Global crude steel production in 2016 exceeded expectations with a forecast reduction of 2% being transformed into a growth of almost 1%. Growth rates varied across the main steel producing regions of the world with India at the forefront with a growth of 7.4%. Ukraine and Turkey followed closely both reporting growth rates of over 5%, followed by China at 1.2%. In contrast the USA and Russia experienced a marginal decline with South America and Brazil falling by a more substantial 7.4%. EU crude steel production saw a 2.5% decline.
Looking closer at the EU performance the fall was accompanied by a 12% decline in EU exports and a 10% increase in imports suggesting a relatively healthy domestic demand level. In addition, the overall decline was not distributed equally across the main steel producing member states with the UK registering the most significant decline with a fall of 30% followed by Spain and to a lesser extent France, reporting reductions of 8.2% and 3.8% respectively. In contrast, Italy, the second largest EU producer generated an impressive 6% growth year on year.
The causes of the decline in the UK have been well documented with the demise of SSI and the restructuring of the Tata owned facilities but the reasons for the differing fortunes in Spain and Italy are less apparent.
Spanish exports declined by 2% during the year compared to imports which grew by 6%, driven by greater activity from Brazil, Iran, India and Turkey. An important driver of the underperformance in Spain was the decision by ArcelorMittal to idle its Setsao HRC plant in January. With a 1.5 million tonne capacity, the plant was re-opened again in September so this single event is likely to account for the shortfall seen in production in the country as underlying demand remained stable.
The situation was reversed in Italy with a 2% reduction in imports, demonstrating that domestic producers grew share compared with Spanish producers who lost share. The largest fall was the 423 thousand tonne reduction in Chinese shipments into Italy, easing some pressure on local producers. Italian producers have also fared well in export markets as despite a 9% fall in shipments to their second largest market Algeria, overall exports grew by 9%. This growth has come from closer to home with shipments to other EU countries increasing by 14%, particularly to Germany and France.
So far this year, EU crude steel production has continued to underperform. In the first two months of the year growth was just 1.6% compared to overall global growth of 5.8%. The UK has been one of the better performers so far, however, against softer comparisons last year but Spain continues to struggle with a 6.6% decline. Italy has also found growth hard to come by in contrast to 2016 with an increase of less than 1%.
Going forward it is clear that the EU faces some uncertainty with Brexit now officially underway and questions over whether the local producers can regain market share from overseas suppliers. The recent imposition of anti-dumping duties on Chinese HRC is an important step, although arguably a year too late. In Spain, a growing GDP suggests demand should be fairly robust this year but the question is whether this will be continued to be taken by imports. In Italy, much depends on the future of Ilva’s Taranto plant, the largest steel plant in Europe. A number of different consortia have bid for the plant and as last year it ran at just 53% of its 11 million tonne capacity, the eventual winners plans will have a profound effect on Italian steel production going forward.