soar. Some steelmakers increased their production to take advantage of the rise in prices. According to the China Iron and Steel Association (CISA), there was a 14.6% increase in prices at the end of July.

 

Improved Production Process

 

Another reason for the increase in production is improved efficiency. Nowadays, most steel mills around the country use better grades of iron ore and more scrap steel to reduce emissions.

The good fortunes witnessed by the steel industry may be a headache to the government. Information from the National Development and Reform Commission (NDRC) pointed out that this year’s targeted cut in production might be difficult if the profit margins continue to grow. However, the government has been able to cut capacity of 24.7 million tons in the first seven months of 2018.

There have been reports that some millers may restart outdated production methods to take advantage of the soaring prices. For instance, many mills that had closed two years ago have recently started reopening due to the increase of steel prices in the market. Research conducted by the Greenpeace East Asia indicated that 73% of the increased capacity came from factories that were presumed idle. There has not been an official government audit to explain the increased production despite the measure put in place to cut output.

Efforts by the government to cut production are faced with a lot of challenges. For example, there have been reports that the price does not control the production of steel. Overproduction is continuing whether the prices are high or low. Additionally, steel production has been thriving even when the GDP is declining.

Mid-2018 Global Steel Outlook

Overall global steel output is headed in a positive direction, despite recent controversy surrounding steel tariffs imposed by the Trump Administration. Over the last year, raw-steel production has steadily increased. This is after nearly two years of below-average demand. The World Steel Association predicts that steel demand for manufacturing and construction purposes will continue to increase throughout the rest of 2018 and 2019. This often correlates with overall global economic prosperity. Typically, positive economic performance leads to innovation and new construction, hence the rising steel demand.

Data suggests that May 2018 saw the largest jump of the year. In that month, global output increased by 6.6% compared to May of 2017. From April to May alone, global steel production jumped by 4.7 percent. While China and the European Union are responsible for the largest portion of these jumps, other countries are sure to see significant boosts as well.

India: A Steel Behemoth

Just recently, Anglo-Australian mining company BHP Billiton announced that it predicts Indian steel demand will double by 2025. Allegedly, the government’s goal is to produce 300 million tonnes of steel by 2030. If current production were to truly double by 2025, that means it would reach 170 metric tonnes.

Some economists are suggesting that India’s 2030 goal may be a bit of a reach. However, they still say it’s no doubt that the construction and infrastructural industries have a demand.

The recent trade war that has been spurred on by the Trump Administration’s tariffs has global economies scrambling for new strategies and steel consumers. There has been an inevitable period of rockiness in light of these recent events. Nonetheless, Huw McKay, BHP Billiton Vice President of Analysis and Economics, says there is enough global steel demand to absorb the newly produced steel.

EU Responds to Steel Tariffs 

Since the U.S. has imposed levies on imported steel and aluminum, the EU must prepare for a steel/aluminum import surge into the bloc from other countries. Consequently, they are searching for solutions to curb some of these imports. On Thursday, the EU voted to back measures preventing an overwhelming influx of steel and aluminum. As a result, they have put a quota in place. They will still welcome steel imports, with some exceptions. To prevent a flood of steel imports into the EU market, the EU will place tariffs on imports exceeding the determined quota.

Excessive steel imports into the EU market could damage the EU steel industry’s own prosperity. The EU has also imposed its own levies on numerous U.S. imports, including jeans, bourbon, and motor bikes. Canada is also imposing “retaliatory tariffs” in response to the new U.S. policy.

While the impacts of the U.S. steel tariffs on the domestic market are still being assessed, certain industries (such as the automotive industry) will likely be impacted. In some steel-oriented towns across the country, the tariffs have brought relief. Many view it as a way to boost the American steel industry and encourage domestic steel production. As time continues on, consumers and steel experts are hopeful that growth in the steel industry will too.