Despite an upturn in developed economies, the world market for steel has flattened out amid a slowdown in Chinese demand for new housing construction.
In its latest Short Range Outlook, the World Steel Association (worldsteel) said a cooling real-estate market within the Middle Kingdom had forced it to slash its 2014 and 2015 forecasts for apparent steel use from 3.1 per cent and 3.3 per cent respectively to just two per cent in both years.
Leading the decline is China, where demand has flattened out after growing by more than six per cent in 2013.
Elsewhere, while the market has picked up in the United States and Europe and Japan the market in the MENA region remains reasonably strong despite political tensions, uncertainty associated with conditions in Ukraine has seen conditions tank in the CIS region.
Markets in Central and South America are also in retreat amid falling commodity prices, delayed structural reforms and issues in Brazil surrounding excessive inflation, an overvalued currency, high labour costs and infrastructure bottlenecks.
“The positive momentum in global steel demand seen in the second half of 2013 abated in 2014 with weaker than expected performance in the emerging and developing economies,” said worldsteel Economics Committee chair Hans Jurgen Kerkhoff. “As a consequence we are issuing a lower steel demand growth figure than our forecast released in April this year.”
Following several years of difficult conditions bought about by weak US and European economies and the offloading of excess supply in China onto world markets, steel makers around the world started to experience better times last year.
In the second quarter this year, ArcelorMittal, for example – the world’s biggest steel maker – more than doubled its underlying profit compared with the same quarter in the year before and returned to bottom-line profit after several years of losses.
Recent months, however, have seen prices ease back and utilisation rates drop back to a level which is slightly down on the same period last year, meaning supply conditions are not tight.
Along with softer demand, markets are being impacted by rising export volumes out of China, which saw a 75 per cent year-on-year jump in export shipments of merchant bar in the first seven months of the year and a 1.5 million tonne increase those of wire rod, according to UK based steel information industry provider MEPS.
Moreover, despite the reduced demand forecasts, Kerkhoff said even worldsteel’s latest more cautious expectations remain subject to risk.
“The US interest rates increase expected in 2015 is likely to impact global capital flows creating instability in the vulnerable emerging markets,” he said. “At the same time the outlook in emerging markets is constrained both by the need for structural reforms and geo-political tensions and as a result energy prices, globally, have emerged as a new risk factor.
“In China, the rebalancing and transition towards consumption driven economy is not without challenges and uncertainties. Lastly, the recovery in the Euro-Area is still constrained by household and government deleveraging.”