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.
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.
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.
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.
Thank you for reading.
Did you find value in this article? Share it with a friend or colleague.
This report is provided by SpaceKnow, Inc. (“SpaceKnow”) pursuant to the following terms and conditions:
Industry data and reports published by SpaceKnow (“SpaceKnow Reports”) and made available to paid subscribers and/or other recipients (collectively “Recipients”) are creative works of the mind achieved through algorithmic analysis of publicly available data and the information therein is proprietary to SpaceKnow and protected by copyright. Any copying, distribution or reproduction without the prior permission of SpaceKnow is strictly prohibited.
SpaceKnow Reports are confidential and nothing therein may be disclosed, reproduced, transmitted, distributed, sold, licensed, or altered, in whole or in part, without SpaceKnow’s prior written consent. SpaceKnow reserves the right to release to the public at any time the data and reports provided to Recipients. No rights in SpaceKnow Reports or any of the information contained therein are transferred to Recipients. Any misappropriation or misuse of the information in SpaceKnow Reports will cause serious damage to SpaceKnow and money damages may not constitute sufficient compensation to SpaceKnow; consequently, Recipients agree that in the event of any misappropriation or misuse, SpaceKnow shall have the right to obtain injunctive relief in addition to any other legal or financial remedies to which SpaceKnow may be entitled.
SpaceKnow Reports are based only upon its algorithmic analysis of publicly available data and do not use or rely upon any material non-public information (“MNPI”). The insights included in SpaceKnow Reports do not constitute MNPI or inside information and SpaceKnow is not an insider. SpaceKnow Reports (1) may contain opinions based on third party sources that are not independently verified for accuracy or completeness, (2) may contain forward- looking statements, which are identified by words such as “expects,” “anticipates,” “believes,” or “estimates,” and similar expressions, and (3) are current as of the date of publication but may contain information or statements that are subject to change without notice. SpaceKnow has no obligation to, and will not, update any information contained in SpaceKnow Reports. Actual outcomes could differ materially from those anticipated in SpaceKnow Reports. As a result, the use of SpaceKnow Reports is at Recipients’ own risk.
SpaceKnow and its owners, affiliates and representatives are not (1) investment advisers, commodity trading advisers, broker-dealers, financial analysts, financial planners, or banks, (2) compensated for providing investment advice, (3) registered or licensed with any regulatory body in any jurisdiction as investment advisers, commodity trading advisers, financial planners, broker-dealers, or in any other capacity (including, without limitation, the U.S. Securities & Exchange Commission (the “SEC”), the U.S. Commodity Futures Trading Commission (the “CFTC”), the U.S. Financial Regulatory Authority (“FINRA”), or their equivalents in non- U.S. jurisdictions), and do not recommend the sale or purchase of securities or commodity interests, or (4) licensed or able to provide investment advice or respond to individual requests for recommendations to purchase or sell any securities or commodity interests. No regulatory body in any jurisdiction (including the SEC, CFTC, FINRA, or a regulatory body of any state or any non-U.S. jurisdiction) has endorsed SpaceKnow or the contents of SpaceKnow Reports or the accuracy, adequacy, safety, reliability, usefulness, quality or legitimacy of any information provided to subscribers in SpaceKnowReports. SpaceKnow Reports are not intended to constitute investment advice. SpaceKnow is not an investment adviser within the meaning of Section 202(a)(11) of the U.S. Investment Advisers Act of 1940, as amended, and is not a commodity trading adviser within the meaning of Section 1(a)(12) of the U.S. Commodity Exchange Act. SpaceKnow does not provide investment advisory, portfolio management or financial planning services. The analyses, forecasts, metrics, samples, estimated figures, trends, figures, tables, graphs, projections and other forms of data that may be contained in SpaceKnow Reports do not represent or contain any recommendations to buy or sell any security or any financial products and should not be relied upon as the basis for any transactions in securities.
SpaceKnow Reports are for informational, promotional, educational or evaluation purposes only. Any information contained in SpaceKnow Reports constitutes the opinion or forward-looking statement of individuals and is provided without any representation or warranty of any kind. Neither SpaceKnow nor its directors, officers, employees, agents or representatives shall have any responsibility to you or any third party for the accuracy or completeness of any information provided in any SpaceKnow Report.
Should you have any questions, please contact us at SKNowcastingSolutions@spaceknow.com.