Over the past few months, signs of a steel production recovery
in a wide range of countries around the world have become
clearer. Although there is still much uncertainty about the pace of
progress during 2010 and into next year, cautious optimism
seems justifiable.
   Last year saw huge steel output falls in Japan, the European
Union, South Korea and Taiwan, accompanied by massive
reductions in seaborne iron ore and coking coal imports. Output
weakness was most severe in the first half of 2009, followed in
the second half by some revival which gained momentum during
the final months. A further strengthening looks attainable.
Annual figures for 2009 as a whole underline the devastating
downturn endured by many steel producers. Pig iron production
at blast furnace mills in key raw materials importing countries
was reduced by up to one-third, compared with the previous
year. Iron ore and coking coal consumption and import demand
was similarly reduced.
   Steel mills in the EU’s 27 member states drastically cut their
pig iron output by 32% last year, to 73.1mt (million tonnes), while
Japan saw a 22% decline to 66.9mt. In Taiwan a 19% fall to 8.0mt
was seen, and South Korean producers reduced output by 13%,
to 27.3mt. By contrast in China, the world’s biggest importer of
steel industry raw materials, pig iron production increased
strongly, by 16%, reaching 543.8mt.
   Comparisons of annual figures do not tell the entire story,
however. Countries worst affected by the severe global
economic recession, and its adverse impact on demand for steel,
experienced a revival in output volumes through the second half.
As shown by the table below, based on WSA figures, EU pig iron
production sank to extremely low levels in first half 2009,
averaging 15.5mt quarterly. This depression was followed by an
upturn to just under 19mt in the third quarter and almost 23mt
in the last three months.
   A similar period of chronic weakness occurred in Japan during
the first half of last year, when pig iron production fell to a
14.5mt quarterly average. Recovery then began, resulting in a
jump to 18mt in July-September 2009 and just over 20mt in the
final period. South Korea and Taiwan also achieved improvements
in the second half after earlier weakness.
Japan’s iron ore imports were 25% lower in 2009, at 105.5mt. In
the European Union a larger 32% estimated decline, to 86mt, was
seen. South Korea’s total fell by 14%, to just over 42mt.
Corresponding reductions in coking coal imports occurred.
Bulk carrier employment, and activity at many loading ports,
was rescued from this disastrous downturn by China’s upsurge.
Iron ore imports into China rose by 185mt or 42% in 2009,
reaching 628mt, and coking coal imports were about 28mt or
400% higher, at an estimated 35mt.
   As the statistics set out below clearly imply, however, the
countries seeing massive annual reductions in raw materials
imports last year began to experience an improving background
in the second half. Signs of economic recovery approaching or
beginning were visible in many areas. Also, there was growing
confidence that a rising trend in economic output globally could
be sustained through 2010.
   Steel usage in many key sectors is likely to strengthen over
the next twelve months as consumer and business spending
revives. While most indicators point to only modest economic
upturns in Europe and Japan, progress could include increased
output by a wide range of manufacturing industries such as cars
and other vehicles, machinery, and domestic appliances, coupled
with stronger construction activity.
   Changes in the stock cycle also are likely to prove beneficial
for steel demand and production. The decline in steel
consumption, during the final quarter of 2008 and last year’s first
six months, was amplified by heavy destocking by users and
merchants. Since then destocking has largely faded or ceased,
and some limited restocking may be emerging. A continuation of
this trend could further assist market demand for steel and boost
mills’ output.
Japan’s steel output in January–March 2010 looks set to maintain
the improved volume seen during the previous quarter. If this
higher level continues, annual output this year will be well over
20% above last year’s total. But dependence on export markets
for steel products has intensified, and prospects for some of
these are unclear. A more robust trend in domestic steel
consumption could underpin the recovery.
    In Europe, demand for steel is expected to rebound during
2010, resulting in higher production. A recent Eurofer report
suggested that domestic demand within the EU could increase by
over 12% this year, after last year’s 35% reduction. These changes
include the impact of inventory adjustments. EU exports of steel
products may be 4% higher, while imports may expand at a 13%
   Together with higher steel output in South Korea and other
countries, positive elements of the background for global iron ore
and coking trade are broadening and brightening. In China also,
while it is unclear whether coking coal imports will continue
expanding, demand for imported iron ore is widely expected to
grow again in 2010. The rise in Chinese iron ore imports may be
much slower than last year’s gigantic surge, but even a relatively
small 5% rise adds over 30mt to world trade.
-Richard Scott