Analysis: Steel is telling the same story about economic growth as copper

Out of 60 key countries, 40 reported a decline in crude steel production for May

Although global crude steel production grew by 2.6% in May, the situation is nothing but grim. If one excludes the Chinese steel production, which grew 7.3% at 67 million tonne, the production is down by about 1%.

In fact, out of 60 key countries, 40 reported a decline in crude steel production for the month of May 2013. Importantly, big economies like European Union and the US reported a decline of 4.7% and 5%, respectively in their crude steel production. This trend in steel production is in line with the bearish outlook that many experts believe copper is signalling. Earlier in May 2013, market experts including the renowned global strategist Albert Edwards of Societe Generale said that copper is indicating that rally in the equity markets is over.

Copper is popular and got its doctorate for rightly predicting the health of economy because of its wider application in key industries including household goods, power, construction and many more. Lower copper prices mean lower demand from the user industries and that provides an early indication of falling economic activity. LME copper prices recently fell to its three-year low of $6,670 per tonne on Monday (June 24). Compared with the $8,700 per tonne price seen in January this year, the LME copper price is down 23%.

Steel to that extent is not as reliable an indicator as copper while gauging economic activities. Steel is largely consumed in construction and heavy industries. But, weakness in steel production in some of the key developing markets and the spread of weakness is a cause for worry and also speaks about the health of world economy. For instance, its not just the US and European regions, the trend in consolidated steel production figures of remaining European countries, erstwhile CIS and North American countries are equally worrisome. Notably, these regions put together account for almost 30% of world crude steel production and about 55% of world crude steel production excluding China.

Considering this wide spread decline in crude steel production and the decline in capacity utilisation (it has slipped to 79.6% compared to 80% in April 2013), it clearly points to weakening health of global economy. Steel prices, too, reflect the picture. Since January this year, the LME steel prices have fallen from around $300 a tonne to currently at $132.5 a tonne. Although China’s slowing growth is impacting overall production and prices, the trend is quite clear.

no	Date	Copper ($ per tonne) (LHS)	Steel ($ per tonne)
117	02/01/2013	8183.5	285
116	03/01/2013	8136.5	282
115	04/01/2013	8055	282
114	07/01/2013	8037.5	277
113	08/01/2013	8045.25	292
112	09/01/2013	8046	293
111	10/01/2013	8084.25	304
110	11/01/2013	8017	295
109	14/01/2013	7968	294
108	15/01/2013	7963.25	294
107	16/01/2013	7916	293.5
106	17/01/2013	8026.25	295
105	18/01/2013	8035.75	295
104	21/01/2013	8027	294.75
103	22/01/2013	8102.5	295.25
102	23/01/2013	8073	305.5
101	24/01/2013	8064.5	306.5
100	25/01/2013	7997.75	296.75
99	28/01/2013	8015.75	281.25
98	29/01/2013	8068.5	276.75
97	30/01/2013	8190.75	277
96	31/01/2013	8128.25	291.75
95	01/02/2013	8254.5	283
94	04/02/2013	8267.25	288.25
93	05/02/2013	8232.25	278.25
92	06/02/2013	8207.75	278.75
91	07/02/2013	8164.5	289.75
90	08/02/2013	8259.5	280
89	11/02/2013	8165	280.25
88	12/02/2013	8199.25	280
87	13/02/2013	8190.25	275.5
86	14/02/2013	8205.25	281.75
85	15/02/2013	8172	281.75
84	18/02/2013	8085.25	282
83	19/02/2013	8015.75	282
82	20/02/2013	7925.5	282.5
81	21/02/2013	7832.25	283.5
80	22/02/2013	7773.25	283.75
79	25/02/2013	7811.5	284
78	26/02/2013	7832.5	284.25
77	27/02/2013	7841	264.5
76	28/02/2013	7784	240.5
75	01/03/2013	7673	240.25
74	04/03/2013	7695	240
73	05/03/2013	7740.75	240
72	06/03/2013	7658	240
71	07/03/2013	7734	241
70	08/03/2013	7710.5	241.5
69	11/03/2013	7725.25	241
68	12/03/2013	7797.75	241
67	13/03/2013	7758	242
66	14/03/2013	7775.25	243
65	15/03/2013	7724.5	244
64	18/03/2013	7542	223
63	19/03/2013	7493.75	243
62	20/03/2013	7584.5	223
61	21/03/2013	7548.25	206.5
60	22/03/2013	7621.75	204.25
59	25/03/2013	7586	199
58	26/03/2013	7592.75	199
57	27/03/2013	7576.75	162.5
56	28/03/2013	7509.75	192.5
55	02/04/2013	7435.5	195
54	03/04/2013	7357.5	195
53	04/04/2013	7411.75	195.5
52	05/04/2013	7377	195.75
51	08/04/2013	7420	160
50	09/04/2013	7601.5	172.5
49	10/04/2013	7545	165.25
48	11/04/2013	7579	176.25
47	12/04/2013	7374.9	181.5
46	15/04/2013	7168.25	161.5
45	16/04/2013	7266.5	151.75
44	17/04/2013	7047.5	172
43	18/04/2013	7061	157.5
42	19/04/2013	6961	152.5
41	22/04/2013	6906.5	152.25
40	23/04/2013	6842	152.25
39	24/04/2013	7000.75	152.25
38	25/04/2013	7149	143
37	26/04/2013	6998	143
36	29/04/2013	7120.5	132.75
35	30/04/2013	7021.25	132.75
34	01/05/2013	6761.75	108
33	02/05/2013	6818	136.5
32	03/05/2013	7243.75	144.25
31	07/05/2013	7238.75	144
30	08/05/2013	7394.25	144
29	09/05/2013	7331	145
28	10/05/2013	7355.5	150.25
27	13/05/2013	7388.5	150
26	14/05/2013	7216	150.5
25	15/05/2013	7169.5	150
24	16/05/2013	7250.75	150.75
23	17/05/2013	7274.5	151
22	20/05/2013	7367.25	141
21	21/05/2013	7338.5	166.25
20	22/05/2013	7444.5	151.5
19	23/05/2013	7270.5	144.75
18	24/05/2013	7269.75	147.5
17	28/05/2013	7290.75	147
16	29/05/2013	7232	140.25
15	30/05/2013	7286.75	141
14	31/05/2013	7280.75	161.25
13	03/06/2013	7309.25	140.5
12	04/06/2013	7423.25	141
11	05/06/2013	7422.25	141.25
10	06/06/2013	7301.25	141.75
9	07/06/2013	7198	142
8	10/06/2013	7128.75	136.5
7	11/06/2013	7030.5	136.5
6	12/06/2013	7087	136.5
5	13/06/2013	7018.5	137
4	14/06/2013	7056.25	132
3	17/06/2013	7047.75	132
2	18/06/2013	6969.75	137
1	19/06/2013	6925.75	132.5

Source: Bloomberg data