A Cause for Concern…Worldwide Demand for Steel is Stagnating

Actually, the picture is even bleaker than noted in the headline above. In truth, worldwide demand for steel is growing at a much slower pace than was anticipated by industry analysts prior to the onset of 2012.

Leading steel producers, including ArcelorMittal and Tata Steel, Ltd have already announced that their profits for the current year will not meet expectations. Each company can point to its recent performance for the gloomy outlook that lies ahead in its immediate future.

ArcelorMittal, for example, reported a profit of only $157.6 million for the three-month period that ended December 31, 2011. That was the company’s worst quarterly performance in a year. Tata Steel, Ltd. had an even more dismal showing. Its 3^rd quarter earnings in 2011 were the lowest for that quarter in a full five years.

Now, while recent earnings for important companies such as ArcelorMittal and Tata Steel, Ltd. are disappointing, it’s important to note that, globally, the steel industry is still a huge $430 billion industry. The companies that are part of this industry make valuable contributions to the worldwide economy … locally, as well.

That said, the global increase in steel production for 2012 will increase about 4.5%, well below the 5.4% increase forecast last October by Bloomberg industry analysts. In fact, the same analysts now predict that steel production may increase by as little as 1.2% for the entire year.

If that happens, it will be the lowest gain in three years. Clearly, that is not good for the global economy, for national economies, as well. So … what is the reason for the slower growth?

It’s simple and may be obvious, too. In China and in Europe, as well, slow or sluggish economies have contributed mightily to the reduction in steel demand. The rush to buy new cars, new homes and new machinery – by consumers and companies alike – has dropped dramatically.

The European debt crisis is the primary reason given for lower demand for steel products. And that’s true just about everywhere on the continent.

China, however, is a different story. According to Hila Low, an analyst for the Hong Kong-based brokerage firm, UAB Kay Hian, tight bank credit and an unusually high inventory of homes are the main reasons for the lower demand for steel products.

And since China is the world’s leading producer of steel and a leading consumer of steel products, its impact on global steel demand and production is immense.

So … how does all of this impact Australia? Interestingly, it appears that much of “the land down under” is able to avoid the slowdown in production that is affecting Europe and China. Demand for homes, cars and other steel products remains relatively strong throughout most of the country.

Australia’s steel producers and those who buy steel products hope it stays that way for the remainder of this year … and the years that follow.

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