Global steel production, an important indicator for the Australian economy and resources sector in particular, continues to grow with an 8% rise in June from June 2010.

Production for June was 127.7 million tonnes, down two million tonnes from the 129.7 million tonnes produced in May.

And for the six months to June, world crude steel production in the first six months of 2011 was 757.8 million tonnes, up 7.6% higher in comparison with the same period of 2010.

The World Steel Association (WorldSteel), which tracks the figures, said all major steel-producing regions showed increased production.

Output appears to be running a bit ahead of forecasts earlier this year.

That's good news for the likes of BHP Billiton and Rio Tinto, which both reported solid increases in iron ore production and sales in the June quarter this week, after the weak weather-induced first quarter performance.

It means that world iron ore prices (Australia's most valuable export) are not going to fall sharply, as quite a few forecasts suggested earlier this year.

In fact they could remain at or above $US150 a tonne for several more years.

And the continuing expansion in steel demand, allied with the impact of the floods in Queensland's coal fields, also helps explain the surge in global coal prices, which are remaining well above 2010 levels, despite more tonnes being exported from Queensland each week as production rebounds.

In April, the World Steel Association forecast that world steel demand (a proxy for production) would rise 5.9% to 1,359 million tonnes (mmt) this year, after rising 13.2% growth in 2010.

In 2012, it forecast that world steel demand would grow further by 6.0% to reach a new record of 1,441 mmt.

China is the dominant force in global steel and its production for the six months to June was 350.54 million tonnes, up 9.6% on the first half of 2010 (and an all time high).

That's stronger than some forecasts earlier this year predicted and comes amid a slowing in the economy and in manufacturing, according to surveys such as those from HSBC/Markit (See accompanying story)

In April the Steel Association forecast that China's apparent steel use in 2011 would rise by around 5.0% to 605 mmt this year, following 5.1% growth in 2010.

But it added: "Given the pace of steel production in the first quarter of 2011, Chinese apparent steel use could be even higher.

"However, it is expected that the Chinese government's efforts to cool down the overheating economy, particularly the real estate sector, will impact Chinese steel demand somewhat later this year.

"In 2012, Chinese steel demand is expected to maintain 5.0% growth, which will bring China's apparent steel use to 635 mmt."

So far there's no sign of steel production slowing and based on the six month figure and without any significant slowing in the economy, production will top the 700 million tonne mark for the first time ever by the end of December.

China's crude steel, production for June 2011 was 59.9 mmt, an increase of 11.9% compared to June 2010. It was down slightly from 60.2 million tonnes in May (which was a monthly high).

Asia, the European Union, North America, South America, the Commonwealth of Independent States and the Middle East all reported higher crude steel production in June.

Only Africa and Oceania show on-year declines in June, according to Worldsteel, a group whose members produce about 85% of the world's steel.

Australian production sank to 498,000 tonnes in June, down from the 658,000 tonnes in March and 563,000 in May.

The June figure was a huge 190,000 tonnes or 28% under the 688,000 tonnes produced in June of last year.

And Australian production for the first six months of this year was 2.927 million tonnes, more than a million tonnes or 26.1% under the 3.972 million tonnes produced in the first half of last year.

This goes a long way to explaining why the shares of BlueScope and OneSteel have underperformed this year.

Elsewhere in Asia, Japan produced 8.9 mmt of crude steel in June 2011, down 5% compared to the same month last year.

It was just under the 9 million tonnes produced in May, but above the 8.4 million produced in April when the industry was struggling with the impact of the March 11 disasters.

First half production in Japan was around 54 million tonnes, up slightly from 53 million a year ago.

India produced 5.98 mmt for June 2011, an increase of 7.3% over June 2010, and steady at May's level.

South Korea's crude steel production for June 2011 was 5.66mmt, 19% up compared to June 2010, but down from the 5.8 million tonne a month level of March through May.

European production was up on a year in June, but a touch softer than in May.

Total EU production was 15.7 million tonnes in June, down on the 16.35 million in May. It was around 600,000 tonnes more than the 15.1 million tonnes produced in the first six months of 2010.

For the six months to June 30, EU production was around 92 million tonnes, up from the 90.6 million in the same period of 2010.

In the EU, Germany's crude steel production for June 2011 was 3.9 mmt, an increase of 0.2% on June 2010.

Italy produced 2.6 mmt, 15.2% higher than the same month in 2010. Spain's crude steel production for June 2011 was 1.5 mmt, up 4.5% on June 2010. France produced 1.4 mmt of crude steel in June 2011, a decrease of -6.1% compared to June 2010.

Turkey produced 2.8 mmt of crude steel in June 2011, 12.3% higher than June 2010.

The US produced 7.2 mmt of crude steel in June 2011, an increase of 1.7% compared to June 2010, and up slightly from the 7.1 million tonnes produced in May .

US output for the first six months of 2011 was 42 million tonnes, just above the 41 million tonnes for the same period of 2010.

Brazilian crude steel production was 3.0 mmt, 3.9% higher than June 2010, but down on the 3.2 million tonnes in May.

The World Steel Association said global steel capacity utilisation ratio of the 64 reporting countries in June 2011 was 82.8%, 1.2 percentage points higher than in May 2011.

Compared to June 2010, the utilisation ratio in June 2011 increased by 2.5 percentage points.

That's another solid sign that the demand for steel remains solid, especially in China.

No wonder analysts here and offshore are talking about iron ore prices remaining above $US150 a tonne for this year and longer.

Copyright Australasian Investment Review.
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