Global outlook for the Steel industry in 2007 & beyond

The global steel market is enjoying its fifth consecutive year of strong output and demand growth. The outlook for 2007 is expected to remain relatively bright, but a less vibrant world economy should slow demand and production growth, according to industry and government officials at the OECD's Steel Committee meeting in Paris on 7-8 November 2006. The situation in world steel markets remains strong. Continued capacity expansions observed in various parts of the world could, however, endanger positive market developments.

World steel production

Crude steel production is on track to grow by around 90 million tonnes in 2006, i.e. by 8%, to reach 1.22 billion tonnes as a result of synchronized production growth in most regions of the world.

1. China continues to drive world production developments. In the first nine months of 2006, Chinese steel production reached 339 million tonnes, up 23% from one year earlier. Elsewhere in Asia, Japan and South Korea continued to register only modest growth. Steel deliveries in Japan are nevertheless expected to rise by 1.9% to 100.6 million tonnes thanks to brisk demand from the manufacturing sector.

2.The European Union is seeing steel production rebound strongly, reflecting improvements in the economic situation and steel demand. Steel output is expected to rise by 9 million tonnes to 197 million tonnes in 2006.

3.In the CIS countries, steelmaking activity has re-accelerated, led by Russia, where crude steel production is expected to increase by 4 million tonnes this year to reach 70.2 million tonnes supported by capacity expansions in electric-arc furnace steelmaking.

4.In North America, steel production in the U.S. and Canada is rebounding following last year’s steep declines. Reflecting strong demand, steel production in the United States should increase by around 9% to 102 million tonnes in 2006.

5. South American steel output continued to slump in the first half of 2006. Production in Brazil, the largest producer in the region, fell by 1.4 million tonnes, or 9.1%, partly due to a five-month blast furnace outage, but for the year as a whole should reach the same level recorded in 2005.

In fact, the total steel demand is expected to rise by 60 million tonne in 2007, with the European, Indian and Asian steel markets registering a 10% growth in demand. Regional and country differences in consumption growth will come into play, with rates in Asia, North America and the European Union generally expected to slow while steel demand in India, Latin America, Africa and the Middle East will grow more quickly, Ian Christmas, secretary-general of the International Iron and Steel Institute (IISI), said at the group's annual conference in Buenos Aires, Argentina.

World demand for steel

Global demand growth has accelerated in 2006, in line with the strengthening pace of world economic activity and buoyant infrastructure and other investment in rapidly growing developing economies.

Chinese steel consumption reached 287 million tonnes in the first nine months of the year, up 28.75 million tonnes or 10% from a year earlier. Indian consumption is also increasing swiftly, though from a much lower level of 38 million tonnes. The shipbuilding, auto, and industrial machinery industries are boosting steel use in Japan and South Korea.

In the European Union, robust export demand and recovering domestic demand for goods manufactured in key steel-using industries will raise apparent steel consumption by 9.3% to 198.5 million tonnes. Within the CIS, Russian consumption is being bolstered by strong growth in mechanical engineering, construction, and railroad transport.

In North America, apparent consumption in the United States should reach 121 million tonnes, up 10% from 2005. In Canada and Mexico consumption is also expected to rise strongly. The overall 9-percent increase this year should lift apparent steel use to 1.12 billion tonnes from 1.03 billion tonnes in 2005. The more moderate 5.2-percent growth foreseen next year should push usage to 1.18 billion tonnes, according to IISI predictions, which embrace both real and apparent use.

Steel prices

After declining through much of 2005, steel prices recovered during the first half of this year. In some markets such as China, however, prices have remained soft this year reflecting local oversupply of steel. More recently, prices have started to recede in some markets in response to high inventory levels. As per Madhukar Sheth, member of the Bombay Stock Exchange, with consolidation going on in the global industry, prices could remain stable at the $560 per tonne level. The steel industry mirrors the economy and with the auto and construction industries in China, India and other Asian countries growing at a healthy rate, demand for steel should maintain its present growth, industry analysts feel. This will come as good news to Corus, which through Tata Steel, has been looking to enter the Asian markets for its construction and auto grade products.

Long-term issues

Consolidation in the industry has accelerated, highlighted by the recent Arcelor/Mittal and envisaged Tata/Corus mergers. Arcelor-Mittal will account for around 10 per cent of world steel production. Though consolidation will strengthen steel companies’ influence in world markets, the industry remains very fragmented as compared to the concentrated iron ore industry for example. Concern was expressed that steel producers in various parts of the world have increased capacity significantly or intend to do so in the years to come by extending existing capacities and/or creating new capacities, whilst most forecasts for demand over the years to come suggest that worldwide steel capacities are largely sufficient to satisfy demand requirements in the future.

Forecast upto 2010

MEPS (International) Ltd has upgraded its previous forecast for global crude steel production in 2010. Finished steel consumption is expected to be well over 1 billion tonnes. The oxygen process is predicted to provide around 65 percent of all steel making in 2010 - more than double the amount from electric melting.

The desire for self sufficiency in steelmaking is driving producers in many parts of the world to invest in new plant and equipment. By 2010, MEPS estimates that China's total steel output will be significantly above 500 million tonnes. India & Russia will become an increasing force.

In 2007, a correction is forecast in the European Union and NAFTA countries. This will, almost certainly, result in a growth rate below the figures recorded in the previous two years. Moreover, the pace of steel demand growth in China appears to be stabilising at a level slightly below the percentages in the recent past. Furthermore, China will be a net exporting country in 2006. The high volumes of foreign sales will be curbed in 2007 by government actions. Output growth in China is likely to be held back.

As outlined in their previous report, a two speed steel industry is developing. Asian and Russian demand is racing ahead. At the same time, the industrialised nations are exhibiting more modest real growth conditions. New capacity is migrating towards steel demand. Furthermore, with high energy and steelmaking raw material costs, new capacity is often being scheduled for installation nearer to the location of the input materials.