Global steel demand will slow this year and in 2015 because of a slackening of growth in China, the world’s biggest consumer of the commodity, hitting the profitability of steelmakers.
The World Steel Association, the industry’s main international body, said on Wednesday it expects global demand to rise 3.1 per cent in 2014 to 1.52bn tonnes – down from growth of 3.6 per cent last year. Global steel growth will accelerate slightly in 2015, rising 3.3 per cent.
However, despite the global slowdown, some steel companies will have an improvement in profits driven by a recovery in developed countries. According to WSA, steel demand over the next two years is likely to depend more on developed economies, such as the US and Europe, rather than emerging countries – a big change from recent history.
The new forecast, revealed as chief executives at some of the biggest steelmakers gathered in London at the twice yearly meeting of the WSA, provides further evidence that China has come to the end of its rapid growth, as the world’s biggest steel producer moves from an investment to a services-driven economy.
The WSA said Chinese demand for the commodity would rise just 3 per cent in 2014 to 721m tonnes, compared with growth of 6.1 per cent last year. In 2015, growth is expected to slow further to 2.7 per cent.
“We’ve all become used to China being the driver of the world economy, particularly in resources, over the past decade or so. We think that’s an era coming to an end,” said Edwin Basson, director-general at WSA.
Weaker steel demand is being felt broadly across all emerging markets, down to ongoing structural problems in many of these economies, the WSA said. Demand in emerging countries is forecast to slow from 5.1 per cent last year to 3.2 per cent in 2014.
According to Mr Basson, a slowdown in China and unstable political situations in other emerging economies will result in just “moderate growth” in the steel industry – a far cry from the early 2000s when global demand for the commodity rose more than 6 per cent a year for six years in a row.
“There’s no candidate waiting in the wings to take over this lead role from China,” said Mr Basson. He said India is the most likely country to have big growth, but this is unlikely to happen in the near future as it is constrained by high inflation and structural problems.
The forecast bodes badly for top steelmakers such as ArcelorMittal, Tata Steel, Chinese groups including Hebei and Baosteel, South Korea’s Posco and Japan’s Nippon Steel.
However, demand for steel in developed economies is forecast to grow 2.5 per cent in 2014, following a contraction of 0.3 per cent last year. The US is forecast to make a strong recovery, with steel demand expected to grow 4 per cent to 99.4m tonnes, on the back of a pick-up in construction activity and manufacturing.
European demand is forecast to rise by 3.1 per cent this year, following a contraction of 0.2 per cent in 2013. The pick-up will provide a boost for companies’ earnings, particularly Europe-based steelmakers such as ArcelorMittal and ThyssenKrupp, which have been hit by weak demand on the continent in the construction and car industries.