The rapid industrialization, infrastructure build-out and urbanization of China has created a steel industry there that now produces half of the world’s steel annually. China’s steel industry may yet manage a little more growth, but many signs—including warnings about overcapacity from the nation’s own economic ministries—point to the peak having been reached in China’s steel intensity curve.
Statistically, that means other parts of the world will have to contribute more if the global industry is going to record steady gains in output in upcoming years similar to the ones that have been posted consistently since the mid-1990s.
The end of an era
Brussels-based Worldsteel (www.Worldsteel.org) collects information from more than 65 steel-producing nations and aggregates it to determine national, regional and global steel output trends.
The organization also interprets and analyzes the data it collects to make near-term forecasts, and what it sees for China in 2015 is a flattening out of its once furious pace of growth.
Based on the information it had for the first six months of 2014, Worldsteel predicted slow steel consumption and output growth in China for the rest of 2014 and into 2015.
“Apparent steel use in China is expected to slow to just 1.0% growth in 2014 to 748.3 million tonnes, with rapid cooling of the real estate sector as the government’s efforts to rebalance the economy curtails investment and weakens business sentiment,” the organisation predicted in October of 2014 (before year-end statistics had been calculated).
“The weak growth momentum will continue into 2015, and China’s steel apparent steel use will grow by 0.8% to reach 754.3 million tonnes in 2015,” Worldsteel further predicted.
Worldsteel and the chairman of its Economics Committee, Hans Jürgen Kerkhoff, however, also correctly noted that the Chinese government was likely to attempt to enact economic stimulus measures to keep its construction and steelmaking sectors humming.
“The possible use of targeted stimuli and easing of restrictions on the real estate market in response to slower GDP growth could increase the forecast,” noted Worldsteel in mid-October. China’s central bank subsequently took steps in mid-November to increase liquidity within its banking system and cut interest rates in late November.
Investors and economists were watching China’s economic data intensely in December, however, as the National Bureau of Statistics purchasing manager’s index (PMI) for November fell to 50.3, down from 50.8 in October and indicating only slight economic growth.
A separate PMI survey conducted by HSBC Bank indicated a 50.0 PMI in China for November, a baseline figure indicating flat industrial production and no economic growth.
Even if China’s economy manages to come close to its stated goal of 7.5% GDP growth in 2015, a shift away from manufacturing and infrastructure-based growth to greater consumer spending may signal the end of the era for the most intense demand for steel.
The mode of China’s economic growth in the past two decades has been tied to major industrial, retail, commercial and apartment construction and infrastructure projects such as highways, bridges, hydro-power and rail networks that consume massive amounts of steel.
Although the emerging Chinese middle class’s demand for automobiles and appliances will help absorb steel, it may prove difficult to match the intense demand stemming from infrastructure projects and the initial burst of urbanization.
“In China, the rebalancing and transition towards a consumption driven economy is not without challenges and uncertainties,” says Kerkhoff.
A rebound with inadequate bounce
As China’s steel industry executives adjust to fundamental changes to that nation’s economy, executives and managers in Europe and North America are tired of a “business as usual” atmosphere of economic listlessness.
In terms of the steel sector, the slow growth in North America and the lack of growth in Europe has led to stalled steel demand and output for several years running. Worldsteel sees some signs that the long-term chill is lifting, but laces its expectations with caution.
“The developed economies fared well [in 2014],” says Kerkhoff. “Recoveries in the EU, United States and Japan are expected to be stronger than previously thought, but not strong enough to offset the slowdown in the emerging economies. In 2015 we expect steel demand growth in developed economies to moderate, while we project growth in the emerging and developing economies to pick up.”
Japan’s hoped-for recovery under Prime Minister Shinz Abe and his “Abenomics” regimen appears to have stalled considerably. “In Japan, following a 2.1% increase in apparent steel use in 2013, steel demand in 2014 is revised upward to increase by a further 2.3% to 66.8 million tonnes, aided by governmental economic policies,” says Worldsteel. “However, as the positive impact of Abenomics fades away and with another expected consumption tax hike, steel demand is expected to decline by 1.5% in 2015.”
Steel production in the United States has been relatively flat in 2014, with imported steel products filling part of the growing demand for steel in that nation. “In the United States, after a decrease of 0.4% in apparent steel use in 2013, steel demand is seen increasing by 6.7% to 102.2 million tonnes in 2014,” writes Worldsteel. “Steel demand is expected to increase by 1.9% in 2015.”
Long-dormant Europe showed signs of revival in the first half of 2014, but disappointing signals are pointing to another potential year of disappointment in 2015. “The recovery in the EU has gained further momentum in 2014, and steel demand outlook has improved considerably to grow by 4% to 145.9 million tonnes after increasing by 0.8% in 2013,” writes Worldsteel.
“The improvement reflects a pickup in steel using sectors in most countries, but notably the United Kingdom and Poland and those countries that underwent structural reforms,” adds the group. “Apparent steel use in 2015 is projected to grow by 2.9%. However, the EU is facing new challenges with disinflation and geopolitical tensions threatening the continued recovery.”
Emerging or receding?
Throughout this century the fortunes of the BRIC economies (Brazil, Russia, India and China) have been a focus of attention for investors, economists and multinational company executives.
In 2014 and 2015, in addition to China reaching restraints on its steel output growth, several of the other BRIC countries are combatting symptoms of stalled economic growth.
Russia’s long-time leader Vladimir Putin has resurrected portions of that nation’s economy sufficiently to achieve what appears to be enduring support from the people of Russia. However, an over-reliance on oil revenue and an inability to get along with neighbours is beginning to harm Russia’s economic fortunes.
According to Worldsteel, the outlook for apparent steel use in the Commonwealth of Independent States (CIS) nations (Russia and the eight neighbouring nations of Armenia, Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Tajikistan and Uzbekistan) “has been revised down significantly in 2014 by 3.8% to 56.9 million tonnes following 2.8% growth in 2013.” Worldsteel cites “the crisis in Ukraine” as the leading factor.
“In Russia, the weak trend in steel using sectors in the second half of 2013 continued, and in 2014 weak infrastructure investments combined with the impact of the geopolitical tensions constrained steel demand, leading to -0.5% growth. In 2015, assuming a stabilisation of the political situation, CIS steel demand will grow by 1.9%.”
India’s fortunes look much better, according to Worldsteel. “India’s outlook is improving following the election of a new government [that] is promising pro-business reforms. In 2014, India’s steel demand is expected to grow by 3.4% to 76.2 million tonnes in 2014, following growth of 1.8% in 2013,” says the organisation. “In 2015 structural reforms and improving confidence will support a further 6% growth in steel demand, but elevated inflation and fiscal consolidation remain key downside risks to the outlook.”
Steelmakers in Brazil, meanwhile, face challenges tied to low levels of corporate investment in South America. “In Central and South America, apparent steel use forecasts have been revised down, with most countries registering negative growth,” says Worldsteel.
The varying set of circumstances around the globe has Worldsteel predicting slower overall steel sector growth in 2015 compared to 2014. “Worldsteel forecasts that global apparent steel use will increase by 2.0% to 1.562 billion tonnes in 2014, following growth of 3.8% in 2013. In 2015, it is forecast that world steel demand will grow by another 2.0% and will reach 1.594 billion tonnes.”
The author is the editor of Recycling Today Global Edition and can be contacted at btaylor@gie.net.