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Looking For Growth: Global Trends In The Steel Market

With the global steel market seeing encouraging recovery last year, we take a look at the outlook for 2018. By Jonathan Chou

The demand for steel globally is projected to reach 1,648.1 Mt in 2018, according to an outlook released by the World Steel Association.

The association’s members represent approximately 85 percent of the world’s steel production, including over 150 steel producers with nine of the 10 largest steel companies, national and regional steel industry associations, and steel research institutes.

Best Balance Of Risks Since 2008

Progress in the global steel market for 2017 was “encouraging”, said T V Narendran, chairman of the association’s economics committee. He added, “We have seen the cyclical upturn broadening and firming throughout the year, leading to better than expected performances for both developed and developing economies, although the Middle East and North Africa (MENA) region and Turkey have been an exception.”

Risks to the global economy, such as rising populism/protectionism, US policy shifts, European Union (EU) election uncertainties and China deceleration, although remaining, have to some extent abated. The association concluded that it now sees the “best balance of risks since the 2008 economic crisis”. Of note were several risk factors, such as escalating geopolitical tension in the Korean peninsula, China’s debt problem and rising protectionism in many locations.

2018 Growth To Moderate

Global growth for 2018 is expected to moderate, mainly due to slower growth in China, while in the rest of the world, steel demand will continue to maintain its current momentum.

Mr Narendran concluded, “World steel demand is recovering well, driven largely by cyclical factors rather than structural. The lack of a strong growth engine to replace China and a long term decline in steel intensity due to technological and environmental factors will continue to weigh on steel demand in the future.”

ASEAN High Growth Region

Developing countries benefit from a strengthening global economy. The ASEAN region remains a high growth region, especially Vietnam and the Philippines, while more mature economies such as Thailand and Malaysia are showing slower growth.

The MENA region’s outlook has suffered from low oil prices, geopolitical strife and high inflation. The region would benefit from reconstruction efforts once the major conflicts are ended. The Gulf Cooperation Council countries continue to struggle with the low oil price environment. Turkish steel demand is expected to resume growth momentum in 2018.

Countries in South America have been slow so far to benefit from the recovery in the global economy. In Brazil, continuing depressed construction activity has held demand recovery back in 2017 but a stronger recovery is expected in 2018.

In conclusion, steel demand in the developing economies excluding China is expected to grow by 4.9 percent in 2018, compared to 2.8 percent in 2017.

Chinese Conundrum

Of special note was that China closed most of its outdated induction furnaces in 2017. Subsequently, the demand from this sector of the market is now satisfied by mainstream steel makers. The association expects that this will lead to a one-off jump in measured steel use in 2017 to 12.4 percent or 765.7 Mt.

Disregarding this statistical base effect, the association expects that the underlying growth rate of China’s steel demand for 2017 will be three percent, which will make the corresponding global growth rate 2.8 percent.

The Chinese economy, which has been gradually decelerating, is increasingly supported by consumption while investment continues to decelerate. However, government stimuli, particularly a moderate boost to the construction programme, contributed to increased gross domestic product growth in 2017.

The outlook for China’s steel demand in 2018 remains subdued, showing no growth over 2017 as the government resumes and strengthens its efforts on economic rebalancing and environmental protection.

Developed Economies To Recover

The US economy continues to exhibit robust fundamentals supported by strong consumer spending and rising business confidence. Concern about tensions within the EU particularly over migration policies is receding and the EU economic recovery is broadening.

In Asia Pacific, Japanese steel demand is showing better than expected performance benefitting from the government stimulus package, improving exports and preparations for the 2020 Olympic Games. South Korea’s steel demand is suffering from high consumer debts, weakening construction and a depressed shipbuilding sector, while escalated tension around the North Korean nuclear weapons threat poses a serious and highly unpredictable risk.

With these generally favourable developments, steel demand in the developed economies is expected to increase 0.9 percent in 2018.

Industrial Sectors of Note

The construction sector in the developed economies, which had been slow to recover from its collapse after the 2008 economic crisis, is now showing more positive signs both in the residential and commercial sectors due to rising incomes and improving investment sentiments.

Infrastructure investment, which has been driving steel demand in developing countries, is likely to get some additional support from the developed world’s infrastructure renewal initiatives.

The global automotive sector is reporting a strong performance in 2017 with an especially strong performance in Turkey and Mexico. However, in the US and China, the auto sector could moderate and this trend is likely to extend to other countries in 2018.

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