Steel Industry from Space (SNN#27)

June 21, 2023


The steel industry is experiencing fluctuations influenced by global economic conditions, supply disruptions, and evolving demand patterns. Spaceknow indices play a crucial role in detecting significant shifts in the steel industry’s performance before official announcements are made.

In more detail:

Steel is a key part of the modern economy used in construction, manufacturing, transportation, and infrastructure development. Despite emerging alternatives, steel remains essential due to its strength, recyclability, and cost-effectiveness, playing a vital role in shaping our modern world. Recent developments in the steel industry indicate a complex and dynamic market. Despite expectations of a comeback and higher steel prices, the Chinese steel market has experienced a decline in demand. The global ramifications of weakened demand have been felt, even impacting countries like India. Reports suggest that Chinese steel mills are resorting to dumping steel in other markets due to a lack of domestic customers. This scenario has played a part in the global decline of steel prices.

The global steel market is facing several challenges, according to the Steel Committee of the OECD. One of the major concerns is the increase in global steel excess capacity, which is contributing to a stagnation in world steel trade. The committee predicts that global steel output growth for 2023 will be limited to 1 percent or less. The Russian invasion of Ukraine is compounding the poor market conditions, along with increased cost pressures on steel producers and excess steelmaking capacity worldwide.

Spaceknow indices facilitate the analysis of steel production in critical industrial economies – China, the US, and Germany with its Global Steel-Iron Insights dataset package. The dataset’s extensive global coverage is a crucial factor in monitoring real-time steel-making activity, offering valuable insights into the company’s operational activities on a global scale. Spaceknow builds separate indices for most aspects of the Steel industry business, including storage facilities of various types and railway hubs adjacent to major steel smelters used for the transport of material and finished products in and out of the factory.

Spacknow Rail index shows an area in square meters covered by wagons in the train depots. Figure 1 shows this index for China compared to the country’s monthly steel production. The index is strongly correlated with China’s steel production with a Pearson correlation coefficient of over 0.7. It gradually loses the link between the seasonal patterns during COVID starting in 2020 and peaking with lockdowns as well as a slowdown in the Chinese economy last year, which caused an oversupply of steel on the Chinese market. 

Figure 1: 30-day rolling-sum of China Rail Steel Index and thousand tonnes of China’s steel production (Spaceknow, Trading Economics)

China, the largest producer of steel, is facing issues in its steel market. Despite a steady rise in output during the first quarter, the country experienced a slow recovery in demand following a surge in COVID-19 cases. Steel prices and margins were under pressure, and market participants expect the recovery of steel demand in China to remain weak and uneven throughout 2023. High inventory levels, poor margins, and low demand are putting pressure on steel mills, particularly those serving the property and related sectors. Although there has been credit expansion and a slight improvement in home sales, the recovery may not be sustainable, and smaller cities are still struggling with housing oversupply and high developer debts.

Figure 2 below depicts the Employee Parking Index for the US, utilizing seasonally adjusted data. The figure demonstrates that Spaceknow indices effectively capture the overall trends in the steel industry, including significant events like the COVID slump. In the US, this slump occurred in 2020 and exhibited a more pronounced V-shape pattern, with a relatively swift recovery to pre-pandemic levels in 2021, compared to China. Regarding May 2023, our rail indices come ahead of the official steel production data release, indicating minimal changes compared to the previous month and suggesting relatively stable steel production. In terms of the US Employee Parking Index, the May data show a decline of approximately 5 percent and 3 percent on a month-on-month and year-on-year basis, respectively, implying a slowdown in production.

Figure 2: 30-day rolling sum of US Steel Employee Parking Index and US steel production in thousands of tons, both seasonally adjusted (Spaceknow, Trading Economics)

The World Bank’s Commodity Markets Outlook predicts a fall in metal prices, including steel, in the coming years. Slower global activity and a services-oriented recovery in China are expected to dampen metal demand. The surge in metal prices earlier in the year was driven by optimism for a robust recovery, particularly in China, but that optimism has faded due to factors such as high debt levels and concerns about credit constraints. Metal prices are forecasted to fall by 8 percent in 2023 and a further 3 percent in 2024, with the largest declines expected in tin and zinc.

However, there are upside risks that could impact the price outlook. A stronger-than-expected recovery in China’s real estate sector could boost prices for metals used in construction. Disruptions at mines and trade restrictions could also tighten supplies and impact prices. Additionally, the long-term demand for certain metals, like lithium, copper, and nickel, may increase significantly due to the energy transition.

Spaceknow continues to develop several products focused on metals and commodities and their use. Our product range includes mining, processing, and storage locations for key commodities like coal, copper, aluminium, and iron ore. For instance, Figure 3 compares SpaceKnow’s Copper Storage Index, monitoring storage facilities near major copper mines, and the combined production of the world’s top three copper producers. The Spaceknow index leads the copper data by approximately three months, which provides valuable insights to predict production changes in advance. 

Figure 3: 30 day rolling-sum of Copper Storage Index and Copper Production for Chile, Peru and Kazakhstan in tons (Spaceknow, Trading Economics)

Additionally, using other SpaceKnow satellite activity indices, our clients can keep aclose eye on crucial industries related to commodities, such as China’s manufacturing industry, the rapidly growing EV sector, and its supply chain, as well as the semiconductor industry in Malaysia.

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