This year could be the turning point for the global steel industry with signs of growth, improved prices and demand from countries other than China.
EY’s latest annual global steel report highlights opportunities for a sector straining under the pressure of excess steelmaking capacity and low margins.
In 2014, global demand is forecast to grow faster about 3.3%.
More growth is expected to come from outside of China as the Chinese Government pushes through economic restructuring with a focus on private consumption.
With the exception of China, global supply and demand for steel will largely follow economic growth recovery around the world.
In China, national mandates to rationalise capacity will have an effect on supply and as the Chinese economy moves to a more consumer-driven model, steel consumption is expected to moderate.
The short-term estimates by World Steel Association for global steel demand are similar with some more positive views for growth in the US, the EU, Brazil and Russia but a relatively lower expectation for Asian countries.
Success for steelmakers globally will depend on being agile and nimble in responding to market opportunities which provide growth and better margins, according to EY’s Global Mining & Metals Leader, Mike Elliott.
Elliott says that while there are signs the demand outlook is improving, excess capacity remains the biggest threat to the steel sector.
“Permanent shutdown of inefficient capacity is the only real solution to bring balance to the market but in the short term it is difficult to see this happening given state participation in many countries and additional incentive to retain employment, regardless of profitability,” he says.
Steelmakers globally are continuing to maximise cost-cutting, are seeking to improve productivity and are shifting focus to high-end value-added products.
“This is going to significantly increase market competition in most products, so those steelmakers who can respond quickly and nimbly to future opportunities that create a new market or provide a better margin will be best placed to survive,” he says.
Growth outside China is expected to come from India, Brazil and Russia as well as emerging markets in the Middle East and North Africa.
Urbanisation and a growing middle class in emerging markets will drive infrastructure and construction in automotive (demand hot spots US, Brazil, Japan and China) and oil/gas.
Elliott says :
“The Chinese economy continues to be a determining factor for the global steel market in the medium-to-long term. If urbanisation projects continue, accompanied by a strong domestic economy and a growing middle class, it will shift demand to more sophisticated consumer products such as cars and home appliances which will benefit steelmakers with high-end, value-added products.”
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