The steel bears are winning
According to the World Steel Association, global crude steel production declined 3 per cent from a peak of 1,670 million tonnes in 2014 to 1,623 million tonnes in 2015. Every single month in 2015 saw a year on year decline.
In the month of December 2015, world crude steel production for the 66 countries within the Association was 126.7 million tonnes, a 5.7 per cent decline compared with December 2014. Unless something changes, this negative momentum implies a 100 million tonne decline to around 1,520 million tonnes in 2016.
According to our friends at Macquarie Research, global steel consumption in 2015 fell by 3.5 per cent, year on year, while Southeast Asian apparent steel consumption in the December 2015 Quarter declined by an extraordinary 15 per cent, year on year.
The crude steel capacity utilisation ratio for the 66 countries was 64.6 per cent in December 2015 and this compared with the average capacity utilisation rate of 69.7 per cent in 2015, down from 73.4 per cent in 2014.
For steelmakers to generate an acceptable return, it is understood an industry capacity utilization rate of at least 80 per cent is required. To achieve this, a few hundred million tonnes of capacity needs to be closed. In China’s case, which currently accounts for 50 per cent of global crude steel production, this could take a matter of years to implement; and our long held bearish stance on iron-ore and metallurgical coal remains intact.
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Chief Executive Officer of Montgomery Investment Management, David Buckland has over 30 years of industry experience. David is a deeply knowledgeable and highly experienced financial services executive. Prior to joining Montgomery in 2012, David was CEO and Executive Director of Hunter Hall for 11 years, as well as a Director at JP Morgan in Sydney and London for eight years.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
