According to data released by the World Steel Association, global steel output reached its highest level in July on the back of moderate rise in demand and resumption of idled facilities by producers. Total output of 103.9 million tons was an improvement of 4% from 99.8 million tons produced in the last month, but down 11.1% year over year.

All major steel producing countries like China, Japan, Germany, the U.S., Brazil, Turkey, Russia and Ukraine showed peak monthly figures so far this year. Production in the Middle East, where demand was buoyant last year due to booming infrastructure spending, edged up by 2.5% in July. Monthly steel output in China, the world’s biggest producer and consumer of steel, climbed 12.6% to 50.7 million tons. Steel production in India also increased, but only by a modest 4.3% to 4.7 million tons during the month.

However, global steel production was down 19.9% to 652.9 million tons for the first 7 months of 2009 compared with the same period a year ago. North America posted a 41.6% fall in year-to-date steel production while Europe saw a drop of 42.1% during the same period. Steel output in Asia was down 6.1%, with Japan posting a production decline of 38.5%.

Key steel consuming industries like auto, shipbuilding and construction experienced weak demand in the last quarter, forcing global steel makers to cut production levels. U.S. Steel Corp. (X) had slashed production by almost 62% during the second quarter, while Korean steel maker POSCO (PKX) cut production by about 15% during the period. The operating environment deteriorated so sharply that POSCO was forced to lower production for the first time in its history in December last year.

Given our expectations for weak steel demand through the rest of 2009, we believe that global steel production will continue to be lower compared to last year. On the other hand, given the declining inventory levels, we believe the rate of deterioration in steel production will moderate in the coming months.

Zacks Investment Research
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