China’s position in the global steel market—48% of total demand—makes it a crucial determinant of the industry’s health
It may come as no surprise that the outlook for steel demand has dimmed considerably. Slowing steel production and plummeting iron ore prices are there for all to see.
Steel demand is forecast to grow by only 2% in 2014, according to the World Steel Association’s latest forecast, much lower than the figure of 3.1% it had forecast in April.
No relief is expected next year either, with demand growth stagnating at 2% in 2015, again lower than the April forecast of 3.3%. But the gloom is not all-pervading. China’s position in the global steel market—48% of total demand—makes it a crucial determinant of the industry’s health.
Its economic growth has slowed down, as it rebalances to consumption-oriented growth, compared with the earlier investment-reliant approach. Steel is bearing the brunt of this shift. China’s steel demand is pegged to grow by just 1% in 2014, and then slow down further to 0.8% in 2015 or nearly one-third of the rate forecast in April. Its influence is visible from the fact that global demand, excluding China, is largely unchanged.
But the contribution to growth has changed. The developed markets are expected to do better, especially the European Union and NAFTA (North American Free Trade Agreement) countries. Problems in places such as the Middle East, Africa, South America, and the Commonwealth of Independent States have pulled down growth.
But, surprise surprise, the World Steel Association believes good days are here for the Indian steel industry. India’s steel demand is forecast to grow by 3.4% in 2014, and increase to 6% in 2015.
Take this with a pinch of salt, as it presupposes quick execution of structural reforms. Still, India does seem in a better place, compared with its neighbour China. Does this mean good days ahead for Indian steel companies? September was actually a bad month for steel stocks.
The Supreme Court’s cancellation of coalfield allotments was one reason but steel price cuts would have also dimmed investor enthusiasm. Even as growing demand makes the case for firm steel prices, rising domestic steel output and an increase in cheaper steel imports put pressure on prices. That is not good news for margins. Expect the clamour for a hike in import duties to grow louder in the coming months.
Source: www.livemint.com
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