South Africa: no cause for celebration in higher steel production

South Africa: no cause for celebration in higher steel production. THE World Steel Association's global production data for last month shows worldwide growth of 29,1%, compared to May last year. Last month 124,8-million tons of steel were produced, compared to just more than 96-million tons last May. But global steel output is not out of the woods by any means. "The steel industry worldwide is truly suffering. We have already seen major steel producers closing down their blast furnaces," says Hennie de Clercq, executive director of the South African Institute of Steel Construction. He says that it is no small deal to shut down a blast furnace, considering that it takes months to restart it . "This is symbolic of what is happening in the short term." SA produced 715000 tons of steel last month , an increase of 23,2% from the same month last year. This may look more impressive than it is , considering that it comes off a low base last May because of the economic crisis. In addition, steel producers face many challenges such as a strong rand and lagging exports. But Nedcor Securities analyst Mohammed Kharva says an increase in steel production suggests the steel market is expanding and could sustain growth. "Furthermore, SA did not receive stimulus packages as some of its overseas counterparts." George Glynos, economist at Econometrix Treasury Management, says that the increase in production is likely to be related to the government's significant infrastructure spend and demand from steel-consuming countries such as China and India. "China and India would import SA's steel, because these countries have significant beneficiation plants," says Mr Glynos. On the other hand , ArcelorMittal announced on Tuesday that it is reducing its prices for flat steel products to between R190 a ton and R715 a ton, and its long steel products to between R300 a ton and R715 a ton. Mr de Clerq says the price decrease is an indication of the difficult trading conditions. "I also worry that our steel producers will experience a very sharp decrease in output in June, owing to the World Cup and subsequent low productivity," Mr de Clerq says. "So, instead of us experiencing a dip in December, as is normal, this could occur now." Mr Glynos and Mr de Clercq are both worried about steel production in light of the suffering construction sector, as about 50% of local steel production is used in SA's general construction industry. However, all is not lost. "The steel sector is looking for opportunities in the mining sector as well as in shopping centre construction," says Mr de Clercq. He says South African steel producers should focus their efforts on exporting to countries with high demand -- India and China, as well as other emerging markets. Significantly, developed countries are in even less of a position to import South African steel products in the aftermath of the recession. For positive long-term prospects, Mr Glynos says that production and perhaps local demand will increase if SA focuses on beneficiation, which "adds value". Relevant Links * Southern Africa * South Africa * Business "Of course, we need to be competitive, which entails becoming more efficient, with economies of scale and a more flexible labour force," he says. Beyond SA, China still dominates the steel market, producing 56-million tons of steel, which is 10- million tons more than the country produced in May last year. In terms of steel production for Africa, the World Steel Association shows an increase of 21,8% for last month , compared with the same month last year. However, Libya reported an 11% drop in production. Overall, the first five months of this year, in terms of global steel production, show a 29,8% jump in crude steel production to just more than 586-million tons of steel from 451-million tons of steel in the comparative period last year.