Global crude steel production increased 1.3% year-on-year when aggregating the months of January and February with a sharp contrast between a 9.9% increase in China and an 8.1% decline in the rest of the world, a divergence likely to continue in the coming months.

World crude steel production posted a 1.3% year-to-date increase to 297.8Mt. Combining the first two months of the year, which is customary to do to take into account Chinese New Year, China’s steel production rose 9.9% while the world ex-China’s output dropped by 8.1%. The largest declines were in the CIS (-20.7%), the EU (-14.3%), Japan (-6.1%) and the US (-5.6%) as production were either directly (in the CIS) or indirectly impacted by the Ukrainian conflict and by a weakening macroeconomic environment. Steel output declined slightly in Latin America (-2.1%), was flat in India and rose in the Middle East, all these regions being more insulated from the global economic turmoil.

Project Blue believes that China will post a steel production rebound in the course of 2023 in line with a post-COVID economic recovery and an improved property market. Moreover, a low H2 2022 base will contribute to higher growth in the second part of the year. Potential production curtailments due to environmental regulations remain a possibility, but Project Blue believes that the Chinese government will prioritise growth in 2023 and take a laxer stance on the environment. Project Blue also forecasts a 5.5% GDP growth in 2023 vs 3% in 2022, an accommodative monetary policy and a gradual recovery of the property market, all these factors pointing towards a higher steel output, although weak exports will act as an offset. In the rest of the world, a low comparative basis and some improvement in the global economic environment - more likely in H2 this year - could also translate into a higher 2023 steel production, although subject to geopolitical and macro developments.  

Global pig iron production rose 1.9% year-on-year in the first two months of 2023, driven by a strong 7.3% increase in China. This is evidenced by a high blast furnace utilisation rate of 88.3%, the highest since October 2022, as Chinese mills increased production in anticipation of the construction season traditionally starting in March. In the rest of the world, pig iron production dropped 8%, in line with crude steel.  

Iron ore prices have been relatively stable, averaging US$130/t over the past few weeks. Port stocks have been declining to 130Mt from 140Mt earlier in the year with off-takes from steel mills rising in line with pig iron production. Meanwhile, supply from the large miners will only increase moderately in 2023, with a skew towards the second part of the year. As a result, iron ore prices should be well supported for the coming months.