Steel Production Cuts: A Global Perspective 

The production cuts came thick and fast, with China the first of the largest producers to start making deep cuts and the United States following closely behind. There are several factors that cloud this assessment though, namely that China shut down numerous factories prior to the 2008 Olympic Games to contend with pollution in host city Beijing. Temporary cuts turned into shutdowns as conditions deteriorated. By December 2008, however, the Chinese were already ramping up production, registering an 18% increase from November 2008 to January 2009. IHS Global Insight views this surge as extremely optimistic, with early evidence of price declines already apparent in March 2009.

In the United States, on the other hand, production was much more constant until a deep 10% cut in September. The cuts that took place in the United States then served as a profile for the world, with September and October 2008 setting off a rapid decline in global production. November brought the deepest cuts, with an 11% reduction from October levels. By December, mills may have pushed too far, cutting another 6% before raising production back above December levels in January 2009. All told, the peak-to-trough decline in global steel production was just under 40-million -metric tonnes per month, or about 32%. The difficulty now is determining which month was out of line, December or January. As usual, the truth will likely fall somewhere in the middle, and a slight drop will probably come once the February 2009 data are released.

Parsing out the underlying data tells a more complete story of production cuts around the world. With its focus on premium product offerings and delayed reaction to the slowdown in automobile production, Japan was the last of the three largest producers to begin making dramatic cuts. With three consecutive monthly cuts of over 10%, Japan quickly caught up to the rest of the world in bringing supply back in line with demand. Nevertheless, the gap between Japanese production and U.S. production was still substantially larger than it was at the start of 2008. With another 5% decline in February 2009, production was significantly more aligned with demand.

Outside of the three largest producers, many countries followed the lead of the United States, but there were notable exceptions. Low output in India at the start of 2008 left markets underserved, allowing production there to rise substantially through the middle of the year. Indian producers could not fend off the global economic slowdown, however; production in December fell well below mid-summer 2008 highs.

On the whole, production has dropped far deeper than most had imagined. After producing 120-million-metric tonnes of steel in May 2008, mills globally cut a full 32% and world output dropped to 82 million metric tonnes in December 2008. Despite a January rebound, IHS Global Insight projects low production and continued distress in the steel industry for at least the remainder of 2009.