The World Steel Association (worldsteel) forecasts that global steel demand will increase by 0.2% to 1.5 billion tonnes in 2016 following a contraction of 3% in 2015. In 2017, it is forecast that global steel demand will grow by 0.5% and will reach 1.51 billion tonnes.
worldsteel's short range outlook was made public at the 2016 World Steel Association conference, held in Dubai, where T V Narendran, chairman of the worldsteel Economics Committee told delegates that the steel industry environment remains challenging, with escalated uncertainties driven by geopolitical situations in various parts of the world.
"Recently, the UK referendum outcome [on membership of the European Union] has further raised uncertainty on the long-awaited recovery of investment in the EU," said Mr Narendran.
A stronger steel demand recovery, claims worldsteel, is being held back by weakness in investment globally. However, a better than expected forecast for China – along with continued growth in emerging economies – will help the steel industry move back to a positive growth path for 2016 and beyond.
"We expect this slight growth momentum to remain weak for the time being due to the continued rebalancing in China and weak recovery in the developed economies," Narendran commented.
High corporate debt and the real estate market situation in China present downside risks to worldsteel's outlook, according to Narendran. Likewise uncertainties surrounding Brexit and further escalation of instability in some regions present a risk, although steel demand in emerging and developing economies, excluding China, is expected to accelerate to show 4% growth in 2017 and this is attributed to the resilient emerging Asian countries and the stabilisation of commodity prices.
According to worldsteel, investment is subdued in many regions, not only China, which is undergoing a rebalancing away from investment-driven growth. In the developed world private investment remains weak, despite persistently low interest rates and this is because of a pessimistic outlook on future demand and other continuing uncertainties.
Governments, claims worldsteel, have only limited monetary and fiscal policy tools to help confidence and boost investment.In many emerging and developing economies, weak commodity prices, geopolitical tensions and highly leveraged corporate sectors add up to undermine momentum for the needed investment.
Where China is concerned, it is estimated that GDP growth will be at its lowest level since 1990, but with a higher contribution from services and consumption. A number of mini stimulus measures were undertaken by the Chinese government to boost infrastructure spending, the real estate market and automotive sales. As a result, steel demand decline this year will be less severe than worldsteel's April 2016 forecast. It is argued that the rebound in the real estate market is limited and not sustainable as inventory levels remain high and apartments are increasingly unaffordable to most residents. Steel demand, therefore, will continue to be 'dragged down' by the construction sector and there is only limited room for recovery.
Steel demand in China is expected to decline by 1% in 2016 and by 2% in 2017.
There are signs of stabilisation in some low-performing emerging economies. In Brazil, following two consecutive years of double-digit contraction, steel demand will kick start a moderate recovery in 2017.
Russia's decline was stabilised in part by a minor rebound in oil prices, according to worldsteel and thereby prevent further deterioration of the Mexican, South American and GCC economies. Lower and unstable oil prices, however, and geopolitical instability will continue to undermine the outlook for the MENA region.
Solid growth is expected for Indian steel demand over the 2016/17 period backed by 'consumption-boosting' reforms and infrastructure investment. However, its sustainability is under question as key levels of investment are being provided by the government while private investment remans weak.
Stable macroeconomic policies in the ASEAN countries will continue to drive strong steel demand growth, worldsteel claims.
Steel demand in emerging and developing economies is expected to expand 2% this year and 4% in 2017.
In Europe, resilient consumption and a mild recovery in construction has kept the EU's steel demand recovery on track, despite Brexit uncertainties. UK steel demand for this year and next is expected to reduce because of the referendum result, back the longer term effects of Brexit are difficult to predict at present. Other challenges facing the EU are the refugee crisis, although the initial impact on steel demand appears to be minor.
The US economy continues to show strength, according to worldsteel, but steel demand in the USA is struggling to grow because of a strong dollar and the collapse in shale-related investments. Similarly, in Japan, steel demand growth is subdued due to structural issues and is negatively affected by the appreciation of the yen following the UK's EU referendum.