With China hiding its latest steel production data and iron ore import figures from western scrutiny, as well as other trade, production, investment, retail sales and GDP numbers, the latest forecast from the World Steel Association (worldsteel) for global demand for next year depends heavily on what happens in China.
If we can’t trust the data amid the current inward-looking picture we are now getting from President Xi Jinping and his Communist Party cadres, then investors in companies like BHP, Fortescue Metals, Rio Tinto and others are going to be flying blind.
Unless we get consistent, trustworthy data, the outlook for the global steel industry next year – in fact for all commodity-based sectors – could be anything from recovery to further slide.
The continuing disruptions caused by Putin’s aggrandisement in Ukraine is bad enough, now China and Xi Jinping are adding unnecessary uncertainty to an uncertain situation.
Following the release of quarterly iron ore production and sales data from BHP, Rio Tinto and Vale, (and export data for Port Hedland, the world’s leading iron ore port) we have a good idea about the health of three of the four major suppliers of the key ingredient for steel – iron ore.
In short, it’s OK, (Vale did especially well with no worries about wet weather, unlike the two Australian giants) but they worried about the immediate outlook for the global economy (going into 2023 the impact of that on demand for iron ore, and other steel making materials, such as coking coal).
What is happening in China remains the key and as of now, we have no idea because of the unprecedented shut off in-up-to date data.
worldsteel says steel demand in the developed world will fall by 1.7% this year and recover by a weak 0.2% in 2023. That was after recovering by 16.4% last year from 2020’s pandemic dip of 12.3%.
In other worlds the bloom has become gloom and there is no reason to be really confident about 2023.
Despite worries about a global recession next year, worldsteel sees a small 1% rise in production to 1.815 billion tonnes, after a 2.3% dip this year to 1.797 billion tonnes.
But the small rise forecast for 2023 looks very tentative and depends on a host of negatives such as inflation, interest rates, events in China and of course, the progress in the Russian invasion of Ukraine.
There are very few positives in the demand side of the equation.
According to Máximo Vedoy Chairman of worldsteel’s Economics Committee commented “the global economy is affected by persisting inflation, US monetary tightening, China’s economic deceleration, and the consequences of Russia’s invasion of Ukraine.”
“High energy prices, rising interest rates, and falling confidence have led to a slowing in steel using sectors’ activities. As a result, our current forecast for global steel demand growth has been revised down compared to the previous one,” he said.
“The prospect for 2023 depends on the impact of tightening monetary policies and central banks’ ability to anchor inflation expectations. Particularly the EU outlook is subject to further downside risk due to the high inflation and the energy crisis that have been exacerbated by the Russia-Ukraine war.
“Supply chain problems eased somewhat in 2022, but continued to constrain production activities as new disruptions have emerged.
“Assuming that the war will not end soon and China continues to maintain its strict COVID containment policy for the time being, supply bottlenecks will not dissipate completely, despite slowing demand.”
But as always and especially in steel, China remains the key to what happens across the industry, from iron mining, to building and construction supplies and costs.
The worldsteel organisation is probably best placed outside China to have some idea of what might happen in China seeing that country’s steel giants are key members of the group.
In the latest demand forecast the association said “The recovery of Chinese steel demand in late 2021 reversed in the second quarter of 2022 as repeated COVID lockdowns led to a drastic cooling of the Chinese economy.”
“The slump in the property market has deepened, with investment in real estate slowing to its worst in 30 years.
“All major real estate market indicators are in negative territory, with floor space under construction contracting for the first time in its modern history.
“Despite the government’s efforts to boost the real estate market, a major turnaround is not expected since buyers’ confidence remains weak due to strict COVID measures and developer bankruptcies.
“Infrastructure investment is recovering owing to government measures, and will provide some support to steel demand in late 2022 and 2023.
“However, as long as the real estate sector remains depressed, it will be difficult for steel demand to rebound significantly.
Steel demand in China contracted by 6.6% in the first eight months of 2022.
For the whole year, steel demand is likely to fall by 4.0% with the low base effect of the second half of 2022.
In 2023, new infrastructure projects and a mild recovery in the real estate market could prevent further contraction of steel demand.
Steel demand in 2023 is expected to remain flat under the assumption that small new stimulus measures are to be introduced and lockdown measures will be largely removed in the later part of 2022.
Significant downside risks exist if these assumptions are not met and the slowing global economy poses further downside risk for China, according to worldsteel.
That’s as realistic an assessment of the outlook for the huge Chinese steel sector as you’d get anywhere.
Contrast worldsteel’s assessment with that of BHP CEO Mike Henry in this week’s September quarter production and sales report:
“We expect global macro-economic uncertainty in the short term to continue to affect supply chains, energy costs, labour markets and equipment and materials availability.” Not a mention of China (And yes I know BHP isn’t in steel, but it is the third-biggest iron ore supplier globally).
Rio Tinto, though, mentioned China extensively.
“Fears of recession are emerging on the implementation of aggressive interest rate hikes in the US and Europe, while a weak property sector continues to weigh on China’s economy. Freight rates are falling amid slowing global trade as global supply chains show signs of improvement.
“China’s economy has been challenged by ongoing COVID-lockdowns, power shortages in summer, and continued weakness in the property market. Even as the government maintains a dynamic zero- COVID policy, it has increased policy support to help relieve industries and restore confidence.
“The recovery has been uneven across sectors, with the policy-induced acceleration in infrastructure spending, car sales and exports providing key drivers of growth during the quarter.
“However, slowing global demand poses downside risks to China’s strong exports, while consumers remain cautious of the property market.”
It all depends on Chinese property and infrastructure and at the moment these two factors are working against each other and the government of President Xi Jinping can harmonise these by helping property and easing his idiotic Covid control measures – which he won’t.
He and the Communist Party are responsible for China’s sluggish growth and weak outlook. That’s why 2023 looks like it could be a rotten year.
