There’s still a fair bit of doom and gloom being written about the outlook for the world steel industry, and therefore iron ore and coking coal exports from Australia.
In fact if you looked at some reports, read some headlines, or listened to some commentators, the great steel boom is deflating, taking prospects for the Australian iron ore and coal industry with it.
Slowing demand, easing production means lower prices and volumes goes the standard thesis.
And like all stories, there’s a grain of truth in there.
Demand for steel will slow, even in China, as the latest forecast on steel consumption suggests.
The world economy will also slow next year, according to the IMF, Asian Development bank and other reputable forecasts.
China’s economic growth will drop from around 10.6% (IMF) to 9.1% next year and that will see steel use forecast for grow by less than 4% next year, the slowest for some years.
But it is not shaping up as a replay of late 2008 in China, or 2009 for Europe, Japan and the US, 2009, as seems implicit in some commentaries. Nor are big companies like BHP Billiton and Rio in Australia, plus Vale of Brazil, and many middle tier suppliers, going to be badly impacted.
Any slowdown will be felt by the bottom rung of maybes, those late into the industry or with marginal mines or deals.
In fact iron ore prices are off around 13% this quarter, coking coal prices off 11%, which takes the quarterly price levels back to where they were at the start of this year.
In other words, much of the fear and loathing has been overdone, much of it coming from analysts who missed the global slump and doubted China’s dramatic 2009 expansion.
But the demand for steel won’t be as bad as forecast by some and in fact according to the steel industry it will be better than forecast back in April.
This is despite a slowing in output in the past six months and a sharp fall in capacity utilisation by the world’s major steel producers.
Output is off around 10% on a monthly basis this year, iron ore imports into China, the major force, are down more than 15% on the end of 2009.
But much of that seems to be a readjustment by producers to demand to control stocks and try and lower raw material and production costs.
Some steel producers have started raising prices this month on in demand products and if these boosts hold, others will follow.
The World Steel Association (WSA), in its latest short-term forecast of apparent steel use (a proxy for consumption and demand) sees 2010 output being 35 million tonnes above its April forecast at 1.272 billion tonnes and topping the pre-crisis peak of 1.222 billion tonnes in 2007.
Citing better than expected forecasts from mills in Europe, the United States and former members of the Soviet Union, the WSA said it was looking for "a steady and stable steel recovery."
It added that "our current forecast does not foresee a double dip recession as feared by some."
After a 6.6% contraction in 2009 and the 134.1% rise this year, the Association forecasts a record use of 1.340 billion tonnes, up 5.3% from 2010.
But the Association cautioned that steel demand in developed countries in 2011 would still be well below pre-crisis levels.
(The association said that its demand or use figures reflect "apparent" steel use, deliveries of steel to the market from domestic producers and importers. "Real" steel use would take into account steel delivered to or drawn from inventories).
The WSA said China’s demand in 2011 will be 42% above the level in 2007, accounting for 45% cent of global demand.
"China’s apparent steel use in 2010 is expected to increase by 6.7% to 579 million tonnes after the strong increase of 24.8% in 2009," the Association said.
"While China showed an increase of 9.2% in apparent steel use during the period of January to August in 2010, it is forecast that China’s apparent steel use growth will slow down considerably in the remaining part of this year due to the Chinese government’s effort to cool down the real estate sector and ongoing production control.
"In 2011, the growth rate will further slow to 3.5% with a weak real estate sector and the phasing out of stimulus packages."
Apparent steel use in 2010 is forecast to expand 8.2% in India, 32.9% in the US, 18.9% in the European Union, 19.1% in Japan and 26.5% in former Communist states.
Worldsteel said India’s steel demand will grow by 8.2% this year and 13.6% in 2011. Its steel use next year will be almost a third higher than what it was in 2007.
But demand in developed world in 2011 is expected to be 25% below the 2007 level.
Japan, another big customer for Australia, is forecast to see steel use increasing by 19.1% in 2010, much higher than expected, thanks to fiscal stimuli and strong export growth.
"But in 2011, its steel demand is expected to retreat by -1.4% due to tight fiscal policy, strong Yen, and weakening of its major steel using sectors. This brings Japan’s apparent steel use in 2011 to 62.0 million tonnes, 76% of 2007 level," the WSA said.
(Interestingly, India is forecast to have a net steel use in 2011 of 68 million tonnes, making it the third biggest consumer of steel in the world after China and the US.
The WSA says the EU economies suffered a -35.7% reduction in their apparent steel use in 2009 with Spain, Italy, and the UK especially har
