Sign of downturn: Steel output drops

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NEW YORK (CNNMoney.com) -- Worldwide crude steel output dropped 1.2% in 2008, as global demand for manufactured goods fell in the second half of the year, according to an industry report released Thursday.

The World Steel Association said production of crude steel fell 24.3% in December, compared to December 2007, marking the fourth straight month of year-over-year declines.

The declines have accelerated rapidly in the past few months as demand for steel has fallen. After a growing by a steady 5% clip in the first eight months of the year, September's production fell 3.6% year-over, year, October's production fell 13.5%, and November's fell 20.1%.

The deepening global economic recession has sent durable goods orders and industrial production plummeting. According to a recent Federal Reserve report, U.S. industrial production fell 2% in December and 7.8% in 2008.

"Steel producers around the world have been cutting output since the middle of last year, several of them by 30-35%, and some by as much as 50%," said Henry Cooke, global editor of Steel Business Briefing.

In addition to slowing demand due to fewer construction and manufacturing projects, Cooke said a shortage of credit to finance purchases of steel also contributed to the decline.

Despite slower global demand, some areas of the world did see a growth in steel output. China's production rose 2.6%, while South Korea and India grew 3.7% and 3.8% respectively.

In fact, China became the first country in history to produce more than 500 million tons of crude steel in a year.

By contrast, steel production in the United States fell 6.8% in 2008. Germany and Russia's production both fell by more than 5%, and Ukraine took the biggest output hit, falling 13.4%.

Accordingly, China's share of world crude steel production rose last year to 37.9% from 36.4% in 2007. India's share rose to 4.1% from 3.9%, and South Korea's went up to 4% from 3.8%.

Nearly every other country saw its share of total steel production decline. The United States saw a huge drop from a 7.9% market share of global output to 7.2%.

With America's market share tumbling, the United Steelworkers Union and U.S. steel advocacy groups expressed disappointment that the House Democrats' economic stimulus package did not include "buy American" provisions. Such mandates would have required contractors to purchase steel and other building materials from American producers and manufacturers.

"If you are going to spend money on infrastructure development, unless you buy materials that are made in America, it's not going to have the desired impact, which is putting Americans back to work," said Scott Paul, the executive director for the Alliance for American Manufacturing, a steelworkers and manufacturers advocacy group.