Worldsteel forecasts tiny rise in 2015 steel use as China peak steel emerges

The World Steel Assn (Worldsteel) is forecasting marginal growth in global apparent steel use this year along with a small uptick in 2016 as China’s steel demand reaches its peak.

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Steel use globally inched up 0.6% to 1,537.3 million tonnes in 2014 and is expected to increase by 0.5% to 1,544.4 million tonnes this year and by another 1.4% to 1,565.5 million tonnes in 2016, Worldsteel said in its short-range outlook released on Monday April 20.

In its previous outlook, published in October 2014, Worldsteel projected apparent steel use for 2014 at 1.562 million tonnes, up 2%, with another 2% increase to 1.594 million tonnes expected this year.

“We are seeing in China the start of a very long and flat peak, stretching over the next three-to-five years,” Worldsteel director general Edwin Basson said at a meeting in London.

Apparent steel use in China contracted by 3.3% in 2014 to 710.8 million tonnes and is expected to contract by 0.5% this year to 707.2 million and by another 0.5% to 703.7 million tonnes in 2016.

“In China and Brazil, we have developing economies with mature steel markets and, as a result, we will see similar events to Europe and the USA in the late 1990s and early 2000s, of low growth in demand for steel. [There will then] be a strong focus on increasing efficiency – with a negative impact on employment and a positive impact on resource use – and intensifying contact with the customer base,” Basson said.

Steel demand in India is expected to grow by 6.2% to 80 million tonnes in 2015 and by another 7.3% next year to 85.8 million tonnes. In 2014, demand reached 75.3 million tonnes, up 2.2% on 2013.

Optimism for India
“In India, a huge amount of cheerleading is happening at the moment about expectations for the economy,” Basson said.

“If I look at the new political initiatives in India, there is a strong focus on growth and that presumes a strong requirement for steel use.”

But he highlighted two key bottlenecks for India’s ambitious growth targets for its steel industry -– the country’s political system and infrastructure constraints.

“India suffers from too much democracy. You have development spurts, [when] suddenly there are new projects, and then they disappear,” Basson said. As for infrastructure, the current road system would not be able to handle a threefold increase in steel and raw materials shipments.

In Japan, steel demand is expected to decline this year by 2.4% to 65.9 million tonnes and to tick up by 1.1% to 66.6 million tonnes the year after. Last year, steel demand increased by 3.5% to 67.5 million tonnes.

USA, Mexico – growth champions

The USA and Mexico were the only Top 10 steel using countries to register double-digit growth in 2014. Apparent steel use rose by 11.7% in both countries to 106.9 million tonnes and 22.5 million tonnes, respectively.

Apparent steel use in the USA is expected to fall by 0.4% to 106.5 million tonnes this year and rebound by 0.7% in 2016 to 107.2 million tonnes.

However, the forecast was put together before the latest strengthening in the US dollar. “A strong dollar could put next year’s growth under pressure,” Basson said.

Meanwhile, in Mexico, demand is expected to increase by 2.6% this year to 23.1 million tonnes and by another 3.9% next year to 24 million tonnes.

Latin America under pressure
Apparent steel use in Central and South America is forecast to drop by 3.4% this year to 46.5 million tonnes and rebound in 2016 to 2014 levels of 48.1 million tonnes (which was down 3.9% on 2013).

Steel use in Brazil declined by 6.8% to 24.6 million tonnes, and this downward trend is forecast to continue with a further decline of 7.8% this year to 22.7 million tonnes before a slight recovery by 3.1% to 23.4 million tonnes in 2016.

“Nothing is driving steel in Brazil unless the economy is doing well,” Basson said.

Europe benefits
Worldsteel forecasts a 2.1% increase in apparent steel use in the European Union to 149.9 million tonnes and a further rise of 2.8% in 2016 to 154.1 million tonnes.

This follows a rise of 4.5% to 146.8 million in 2014.

Future growth in Europe is, in part, driven by exchange rate adjustments, but also by the slowdown in China. For instance, European producers of heavy machinery are stepping in to supply markets in Southeast Asia and Africa, Basson said.

“However, I do not see any new capacity developments,” he added.

CIS population decline

Steel consumption in the CIS is expected to drop by 7.3% to 52.4 million tonnes and by a further 0.3% to 52.2 million tonnes in 2016. This comes on the back of a 4.9% fall year-on-year in 2014 to 56.5 million tonnes.

This downward trend is primarily driven by population decline in the region, according to Basson.

“Russia and Ukraine have [falling populations] and this begins to weigh on steel use,” he said.

Iron ore surplus
Following the dramatic decline in iron ores spot prices, Worldsteel expects consolidation in the iron ore industry to increase.

“The big three [miners] have 65% of global seaborne trade. This could go up to 71-72% in the next few years,” Basson said.

This increase follow on from around 100 million tonnes of iron ore production being closed down in China and partially replaced by imports.

The benefit for steelmakers is expected to be limited.

“We do not see a rapid increase in iron ore costs in our system,” Basson said. “However, we have a rapid arbitrage effect in our industry and finished product prices are arbitraged quickly, so there is no benefit for steelmakers.”