MEPS – Steel prices: “The global steel sector is entering a new phase. Growth in China has stimulated demand for steel across the Asian continent. The emerging and developing countries in the region are showing strong manufacturing activity – based on exports to the industrialised nations. Steel consumption is expected to move upwards over the next five years.

The fortunes of the world steel scene cannot be estimated using regressive analysis. Previous cyclical trends are not being followed. Boom conditions currently apply – based mainly on perceived raw material shortages. In the three years between 2001 and 2004 we estimate that apparent consumption of finished steel expanded from 766 to 918 million tonnes. This represents an increase of almost 20 percent or a year on year average of more than 6 percent. This compares to a rate of 2.5 percent per annum in the ten years to 2002 and a 1.2 annual percentage over three decades, 1970 to 2000.

We estimate global apparent consumption of finished steel in 2004 at 918 million tonnes – 5.3 percent above the year earlier figure. We do not expect the recent growth rates to continue into the medium term. However, we are forecasting further expansion in demand over the next few years – with apparent consumption of finished steel reaching 1 billion tonnes in 2008. This equates to an average annual increase of almost 3 percent over the next five years.

This rather modest prediction is based on two key factors. Firstly, apparent consumption growth over the last three years is, in our opinion, above the level of real demand. A large amount of inventory building has occurred, particularly in China. The talk of shortages of raw materials has prompted buyers to carry higher stock levels than previously considered necessary. Low interest rates have made this exercise much less painful than in the past. Secondly, the Chinese government is keen to avoid overheating of their economy. It is making attempts to reduce growth in key industrial sectors, including steel.”

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