World steel production numbers reveal slower demand growth

As per the production numbers released by the World Steel Organization, one can see a clear picture across the globe with respect to the demand for steel in the last 7 months.

Looking at the production numbers for the first half of the fiscal, it is evident that except for China, which constitutes 45% of the world's steel production, the growth of the other major steel producing countries has slowed down.

From the table below that shows the world steel production growth in the last 7 months, we can see that  the major slowdown has come from the debt crisis region, i.e. Europe and the US, which together constitute 20% of the world's crude steel production.

The chief reason for lower production numbers is the slowdown in demand, which has resulted in the production cut. Also, due to lower demand, the steel prices as well as raw material prices in the international market have come down. Prices for coking coal, one of the principal raw material in steel production, have come down from USD 310 to USD 280 in the last one month's time.

In its October 2011 review, the World Steel Organization has said that the recovery of demand for steel in the developed world will be slow, while most of the emerging (China, Brazil) and developing world should continue to enjoy robust growth in their steel demand.” It has also forecasted worldwide demand growth of 6.5% in 2011, as compared to growth of 15.1% last year. The body lowered the growth forecast for India to 4.3%.

We, at DSIJ, believe the demand slowdown will continue in the coming quarters. Debt problems still persist with the major economies. This has now spread to the emerging economies as well in form of higher foreign capital outflow due to higher dollar demand, resulting in weak domestic currency and feeble market sentiment.

The Indian economy, which grew at 7.7% in the first quarter of the fiscal, is expected to remain below 7.7% in the second quarter as per the broader consensus. This is largely due to continuous hikes in the interest rate by the central bank with the aim of controlling inflation. Also, the RBI in its second quarter monetary review has stated that based on the current and evolving macroeconomic situation, it has lowered the GDP growth forecast for 2010-11 from 8% to 7.6%. This means that if the macro-economic problem does not improve from here onwards, we can see a further slowdown in steel consumption globally.