As the world steel outlook turns positive, India offers a glimmer of hope with increasing demand for the vital building material.
As the world steel outlook turns positive, India offers a glimmer of hope with increasing demand.
There is some good news for steel producers around the world. After years of wait, characterised by slowing demand, excess capacity and large inventory, facing headwinds that slowed consumption in recent years, demand growth in world steel is beginning to face a cyclical upturn. Consumption demand is expected to pick up on the back of the momentum in global economic growth. Based on the demand conditions, the World Steel Association (WSA), in its short-range outlook, has forecast that global steel demand will improve to 1,648 million tonnes (mt) in 2018 from an estimated 1,622 mt in 2017.
In 2017, the risk of global reces- sion receding and economic performance improving across most regions, along with several geopolitical changes still created some concern. US policy uncertainties, Brexit, the rising populist wave in current European elections and the potential retreat from globalisation and free trade under the pressure of rising nationalism add a new dimension of uncertainty in investment environments. To balance this, risks from ongoing conflicts in the Middle East and in Eastern Ukraine appeared to be reducing.
In other words, the industry has, by and large, been able to ride out this year's political risks, including the Fed rate hikes, European elections, rising crude oil prices and Trump-induced market volatility. Admittedly, China is the mover and shaker of the world steel market by being the largest producer and consumer of the vital industrial material. Demand for finished steel is variable around the world, but, for the most part, it is forecast to increase this year in most regions.
China accounts for about 45 per cent of world steel demand. Its steel demand in 2017 is estimated to grow by 3 per cent. Excluding China, steel demand is expected to expand by 2.6 per cent to reach 856 mt in 2017 and by 3 per cent in 2018 to 882 mt.
The positive correlation between global economic growth and steel consumption is well recognised. From less than 3 per cent in 2016, there has been a modest pick-up in global growth to 3.3 per cent last year and a further increase to 3.6 per cent in 2018 is estimated. For the world market, at present, risk factors include geopolitical tension (friction between the US and North Korea), protectionist tendencies and China's debt problem.
The Chinese steel industry has been facing environment-related issues as well as trade friction. The big question everyone is asking: Who will replace China as the world's growth engine for consumption? Over the last two decades, China recorded phenomenal growth in steel production and consumption. The Asian major's growth has been driven by investments, led by heavy investments in the construction sector, including infrastructure, housing and commercial segments.
The EU recovery is solidifying with many positive developments. Eurozone monetary policy is expected to remain on its current path, while fiscal tightening is not expected to strengthen further, and risk of disinflation has significantly receded. If political stability can be maintained, investment is expected to pick up to provide a further boost to the recovery. Benefiting from the improving global economy and weak yen, Japan's
steel demand is expected to show a stable recovery. According to the WSA Report, steel demand in the developed economies will increase by 1.2 per cent in 2018.
Having dealt with the structural problems and fall in commodity prices, the Russian and Brazilian economies are stabilising and expected to show modest growth in 2017. Russian growth will continue to pick up in 2018 as structural reforms take more effect.
The India factor
After the demonetisation shock, the Indian economy is expected to resume growth, although on a slightly weakened basis. The ASEAN countries are expected to demonstrate solid growth in 2017-18. However, the region remains vulnerable to currency volatilities associated with US interest rate hikes and dollar appreciation.
According to the WSA Report 2017, steel demand in the emerging and developing economies, excluding China, which accounts for 30 per cent of world total, is expected to grow by 4.9 per cent in 2018.
India was the world's third-largest steel producer in 2016. The growth in the Indian steel sector has been driven by domestic availability of raw materials, such as iron ore and costeffective labour. Consequently, the steel sector has been a major contributor to India's manufacturing output. The Indian steel industry is very modern with state-of-the-art steel mills. It has always strived for continuous modernisation and upgrade of older plants and higher energy efficiency levels.
The Indian steel industry will be dominated by flat steel products due to the rise in consumption of automotive, construction, infrastructure and transport, domestic appliances and other industrial applications (office furniture, heating, ventilating, air conditioning, and packaging). It is estimated that the consumption of steel as a sustainable material will continue to grow during the forecast period as technological progressions and extensive R&D will decrease the consumption of energy in the steel production process. The Indian steel industry is impacted by hindrances in iron ore supply, stable domestic iron ore prices, uncompetitive steel export because of stable Indian rupee and dumping of steel on India by steelsurplus nations, such as China.
India is expected to overtake Japan to become the world's secondlargest steel producer soon and aims to achieve 300 mt of annual steel production by 2025-30 based on increased capacity addition in anticipation of upcoming demand and the new steel policy of the government. This is expected to boost India's steel production. A huge scope for growth is offered by India's comparatively low per capita steel consumption and the expected rise in consumption. As the world steel outlook turns positive, India offers a glimmer of hope with increasing demand for the vital building material. (The author is chairman of the AMIDT Group, a diversified conglomerate with interests in metals, mining and commodity trading, among others.)
Global steel demand is set to improve to 1,648 mt in 2018 from an estimated 1,622 mt in 2017.
Thriving automobile and infrastructure sectors are driving demand for steel in India.