Tough time ahead for steel cos: Lehman

Soaring raw material costs, coupled with slower demand growth, could render this year a difficult one for steelmakers across the globe, according to a report by Metal Bulletin.

"Citing higher raw material costs and slower demand growth, Lehman predicted it will be difficult for most steel companies to achieve meaningful earnings growth this year and chose ArcelorMittal as its top pick for the year," the Metal Bulletin quoted the banker as saying in its 2008 outlook.

"Our ideal steel company would be self-sufficient in raw materials with exposure to emerging markets where infrastructure-dominated demand growth should hold up better than developed markets' consumer- dominated demand growth," it said.

The banker's views are similar to those of Organisation for Economic Cooperation and Development (OECD), which has also said that the currently strong global steel market was likely to be less buoyant due to weaker prospects of global economic growth.

While world demand for steel should continue to expand favourably in 2008, growing economic risks associated with housing-market problems cloud the outlook to some extent. Continued capacity expansion observed in various parts of the world could impact prices if demand growth slowed down significantly.

BRIC (Brazil, Russia, India and China) economies are leading the growth of global demand. Chinese steel consumption reached 318 million tonne in the first nine months of the year, up 30.8 million tonne, or 10.7%, from the same period last year.