The World Steel Association is forecasting a sharp slowdown in Chinese crude steel demand in 2020, but at the same time, its reckons demand from other emerging markets will rise to partially offset the Chinese slide.
In the second of two reports, the Association said the Short Range Outlook (SRO) for 2019 and 2020 sees steel demand in China will grow by 7.8% to reach 900.1 million tonnes this year, while demand in the rest of the world will only grow 0.2% to 874.9 million tonnes.
But 2020 is forecast to see growth in Chinese steel demand slowing to just 1.0%, but steel in the rest of the world will grow by 2.5%, driven by 4.1% growth in the emerging and developing economies excluding China.
Overall, global steel demand will grow by 3.9% to 1,775.0 million tonnes this year slowing to just 1.7% growth in 2020 to 1,805.7 million tonnes.
To give this some context, in the same outlook a year ago the Association thought steel demand would slow this year from 2018 levels to grow by just 1.4%. That was because the consensus was for Chinese demand and production to weaken. That has not happened and as the data shows it has been the continuing strong demand from China that has driven production (and demand estimates higher this year).
Commenting on the outlook, Mr. Al Remeithi, Chairman of the Association’s Economics Committee said, “The current SRO suggests that global steel demand will continue to grow in 2019, more than we expected in these challenging times, mainly due to China. In the rest of the world, steel demand slowed in 2019 as uncertainty, trade tensions, and geopolitical issues weighed on investment and trade. Manufacturing, particularly the auto industry, has performed poorly contracting in many countries, however in construction, despite some slowing, positive momentum has been maintained.
“While the global economic outlook is highly unpredictable, we expect to see further growth in steel demand in 2020 of 1.7%, with emerging and developing economies excluding China contributing more. This forecast faces significant downside risks if the current level of uncertainty prevails.”
The Association’s forecast sees demand in China slowing over the next year as overall growth slow and GDP growth slows to the slowest pace since 1992.
“We expect the Chinese economy to worsen in the later part of 2019 and in 2020 with the unresolved trade tensions adding further pressure. It is unlikely that the Chinese government will reintroduce substantial stimulus measures as it continues to hold a balance between containing the slowdown and pushing forward its economic restructuring agenda.
“Selective mild stimuli focused on infrastructure and strengthening consumer purchasing power through tax cuts is more likely. The auto industry could benefit from such stimulus in 2020. China’s steel demand is expected to see growth of 1.0% in 2020.
“(S)teel demand is still expected to grow by 7.8% in 2019, largely driven by real estate investment. In the first seven months of 2019 China’s real estate market reported the strongest performance over the same period for the last five years.
“Firstly, due to the relaxation of control policies in tier 2 to tier 4 cities and secondly the newly implemented construction standard, put into effect in April 2019, estimated to have increased steel intensity in new buildings by about 5.0%,” The Association said.
“Conversely, China’s manufacturing sector is experiencing a significant slump due to the slowing economy and the effect of trade tensions. The Chinese automotive industry has contracted for 13 months in a row.
The Association said that in developed economies where demand grew 1.2% in 2o018, 2019 will see a small contraction of 0.1%.
“The consumer sectors and construction maintained positive momentum, however manufacturing slumped due to a deteriorating environment for export and investment. In 2020, with the effect of some technical rebound, steel demand in the developed world is expected to grow by 0.6%.
And the growth of steel demand in the emerging economies excluding China is expected to slow down to 0.4% in 2019 due to contractions in Turkey, MENA, and Latin America. But the growth is expected to rebound to 4.1% in 2020 due to infrastructure investments, especially in Asia.
While these forecasts should be taken with a grain of salt they do paint a picture where the current boomlet in steel demand, output and prices might soon lose its impetus.
That could see Chinese iron ore imports and global prices come under pressure next year, just as Vale, the big Brazilian miner brings more supply online in the wake of the January 25 main dam wall tragedy (See Separate story on Vale’s third-quarter output).
This could very well see prices come under further downward pressure from early 2020 onwards. But always judging Chinese demand is difficult in the first quarter because of the influence of where the New Year holiday falls (it starts January 25 in 2020).
Chinese iron ore imports are already down slightly on 2018 as crude steel production hits record levels. That’s because the Chinese mills are using more higher grade imported ore and scrap. look for that to continue in 2020 and add further pressure on prices.
