Global steel demand outlook weakens in 2011

MUMBAI (Scrap Monster): Steel demand outlook is weakening in domestic and global markets and analysts point out that the boom period prior to 2008 may never reappear in 2011.

The outlook for steel demand in Western Europe is deteriorating. At the start of the year there had been hopes that economic growth might reach 2 percent in the Euro-zone nations.

 Recently published figures show that it was only 1.6 percent in the first quarter.

 In some countries including the largest steel consumers Germany and Italy – it is weaker still and the outlook is negative.

In a global market, which is doing little to favor European manufacturing industry, the continuing strength of the Euro is eroding competitiveness. Higher costs for raw materials and energy are adding to the difficulties of steel-using manufacturers.

The domestic EU-15 economy is not much better. There is no sign of an increase in private capital investment or of industrial output. Top steelmaker, Arcelor, has forecast growth in industrial production of no more than 1.4 percent this year.

Market analysts also keep the view that China’s steel enterprises will maintain the low profitable production style in the future. 

Steel demand in China’s steel market is pegged at 614 million tonnes in 2010 and 657 million tonnes in 2011, with the corresponding rising level of 9% and 7% respectively.

Although demand for steel products will soon decline in 2011, the production capacity is still quite large. Therefore, overcapacity in steel production will be the reality also in 2011 China’s steel market. 

Generally, it’s expected that the 2011 China’s steel market will operate around the average industrial cost and the average price level will be higher than that of 2010. 

With stocks of steel still overhanging the market, this means apparent consumption is unlikely to show any increase for the foreseeable future. In addition, the strong Euro made the EU a net importer of steel in the first few months of 2005, putting further pressure on the market.

However the International Iron & Steel Institute forecasts that Europe, excluding the EU -15, will require 4.7 percent more steel this year than last. This makes the region one of the fastest-growing steel consumers in the world outside Asia.

However, these countries together use only about 26-27 million tonnes per year of finished steel versus 146 million tonnes per year in the EU -15, so even a rapid rate of expansion doesn’t mean many more tones.

 Consequently, European mills will have to keep their production rates still more firmly in check if they are to forestall a collapse in prices.

Also, World Steel Association pointed out that aided by stock-building activities and a recovery in manufacturing, apparent steel use in the US is expected to grow by 9.4 percent to 2011, bringing it back to 79.7 percent of the 2007 level.

In Central and South America, apparent steel use recorded a 23.6 percent decline in 2009, but WSA noted that the region's steel demand “is coming back strongly thanks to recovering commodity prices, exports and renewed capital inflows.”

The region's apparent steel use will grow by 28.2 percent in 2010 boosted by a strong rebound of 34.6 percent in Brazil. In 2011, the region's apparent steel use will grow by 9.1 percent to a historical high for the region and 14 percent higher than the 2007 level.