“Steel is the food of industry, the food of economic development,” Chinese commerce ministry spokesman ShenDanyang said in April 2016. “At present, the major problem is that countries that need food have a poor appetite so it looks like there’s too much food.”
Steel consumption statistics is a useful tool to gauge economic growth as its primary uses feature in all construction, road, railways and manufacturing. The steel industry is said to be a direct or ancillary employer of over 6 million people worldwide and by some estimates, it is at the source of employment for over 50 million people.
The years 2000-2007 witnessed extensive growth in steel demand and production at a global level. Spurred on by low interest rates, surging monetary liquidity, willing bankers as well as massive Chinese urbanization plans, the first three quarters of the first decade of the 21st century witnessed a sharp increase in steel demand and consumption.
In the global lean years between 2009-2011, continuous Chinese investment in infrastructure helped keep much of the global economy afloat. Coupled with the excess liquidity resulting from Quantitative Easing in the US and others, these factors led to a huge surge in raw material prices and capital expenditures in investment for steel manufacturing output growth.
China’s steel demand as a percentage of global steel demand peaked in 2013 and has since started contracting (48% to 43%). The period from 2013 saw China reverse its trade in steel and pursue an aggressive export trade – creating havoc for worldwide steel industries.
Many countries witnessed mass lay-off of steel workers and protests against cheap imports. These ultimately led to protective measures being takenagainst Chinese steel imports almost across the world and in return a staunch defense by China of its policies.
The Chinese Trade Secretary, Lou Jiwei had the following words to say “China contributed over half of the global economic growth between 2009 and 2011 via infrastructure investment, which brought the accumulation of excessive capacity such as in coal and steel. At the time the world was applauding China [for its contribution]. Now you are pointing fingers at China’s overcapacity issue. What were you saying back then?”
While commodity prices are starting to show more stability over the last few months following their dramatic crash at the beginning of 2016, the one decisive factor will be how Chinese policy handles the over capacity at its steel mills.
Growth across the globe continues anemically with emerging markets and developing economies expected to grow twice the rate of the more developed established economies and these remain the bright spot for the steel industries.
Many eyes are now on India where continued growth expected as a result of government industrial incentives, and improving macroeconomic indicators at a state wide level even keeping in mind that growth dynamics vary from state to state.
Markets are at an inflection point – China, which was the main driver, is in the process of redefining its industrial identity away from manufacturing and more towards services. Emerging economies are key such India, Pakistan and the South East Asian belt will play more a factor in steel economics. Oil producing steel consumers will be dependent on oil prices and the development of their post oil crash budgets. Developing countries are faced with a different set of issues such as ageing populations and a slow down in population growth. The general global sentiment is muted to skeptical and developing trends such as income distribution amongst widening class levels will all impact construction and development.
The growing influence of the millennials and the growing need to address environmental issues, carbon taxes and a burgeoning circular economy will all have to be taken into account which leave a difficult time ahead to predict future trends.