NEW YORK – World steel production in July rose to its highest this year, but U.S. steelmakers are still operating at barely half capacity as demand limps back from the global recession, data and analysts said on Thursday.

“People are reopening (idled mills) and it seems the inventory liquidation is mostly over,” said analyst Charles Bradford of Affiliated Research Group.

“But there is no sign of real demand increasing yet,” he said, although steel inventories for the auto industry had dropped to 46 days supply from 120 days earlier this year.

American Iron and Steel Institute figures showed current U.S. plant capacity is at 53.9 percent, below the 90.4 percent of a year ago.

And Michelle Applebaum, of Steel Market Intelligence, noted that non-residential construction activity has not picked up enough for a meaningful boost to the steel industry.

“We continue to remain concerned about construction market fundamentals,” she said, noting a slight rebound in the American Institute of Architects' Architecture Billings Index, a leading economic indicator of steel use.

Non-residential construction activity rebounded 5.4 points in July to 43.1, after falling 5.2 points in June. The index is now 9.8 points higher than the record low of 33.3 in January.

“While July's overall Billings Index increased, it was still well below 50, which is reflective of the continued weakness in the non-residential construction market due to economic uncertainty and a lack of financing,” Applebaum said.

According to the World Steel Association, global crude steel production dropped more than 10 percent year-on-year in July but was at its highest level of 2009.

Production totaled 103.9 million tonnes, down 11.1 percent from July 2008 but up from 99.7 million tonnes in June this year. China accounted for 48 percent of the global production in the month, the figures showed.

U.S. steel production of 5 million tonnes in July was the highest monthly figure this year, but it was 41.6 percent lower than July 2008, the World Steel Association said.

Last month, when U.S. Steel Corp reported a second consecutive quarterly loss, it forecast all three of its business sectors would be in the red in the third quarter.

U.S. Steel, which has been operating at less than half capacity since the economic downturn last year stunted steel demand, said customer orders had increased, but the outlook for overall demand and economic recovery was uncertain.

On Thursday, spokeswoman Erin DiPietro declined to comment on reports that the company is restarting a blast furnace at its Great Lakes facility in Ecorse/River Rouge, Michigan.

“We are continuing to align production ... with customer demands,” she said.

Source: Reuters, August 20, 2009