Global steel demand to fall again in 2016, hit by China

The global steel demand will fall in 2016, a second straight annual contraction, thanks to a correction in the Chinese economy, but is seen growing the next year, the World Steel Association (worldsteel)said in its latest short range industry outlook.

It said global steel demand will decrease by 0.8 percent to 1,488 million tonnes this year after a three percent contraction last year.

In 2017, it is forecast that world steel demand will return to growth of 0.4 percent and will reach 1,494 million tonnes, the report said.

“The economic environment facing the steel industry continues to be challenging with China’s slowdown impacting globally across a range of indicators contributing to volatility in financial markets, sluggish growth in global trade and low oil and other commodity prices,” said TV Narendran, chairman of the worldsteel Economics Committee.

He said the global steel market was suffering from insufficient investment expenditure and continued weakness in the manufacturing sector. “In 2016, while we are forecasting another year of contraction in steel demand in China, slow but steady growth in some other key regions including NAFTA and EU is expected. Growth for steel demand in all markets except China is expected in 2017,” he said.

According to Narendran, there are several downside risks to the forecast. The Chinese real estate market and corporate debt problem, anxiety in the financial markets, high (household) debt and volatile capital flows in many emerging economies, geopolitical tensions and unstable political situations in several regions could further worsen the global economic environment, he said.

“On a positive note, some emerging economies in South and Southeast Asia show resilient growth and along with NAFTA and the EU will support a recovery in 2017. We expect that steel demand outside China will continue to grow by 1.8% in 2016 and this growth will accelerate to 3.0 % in 2017.”

While rebalancing progresses, the Chinese economy continues to decelerate, worldsteel said, The severe depression in construction activities is contributing to a slowdown in the manufacturing sectors, especially metal products, as well as slower growth in automotive.

A recovery for the construction sector is not forecast in the near future. The decline in steel demand in China is expected to be -4.0 percent in 2016 followed by -3.0 percnt in 2017. This suggests a demand of 626.1 Mt steel (15 percent down from 2013) for 2017, a contraction to 41.9 percent of world steel use from 47.9 percent in 2009 and 44.8 percent in 2015.

Worldsteel said falling oil and gas related investments and the squeeze on government spending have affected steel demand in economies relying on oil based revenue. On the positive side, lower oil prices have alleviated inflationary pressure in oil importing countries, giving room for monetary stimulus to boost economic growth and providing opportunities for structural reforms. We believe that the commodity markets are at or near the bottom of this cycle, it added.

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