Steel Production Still Rising on the Back of Positive Economic Global Growth

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From a global economic standpoint, arguably it was a close run thing but we can probably say we have avoided a double dip, thanks in large part to continued strong emerging market demand keeping the world economy ticking along and the production lines of international manufacturing companies humming.

Indeed while consumer demand and construction markets in mature economies have been depressed the one abiding feature of the post crisis period has been relatively strong manufacturing performances. With access to cheap cash and in most cases strong balance sheets, manufacturers have weathered the storm and are continuing to be upbeat. In a Reuters report the Institute for Supply Management’s index of U.S. factory activity slipped to 54.4 last month from 56.3 in August. While the Markit Euro Zone Manufacturing PMI suggested a two-speed recovery taking hold in Europe, with the headline index dropping to 53.7 in September from 55.1 in August led by strong German and French performance and weak Club Med economies such as Ireland, Spain and Greece. Manufacturing growth in Britain, meanwhile, fell to its lowest since November as exports declined for the first time since July 2009, but even so the PMI remained in positive territory only falling to 53.4 from 53.7. Meanwhile, China’s official PMI rose to 53.8 in September from 51.7 in August, well above a median forecast of 52. A separate Chinese manufacturing PMI from HSBC also showed a strong upturn in September, rising to 52.9 from 51.9 in August.

So not surprisingly on the back of such positive manufacturing indicators steel demand is expected to hit a record 1.34 billion tons next year even though steel growth will slow to 5.3%. According to a later Reuters article, China will make up 45% of global demand in 2011, while India will emerge as the world’s third-biggest steel consumer after China and the United States the World Steel Association is quoted as saying. In an example of how emerging market production is coming to dominate the global market, the World Steel Association is said to be picking Xiangang Zhang, president of Anshan Iron & Steel Corp, as its chairman for the following year, which will be the first time its head has come from China. China’s demand in 2011 will be 42% above the level in 2007, compared to demand in the developed world in 2011 which is expected to be 25% below the 2007 level, Paolo Rocca, the body’s current chairman.

Demand for steel is set to rise 13.1% to 1.27 billion tons this year, much faster than an earlier forecast of 8.4% growth but still leaving the market in surplus. The great unknown will be growth in both demand and production in China. Titanic forces are at work in the Chinese steel market with Beijing trying to reign back polluting and energy consuming industries. At the same time  simultaneously curbing excess speculative construction activity on one side while steel producers jostle for market share supported by their local governments and encouraged to keep producing by a cooling but still strong domestic steel consuming market. Growth is predicted by the association to slow in China next year to 3.5% from an estimated 6.75% this year. Whether that will happen is anyone’s guess.

–Stuart Burns

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