Global crude steel production rose 1.7% y-o-y in March and posted a marginal 0.1% decline in Q1 2023, showing a sharp contrast between a recovering production in China and a continuous decline in the ROW.

World crude steel production rose 1.7% y-o-y in March 2023 to 165.1Mt, with China posting 6.9% output growth and the ROW a 4.6% decline. The view is similar with Q1 numbers with China’s output increasing 6.1% and the ROW dropping 7.2% with a global 0.1% production decline at 462.2Mt.

The largest drops in Q1 were in the CIS (-11.8%), the EU (-10.1%), Japan (-6%), Latin America (-4.5%) and North America (-4.1%), all impacted by the Ukrainian conflict and weak macroeconomics. India (+3%) and Saudi Arabia (+4.5%) are among the handful of countries where steel output increased in Q1.

The March outlook has been mixed with lower declines in the EU (-5.6%) and North America (-2.6%) and output growth in South Korea (+1.9%) and India (+2.7%). Turkey’s March production dropped -18.6% due to the impact of the recent earthquake. March production declined by -7.6% in Latin America driven by Chile and Brazil.

The outlook for 2023 remains uncertain with most developed economies on the edge of recession and with the looming threat of persistent inflation and higher interest rates. Meanwhile, the Middle East and India benefit from their relatively insulated economies. Project Blue still forecasts higher steel production in the world-ex-China in 2023 compared to 2022, as the second part of the year should benefit from a low-base comparison, although with downside risks, depending on the macro environment.

China will be the main contributor to any steel production increase in 2023, as its economy is forecast to grow by 5-6% vs 3% in 2022. After the relaxation of the COVID restrictions last November, steel mills restarted their operations, in anticipation of stronger demand and ahead of the construction season. Blast furnace (BFs) utilisation rates rose to 91.8% in April from 82.4% in December, and pig iron production increased by 7.3% in Q1.

However, despite strong economic data, the property market has yet to recover, and production rose faster than demand in Q1. As a result, steel prices dropped, gradually erasing the gains they made since November. Rebar prices are now 16.5% below their March highs, leaving mills with negative margins. Chinese mills are traditionally reluctant to cut production, even when profitability is low, to preserve their market share. However, production cuts are likely to take place over the coming weeks as the construction season is close to its end.

Although we expect the Chinese property market to stabilise and to gradually recover in H2, we forecast a small 1.7% steel output increase to 1,030Mt. Our medium-term views remain unchanged, and we believe that China’s steel production will plateau over the coming years before declining towards the end of the decade with a 2030 production forecast at 965Mt.