Demand for steel and steel products in the United States and other major steel-producing nations (with the notable exception of China) has been declining since 2008, with current estimates predicting further annual contraction in the steel market through the end of 2009. However, new data shows that the decline is slowing down, and the industry may return to growth as soon as 2010. The positive outlook depends largely on emerging economies, but questions remain about whether the upswing will be a temporary boost or a permanent turnaround.

According to a forecast released in October from the World Steel Association (worldsteel), worldwide steel use is expected to decline 8.6 percent in 2009, dropping to 1,104 million metric tons, following a contraction of 1.4 percent in 2008. This estimate is an improvement from the initial prediction of a 14.1 percent decline in 2009, with figures boosted by strong steel demand in China.

After 2009, the report expects global steel demand to rebound, rising 9.2 percent in 2010. Developed economies, including the U.S., are expected to see 15 percent growth in steel demand in 2010, after contracting by 34 percent in 2009. Chinese demand is forecast to grow by 19 percent in 2009 and 5 percent in 2010, while other emerging economies will contract 17 percent in 2009 before rebounding by 12 percent in 2010.

"As before the financial crisis, the emerging economies, especially China, will be the critical factor in driving world steel demand in the near future," Daniel Novegil, chairman of the worldsteel Economics Committee, said in an announcement of the findings.

However, China's metal imports in 2009 may have exceeded actual demand by as much as 50 million tons, and such a surplus would severely cut down on the future demand rate while leaving no room for price rises, Reuters reports.

"China imported 405 million tonnes of iron ore in the first eight months of this year, up 32 percent from a year earlier, to feed its rapidly growing steel output," Reuters noted.

Without China's rapid rate of steel consumption, which is expected to reach 526 million tons in 2009 and account for 48 percent of the world's total, worldsteel estimates that global demand could decrease by 24 percent.

According to the (U.K.) Times Online, steelmakers "began to fire up blast furnaces last summer after shutting down plants at the end of 2008. The Chinese [g]overnment's huge financial stimulus mopped up much of the spare capacity and prices have begun to rise again."

If the effects of China's stimulus initiatives begin to wear off, there will be a significant setback to the stability of global demand in the coming year.

"While the state of the global economy has improved, uncertainties and concerns regarding the resilience of the recovery still remain with the possibility of any premature reduction in government stimulus actions," Novegil said. "This uncertainty particularly exists for the Chinese economy in 2010, whose fast recovery in 2009 was largely enabled by such strong government stimulus policies."

In its latest monthly activity report, the Metals Service Center Institute (MSCI) found that steel shipments from metals service centers in the U.S. increased to 2.56 million tons in September, a slight gain over the previous month, while steel inventories grew to 5.79 million, a 3 percent gain and the first increase since August 2008. Shipments were still down 31.4 percent from the same period last year, but the positive signs may indicate that contraction in the U.S. is bottoming out.

In terms of steel output, worldsteel's latest monthly crude steel production report released in September found that global production rose to 106.5 million tons in August, an increase from July's 103.5 million tons and the highest level since the beginning of 2009.

The report highlights that crude steel production has been steadily rising since April 2009, with the U.S. increasing its output to 5 million metric tons in July and 5.52 million metric tons in August. Despite the increases, these figures were still down 41.6 percent and 40 percent from July and August 2008, respectively.

By comparison, China produced 50.7 million metric tons in July, an increase of 12.6 percent over the same month the previous year, and 52.3 million metric tons in August, a 22 percent gain over the same month in 2008.

Some maintain that the boost from China will provide only temporary alleviation from the downturn, and that a full recovery will take several years.

"It is unlikely that the steel sector will reach the level it was at in 2007 before 2012," Wolfganag Lesse, the head of Salzigger, Germany's second-largest steel company, said in an October interview with Financial Times Deutschland, as reported by Agence France-Presse.

"At the moment," Lesse added, "we are experiencing only a small interim upturn, which in my opinion will only last until approximately the end of the year."

Earlier: Metals Industry Continues to Show Mixed Recovery Signs

Resources

worldsteel Short Range Outlook
World Steel Association, Oct. 12, 2009

China Iron Ore Imports 50 MLN T Over Demand —CISA
Reuters, Oct. 12, 2009

Steel Shipments, Inventories Inch Higher in U.S., Canada
Metals Service Center Institute, Oct. 16, 2009

Steel Industry Recovering After Chinese Stimulus
by Carl Mortishead
The Times Online, Oct. 13, 2009

August 2009 Crude Steel Production Report
World Steel Association, Sept. 21, 2009

July 2009 Crude Steel Production Report
World Steel Association, Aug. 20, 2009

No Rebound in Steel Sector Before 2012
Agence France-Presse, Oct. 8, 2009