Global crude steel production expanded at solid pace in October on the back of a surge in output in China – the world's biggest steel maker – according to a World Steel Association ("WSA") report. Higher output across India, the United States and Europe also supported the production growth.

According to the international trade body for the iron and steel industry, crude steel production for 66 reporting nations went up 5.9% year over year for the reported month to 145.3 million tons (Mt). This follows a 5.6% gain last month.

By regions, October production data shows gains across all areas barring Oceania where output declined 3.1%.

China Steel Mills Roar, but Winter Cuts to Tighten Output

Output from China, which accounts for around half of the global production, shot up 6.1% year over year to 72.4 Mt in October as steel mills in the country continued to take advantage of a spike in steel prices that translates to higher profits for the industry. This follows a 5.3% rise to 71.8 Mt in September.

Nevertheless, Chinese steel output is expected to decline moving ahead as Beijing has started implementing a four-month reduction in production to streamline its burgeoning steel sector and control pollution during the winter months (lasting until the middle of March 2018). The Hebei province – China’s top steel producing region –is looking to shutter 50% of its steel capacity during winter in a bid to clean up the environment.

Overall, China is expected to cut its steel production capacity by around 50 million metric tons in 2017. The country’s actions to reduce its excess steel supply during winter are also expected to lend support to global steel prices moving ahead. This is also expected to tighten global steel output in the coming months.

China’s finished steel exports also slumped around 35% year over year to 4.98 million tons in October, per data released by the General Administration of Customs. The country’s steel exports are also down roughly 30% for the first ten months of 2017. Positive rulings in trade cases (resulting in levy of heavy tariffs) against China is contributing to a decline in Chinese steel exports.

How Other Key Producers Fared in October?

Among other major Asian producers, Japan saw a 1% decline in production to 9 Mt in October following a 2% rise a month ago. Production in India went up 5.3% to 8.6 Mt in October. Higher domestic steel prices and increasing local demand are benefiting Indian steel mills. South Korea raked in a 4% gain to 6.2 Mt. Consolidated output were up 5.7% to 99.8 Mt in Asia.

In North America, crude steel production climbed 12% to 7 Mt in the United States. Output in Canada shot up 13.4% to around 1.1 Mt. Overall production for the region was up 9.3% to roughly 9.8 Mt.  

In the Europe Union, production from Germany – the biggest producer in the region – rose 2.7% to 3.6 Mt. Output went up 6.1% in Italy to 2.3 Mt while rising 1.6% to 1.4 Mt in France. Spain saw a 11.9% jump to 1.3 Mt. Total output rose 3.4% in the European Union to 14.7 Mt.

Output in the Middle East surged 18% to 3 Mt with with Iran, the top producer in the region, seeing a 24.2% rise to 2 Mt. Africa logged a 19% gain to 1.2 Mt in the reported month.

Among other notable producers, production from Turkey was up 11.1% to 3.3 Mt. Output from Brazil, the largest producer in South America, increased 3.9% to 3 Mt.

Crude steel capacity utilization ratio for the reporting countries was 73% in October 2017, up from 70% a year ago and down from 73.6% in the previous month.

Demand Outlook Suggests Recovery

The WSA, last month, said that it sees global steel demand to expand 7% in 2017 following a 1% rise in 2016. Steel consumption in China is expected to go up 12.4% this year as closure of most of its outdated induction furnaces are expected to lead to a jump in steel use. Global steel demand barring China is expected to rise 2.6% in 2017.

A cyclical upturn in steel demand this year has been backed by strong economic momentum across advanced and developing economies. The U.S. economy is showing strong fundamentals on the back of improving business confidence and healthy consumer spending. Steel demand in the United States is expected to rise 4.8% this year.

Moreover, Eurozone’s economic recovery continues apace, as evident from recent upbeat economic data. The region’s recovery is backed by declining unemployment and strengthening business and consumer confidence. The WSA sees steel demand in the European Union to go up 2.5% in 2017. This augurs well for companies like ArcelorMittal (MT - Free Report) , which generates almost half of revenues from this region. United States Steel Corporation (X - Free Report) also has a significant presence in Europe.

Demand in emerging and developing economies (barring China) is also expected to rise 2.8% this year. Developing economies are gaining from an upturn in the world economy and economic reforms across several countries including India and Brazil.

Steel Stocks to Watch For

A couple of stocks worth considering in the steel space are POSCO (PKX - Free Report) and Carpenter Technology Corporation (CRS - Free Report) , both sporting a Zacks Rank #1 (Strong Buy).

POSCO has an expected earnings growth of 134.7% for 2017 while Carpenter Technology has an expected earnings growth of 107.8% for the current fiscal year. Shares of POSCO have rallied around 37% year to date while Carpenter Technology has returned 33% over the same period.