The Hindu Business Line : Steel outlook bright amid cloud of slowdown

Crucial factors
China registered a 10.7 per cent increase in steel consumption to 318 million tonnes up to Sept this year.
Consumption in all the developing economies is expected to continue to at a robust rate in 2008.

Our Bureau

Mumbai, Dec. 7 Led by buoyant activity in Asian markets, and notwithstanding softened conditions in North America and moderation in Europe, the world steel market continues to be strong; but growing economic risks, associated mainly with housing market problems, cloud the outlook for 2008 to an extent, according to OECD Steel Committee.

Capacity expansions

While the global steel market has registered strong output and demand growth for six years in a row, capacity expansions in different parts of the world can potentially impact prices if demand were to slow down, OECD has cautioned.

In line with declining consumption in North America and moderating trends in Europe, global demand growth has decelerated in 2007; but robust consumption in rapidly expanding emerging economies, especially in Asia, is seen counterbalancing the demand loss in the developed regions of the world and to an extent, contributing to price stability.

Leading growth

The so-called BRIC economies (Brazil, Russia, India and China) are leading the growth of world demand. The strong positive correlation between economic growth and steel consumption is well known.

China, world’s largest producer and consumer of steel, registered a 30.8 million tonnes or 10.7 per cent increase in steel consumption to 318 million tonnes in the first nine months of the year. Steel usage in Brazil is largely driven by industrialisation and in Russia booming oil and gas revenues and household incomes drive steel consumption.

Net importer?

Indian consumption, too, is increasing at a double-digit pace, though from a much lower base level of around 45 million tonnes. In response to growing demand, India may have become a net importer of steel during 2007, the OECD report observed.

Consumption in all these developing economies is expected to continue to at a robust rate in 2008, although some moderation may be felt from global economic slowdown.

On track

World crude steel production is on track to grow by 8 per cent or around 98 million tonnes in 2007, to reach around 1,330 million tonnes. China, obviously, is the driver. In the first ten months of this year, Chinese steel production reached 409 million tonnes, up 18.1 per cent from a year earlier, growing faster than domestic demand. Chinas share of world production in 2007 is a whopping 37 per cent, up from 34 per cent in 2006.

India is now ranked worlds fifth largest steel producer, with production continuing to increase rapidly, driven by strong demand.

Talking about risks and long-term issues for the steel sector, OECD listed various economic risks, capacity and trade issues as matters of concern. The downturn in the US housing market can potentially exert a snowballing effect on steel consumption. On the other hand, expanding production capacities can potentially lead to trade friction in the event of a demand slowdown.

Raw material costs

As steel production continues to rise, raw material costs have risen to record highs. Trade distorting export policies and consolidation in mining are also seen as issues of concern.