***NOTES FROM TOKYO: Mixed picture – latest forecast figures optimistic, outcome unclear
Things are looking up. Or so it seems
Things can only get better
Things are looking up. Or so it seems.
The World Steel Assn’s (worldsteel) annual meeting went off without a hitch in Tokyo last week. Delegates at the event were almost optimistic.
Based on worldsteel’s latest projections, they have good reason to be hopeful.
In its latest short-term outlook, the association has revised its demand expectations upward, reporting that consumption has already started to exceed expectations.
“The rate of growth of our industry is above what we expected thanks to a faster recovery in the developed world and faster-than-expected recovery in India and emerging economies,” said Techint Group ceo Paolo Rocca, who is also vice-chairman of worldsteel, as he opened the conference.
Global apparent steel use is set to increase by 13.1% to 1.27 million tonnes in 2010, after contracting by 6.6% in 2009, according to the latest projections, which represent a 35-million-tonne improvement over the association’s short-range forecast in April.
Moving into 2011, steel demand will grow a further 5.3% to reach a record 1.34 million tonnes, wordsteel’s economics committee said on the sidelines of the event.
“This improved outlook is due to a better-than-expected forecast for the developed economies, particularly the EU, NAFTA, CIS; as well as the continued strong rebound in most economies,” said Ternium ceo Daniel Novegil.
“This suggests a steady and stable steel recovery, and our current forecast does not foresee a double-dip recession as feared by some,” he said.
There is still good reason for steelmakers to remain cautious, however. Worldsteel’s latest figures are not so overwhelmingly positive the industry can completely exorcise concern.
By far and away, China will remain the world’s most important steel-consuming nation for the foreseeable future, accounting for about 45% of world steel use in 2011.
And it will keep rising; worldsteel expects Chinese consumption to grow 6.7% in 2010 to 579 million tonnes in 2010.
But the rate of that growth is slowing – the association’s forecast for this year compares with actual growth in Chinese steel consumption of 24.8% last year.
Beijing’s efforts to cool the real estate market are to blame. And, with an increased focus on capacity concentration, it is likely Chinese crude steel production will fall as well.
There are other reasons to be careful, as well.
“Steel demand in the developed economies will still be well below the pre-crisis level in 2011,” Novegil continued. “The recovery has so far been mainly driven by the inventory cycle and government stimulus packages, whose effects are now fading out.”
“But whether consumer and corporate spending will now pick up and continue the recovery momentum is yet to be seen,” he added. “Recent economic indicators are sending mixed signs, and developments during the remaining part of this year and early next year must be watched carefully.”
It is not just down to basic supply and demand. The weak dollar has played havoc with international trade; just ask Japanese steelmakers. While they have struggled to make competitive offers because of their currency costs, producers in other areas of Asia have forged ahead.
For a steelmaking sector that is, at best, 50% reliant on the export market, that is hard news to hear. And currency fluctuations are not just a problem in Japan.
President of European steel industry lobby Eurofer and ceo of Austrian steelmaker Voestalpine Wolfgang Eder reckon that Europe’s steel industry will be in trouble if the euro rises above $1.45. With demand at home already low, Europe’s mills would find it hard to withstand another serious downturn.
But many of their foundations have been seriously reinforced. The crisis forced producers to reduce their cost base, improve their supply chain management and focus on core areas.
Most mills in developed economies now have a much lower Ebit-breakeven point than before. And some have developed new strategies to help cope, making new moves to access foreign demand through local joint ventures and marketing arrangements.
They should continue to be prudent. But, if the signs worldsteel is seeing in the world market are firm, they will soon be extremely well positioned to reap the benefits.