January 25, 2016 / 5:26 PM / 3 years ago

Global steel output registers first annual decline since 2009

LONDON (Reuters) - Global crude steel production fell by 2.8 percent last year, marking the first annual decline since 2009, as producers succumbed to pressure from waning demand and tumbling prices.

A worker cuts crude steel on a production line at a steel factory in Ganyu, Jiangsu province July 11, 2013. REUTERS/China Daily

The sector viewed as a barometer of global economic health has had to contend with a supply glut that sent prices to their lowest since 2003 last year, with bankruptcies and capacity closures picking up pace the world over.

Figures from the World Steel Association on Monday showed that global steel output fell to 1.623 billion tonnes in 2015, with output in China — the metal’s top producer and consumer — registering its first drop in three decades, falling 2.3 percent to 803.8 million tonnes.

China’s government is pushing to erode massive overcapacity in the sector as economic growth weakens. That combined with cuts and closures worldwide has helped to lift prices slightly in January.

“Many mills including (in) China are pulling production offline in an attempt to support prices — and it is working,” said Chris Houlden, research manager at consultancy CRU.

“However, any reversal of production cutbacks in response to price rises will again place steel producers’ margins under extreme pressure.”

Spare capacity expanded last year, with mills utilizing only 69.7 percent of capacity on average, versus 73.4 percent in 2014, the data showed.

Utilization of at least 80 percent is deemed necessary for mills to have pricing power. Rates below that level signal to buyers that mills can and will raise output in response to any demand increase.

China’s massive steel sector is said to have spare capacity of 300-400 million tonnes, roughly half of global spare capacity of about 700 million tonnes.

With domestic steel demand shrinking, China exported a record 112.4 million tonnes of cheap steel last year, forcing other mills to crimp output as they struggled to compete.

Steel output in the European Union fell 1.8 percent to 166.2 million tonnes last year, the data showed, while output in North America was 110.7 million tonnes, down 8.6 percent.

The decline in global steel output accelerated toward the end of the year, falling 5.7 percent in December to 126.7 million tonnes, while China’s output dropped by 5.2 percent to 64.4 million ton.

Editing by Keith Weir and David Goodman

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