Markets
MT

Global Steel Demand to Shrink in 2015 on China Slowdown

Global steel demand is expected to contract this year as the industry continues to reel under sluggishness in China, the world's top steel producer and consumer - according to the World Steel Association's ("WSA") recently published short range outlook.

The international trade body for the iron and steel industry expects global steel demand to shrink 1.7% to 1,513 million tons (Mt) in 2015 after a 0.7% growth last year. The WSA, however, envisions a rebound in steel demand in 2016 on a recovery in demand in the developed economies and an expected stabilization of China's economy. Steel demand is expected to spring back to a 0.7% growth in 2016, reaching 1,523 Mt.

Earlier, in Apr 2015, the WSA predicted steel demand to grow 0.5% in 2015 and 1.4% in 2016. Global steel demand excluding China is expected to fall 0.2% in 2015 and rise 2.9% in 2016.

Slowdown in China (the conventional growth engine), turbulent financial markets, low investment and geopolitical tensions across a number of emerging markets are weighing on the steel industry, the WSA noted in its report. The trade body, however, sees these headwinds to subside next year.

While China is expected to struggle with negative demand growth, India (the third largest steel producer) has been forecast to show resilience to the global slowdown and see a surge in steel demand this year and the next. The WSA now sees steel demand in China to drop 3.5% in 2015 and 2% in 2016. This compares unfavorably with the prior forecast of a 0.5% fall in both 2015 and 2016.

A slump in the domestic housing market, persisting credit crunch and weak infrastructure investment continue to hurt steel demand in China which consumes roughly 45% of global steel. Economic slowdown in China has dealt a massive blow to the global steel industry. China's steel industry remains plagued with massive overcapacity with barely any signs of recovery.

Per WSA, steel demand in the emerging and developing economies barring China will rise 1.7% in 2015 and 3.8% in 2016 despite slowdown in some countries. Russia and Brazil is witnessing significantly lower steel demand, partly due to structural issues and rising political instability.

The WSA's forecast, however, paints an upbeat picture for India. The Indian steel industry is expected to pick up pace with a projected 7.3% jump in steel demand in 2015, further rising to a 7.6% gain next year. Indian government's strong focus on development is expected to perk up steel usage in that country.

The WSA expects developed economies to witness a slowdown in steel demand in 2015, before returning to growth in 2016. Steel demand in developed economies is expected to decline 2.1% in 2015 followed by a 1.8% rise next year.

Demand environment for steel is expected to remain challenging in the U.S. through this year as a stronger greenback and a sluggish energy sector continue to weigh on the American steel industry. The WSA envisions steel usage to drop 3% in the U.S in 2015 (after a solid 11.8% rise in 2014), before rebounding to a 1.3% gain next year.

The U.S. steel industry is struggling to cope with a flood of subsidized imports of steel products. Domestic steel makers including Nucor NUE , U.S. Steel X , AK Steel AKS , Steel Dynamics STLD and ArcelorMittal USA - a part of ArcelorMittal MT - are feeling the pinch from falling steel prices as unfairly traded imports continue to flow into the domestic market. Depressed capacity utilization is also hurting the American steel industry.

The WSA also expects steel demand to fall in developed Asian countries like Japan and South Korea in 2015 due to certain structural issues.

The European economy, on the other hand, is on the road to recovery, helped by lower oil prices , a weak euro and low interest rates. Steel demand in the European Union is expected to go up 1.3% this year and 2.2% in 2016.

Global crude steel production continued its downward spiral with output falling for the sixth straight month in August. Crude steel production for 65 reporting nations shrank 3% year over year to 132 Mt for the month with China witnessing a 3.5% decline to 66.9 Mt, the WSA reported last month. Crude steel capacity utilization ratio for the reporting countries slipped to 68% in August from 71.6% a year ago.

While the steel industry will remain under significant pressure through 2015, it is poised for a recovery next year riding on strong momentum in the automotive space and a rebound in construction markets. Much hope is pinned on India, which is expected to act as the next growth driver given its progressing construction and manufacturing sectors, rapid urbanization and structural reforms from the new government.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

AK STEEL HLDG (AKS): Free Stock Analysis Report

STEEL DYNAMICS (STLD): Free Stock Analysis Report

ARCELOR MITTAL (MT): Free Stock Analysis Report

UTD STATES STL (X): Free Stock Analysis Report

NUCOR CORP (NUE): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

MTXNUESTLD

Other Topics

Stocks

Latest Markets Videos

Zacks

Zacks is the leading investment research firm focusing on stock research, analysis and recommendations. In 1978, our founder discovered the power of earnings estimate revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank. A wealth of resources for individual investors is available at www.zacks.com.

Learn More