Steel looks East for growth after global demand slumps; India gives it hope

Global demand remains tumultuous in the wake of US-China trade war and slowing car sales

This is the time of year when demand forecasts by the World Steel Association, whose members represent around 85 per cent of global production of the ferrous metal and the industry leader ArcelorMittal, which with production of 92.5 million tonnes (mt) of crude steel in 2018 was not much behind India’s 106.5 mt, are made available. Coming from establishments of such standing, their country-wise demand projections give some guidance to how the prices of steel and the principal raw materials that go into its making such as iron ore and metallurgical coal will behave for the rest of the year.

However, as we have seen recently with iron ore, a tailings dam collapse in January at an iron ore mine in Brazil owned by Vale and then the March tropical cyclone Veronica causing major disruptions in production in Australia’s Pilbara region, prices could always rise to very lofty levels. As some contracts of the mineral are now made at multi-year highs of close to $100 a tonne, the message goes that more than a demand story, iron ore is a supply story.

Lending credence to the observation, Federation of Indian Mineral Industries Director General R K Sharma says: “Iron ore prices fell to their lowest level at sub-$40 a tonne in December 2015 since the commodity was moved to the spot market away from annual contracts in 2009. This happened then because of supply side pressure emerging from big miners such as BHP Billiton and Rio Tinto who were pumping out larger and larger quantities of the mineral while the Chinese demand was faltering.” In any case, Indian miners cannot take advantage of the strong rally in the commodity now because the 30 per cent export duty on ore with iron content of 58 per cent and more make Indian ore globally uncompetitive.

How the global broader economy will fare in the coming months will necessarily have a bearing on steel demand, subject to regional variations in growth in metal use. IMF has in its quarterly World Economic Outlook projection released earlier this month has once again scaled down global GDP growth to 3.3 per cent. Both WSA and ArcelorMittal also had to factor in continuing trade tensions the US is having with China in particular but also with other countries, including India.

US trade actions such as anti-dumping and anti-subsidy duties on all four flat products, 25 per cent customs duty on steel imports from most countries and ongoing investigation into anti-circumvention imports (that is, when a producing nation sends steel products through another country to benefit from concessional duty available to the latter) have hit all exporting countries across the board. Any demand forecast could not also have overlooked the slowdown in automobile production in China and India in 2018 and that continued through this year’s first quarter. Globally, the automotive industry is user of 12 to 13 per cent of steel production.  

It is a given that China, which alone had a share of 835 mt of the total world use of 1.712 billion tonnes (bt) of steel in 2018 will continue to make a profound impact on the rate at which global steel demand will move. According to WSA, China, even with the likely help of a higher level of government stimulus, will be able to lift steel consumption by just 1 per cent to 843.3 mt in the current year. But in 2019, Chinese demand is to slip 1 per cent. ArcelorMittal, however, thinks Chinese steel demand could fall by up to 1.5 per cent in 2019, against 3.5 per cent growth in 2018. No wonder then, WSA is projecting global steel demand growth will moderate to 1.3 per cent to 1.735 bt in 2019 and then 1 per cent to 1.751.6 bt in 2020.

Both WSA and ArcelorMittal, which has secured the approval of committee of creditors for acquisition of Essar Steel, remain bullish about steel in India. According to WSA, India having overcome the “shocks” of demonetisation and initial chaos in implementation of goods & services tax should be seeing strong steel demand growth “starting in the second half of 2019 following the general elections.” Both in 2019 and 2020, Indian steel use will be growing by over 7 per cent first to 102.8 mt and then to 110.2 mt. Developing Asia, excluding China will stay as the fastest growing region in the global steel industry with expected 2019 growth at 6.5 per cent followed by a slightly lower 6.4 per cent in 2020. Developed Japan will, however, experience demand shrinking on “moderation in construction activities and decelerating exports.” South Korea continues to experience fall in steel demand as its shipbuilding and automobile sectors are facing difficult times.

India’s per capita steel consumption of about 70 tonnes falls far short of the world average of 208 kg. Steel intensity here will get a boost if more steel is used in house building and construction reducing cement application as is the case in developed and emerging markets, the metal is used as replacement of wood as Tata Steel is doing with doors and windows and a push is given to its consumption in semi-urban and rural areas.