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In April, the World Steel Association forecast steel demand would grow by 0.4% in 2022 to reach 1,840.2 million tonnes after increasing by 2.7% in 2021. In 2023 steel demand is expected to accelerate further, growing by 2.2% to reach 1,881.4 million tonnes.
Last month, The Biden administration gave a boost to steel mills operating in the US, mandating that American steel be used in infrastructure projects receiving federal funding. More specifically, guidance provided by the White House required 100% US-made iron, steel, and construction materials to be used, as well as at least 55% other manufactured products by cost. Those requirements went into effect on May 14 and Barron’s reports they should provide US steel plants with about 10 million tons of new steel demand from government-led projects – equivalent to roughly 10% of total US demand.
Six months after the signing of President Biden’s $1 trillion infrastructure package, the government said earlier this week that there are 4,300 projects underway with more than $110 billion in funding announced.
Late last month, US Steel Corp. predicted a “best-ever” second quarter on tap, due to growing steel demand from automakers to construction firms. That came after sales for the quarter surged 43% to $5.23 billion, earning the firm a record quarterly profit of $882 million.
Bloomberg notes the company’s upbeat tone echoes Nucor Corp., Cleveland-Cliffs Inc. and Steel Dynamics, which all expressed optimistic sentiments about the market after reporting stronger-than-expected demand.
US Industrial production rose 1.1% MoM in April, bouncing back from a smaller gain of 0.9% in the prior month. Median forecasts in a Bloomberg survey of economists called for an 0.5% gain. On a YoY basis, industrial production increased 6.4%. Capacity utilization at factories increased to a 15-year high of 79.2%, the Fed’s report showed.
The US isn’t the only country leaning on an infrastructure drive to re-accelerate economic growth.
As MRP wrote earlier this month, Chinese President Xi Jinping has called for an “all-out” effort to boost infrastructure last week. While no specific spending increases were mentioned, CNN notes infrastructure investment has already risen by 8.5% in the first quarter of 2022 YoY. Prior to the proclamation, local governments had already drawn up lists of thousands of “major projects” by early April to be initiated this year. Bloomberg reports planned investment for 2022 amounts to at least ¥14.8 trillion ($2.3 trillion). A re-acceleration of Chinese industrial activity could help prices of base metals rebound after a broad weakening of futures across the past few months.
China’s crude steel output picked up in April, rising 5.1%, as the world’s biggest steel producer made 92.78 million tonnes of the metal last month, data from the National Bureau of Statistics (NBS) showed on Monday. However, that output remained down 5.2% from the same month last year. In the first four months, China made 336.15 million tonnes of the metal, down 10.3% YoY.
Unfortunately, as we wait on the initiation of China’s infrastructure projects, that supply has met relatively underwhelming demand thus far. China’s factory activity contracted at its fastest in 26 months last month, as the official Purchasing Managers’ Index (PMI) for manufacturing fell to 47.4 in April from 49.5 in March. April marked a second straight month of contraction as the index fell below the base level of 50.
Satellite images from Four Squares Technology, cited by Bloomberg, show the area of new construction in China’s three main economic belts around the cities of Shenzhen, Shanghai and Beijing fell 57% YoY in March, according to Four Squares. In the belt around Shanghai, the area of new construction fell 83% in the period.
Any sign of faltering demand from China, the world’s largest consumer of commodities, is going to reverberate throughout base metals and processed metallurgical products. Prices for those goods have slumped broadly, punishing mining and steelmaker stocks throughout the past couple of months. Since the start of April, the Materials Select Sector SPDR Fund (XLB) and VanEck Steel ETF (SLX) are down -8% and -18% after a strong start to the year for each.
However, as broad infrastructure spending in the US and China begins to take effect as the year rolls on, and Chinese COVID lockdown measures begin to ease, that should present a boon for steelmakers.
Like the US, Western Europe will likely be relying more heavily on local steel producers due to falling output from Ukraine – typically the world’s 13th largest producer of steel products and the 5th largest exporter to the European Union (EU). Though the EU has proposed suspending tariffs on all Ukrainian goods (including steel) for one year, the Russian invasion has crippled the country’s industrial capacity. Russia has been an even larger supplier but it is becoming increasingly difficult to maintain that relationship with European nations. |
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