Is India's steel demand growth still under question?

On Tuesday, World Steel Association released its Short Range Outlook (SRO) for 2016-17.

As per the report, investment is subdued in many regions, including China. Photo: Pixabay

Indian steel demand is expected to report solid growth in 2016-2017 backed by consumption-boosting reforms and infrastructure investment, World Steel Association said.

On Tuesday, World Steel Association released its Short Range Outlook (SRO) for 2016-17.

However, at the same time, Indian steel demand to remain under question.

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As per the report, India's steel demand is under question as key levels of investment are being provided by the government while private investment remains weak.

Further, ASEAN countries, benefiting from stable macroeconomic policies, construction will continue to drive strong steel demand growth, the report noted.

Emerging Economies' scenario

The report said that in 2016, some low performing emerging economies are showing signs of stabilization. After two consecutive years of double-digit contraction, steel demand in Brazil to start a moderate recovery in 2017.

"The minor rebound in oil prices helped to stabilise the decline in Russia and prevent further deterioration of the Mexican, South American and GCC economies. However, lower and unstable oil prices and geopolitical instability are continuing to undermine the outlook for the MENA region",
the report said.

Steel demand in emerging and developing (excluding China) economies is expected to expand by 2% in 2016 and 4% in 2017, said the report.

Global steel demand

On the global front, the report mentioned that the global steel demand to increase by 0.2% to 1,501 million tonnes in 2016, following a contraction of -3% in 2015. The report suggested that in 2017, the global steel demand will grow by 0.5% and will reach 1,510 million tonne.

As per the report, the weakness in investment globally continued to hold back a stronger steel demand recovery. But, with a better than expected forecast for China, along with continued growth in emerging economies, to help the global steel industry to move back to a positive growth path for 2016 and onwards.

Commenting on the outlook, T.V. Narendran, Chairman of the worldsteel Economics Committee said, “The steel industry environment remains challenging, with escalated uncertainties driven by geopolitical situations in various parts of the world. Recently the UK referendum outcome has further raised uncertainty on the long-awaited recovery of investment in the EU."

Narendran further said that he expects the slight growth momentum to remain weak for the time being due to the continued rebalancing in China and weak recovery in the developed economies.

The Association said that this downside risk came from the high corporate debt and real estate market situation in China, Brexit uncertainties and possible further escalation of instability in some regions.

However, on a positive note, steel demand in the emerging and developing economies excluding China is expected to accelerate to show 4% growth in 2017 on the back of the resilient emerging Asian countries and stabilisation of commodity prices.

Will global investment remain weak?

As per the report, investment is subdued in many regions, including China, which is undergoing a rebalancing away from investment driven growth.

Like India, in the developed world, despite persistently low interest rates, private investment remains weak due to a pessimistic outlook on future demand and other continuing uncertainties, the report added.

"To help confidence, governments have only limited monetary and fiscal policy tools left to boost investment. In many emerging and developing economies, weak commodity prices, geopolitical tensions and highly leveraged corporate sectors all add up to undermine momentum for the needed investment", the report said.

Decline in Chinese steel demand

The report mentioned that Chinese GDP growth in 2016 likely to be at its lowest level since 1990, but interestingly with a higher contribution from services and consumption.

To soften the impact of rebalancing, the government issued a number of mini stimulus measures, boosting infrastructure spending and real estate market and auto sales.

With this, the steel demand decline in 2016 is likely to be less severe than the worldsteel April 2016 forecast. Steel demand in China is projected to decline by -1% in 2016 and by -2% in 2017.

The decline will be on the back of limited rebound in the real estate sector which would be not sustainable as the inventory levels to remain very high and apartments are increasingly unaffordable to most residents, the report said.

Also, this would be further dragged as the construction sector will decline steel demand and manufacturing sectors will have only limited room for recovery.

EU recovery momentum continues despite Brexit uncertainties

Another point mentioned in the report is that the EU steel demand recovery to stay on tract backed by resilient consumption and a mild recovery in construction despite heightened uncertainties following the UK referendum on Brexit.

Though, the UK's steel demand for 2016-17 is expected to reduce due to Brexit however,the longer term impacts of the exit cannot be predicted.

While the US economy continues to show strength, steel demand in the US is struggling to grow due to the strong dollar, which hurts the manufacturing sector, and the collapse in shale related investments.

Likewise, Japan’s steel demand growth is subdued due to structural issues and is negatively affected by the appreciation of the yen after the UK referendum.

Steel demand in developed economies is projected to increase by 0.2% in 2016 and by 1.1% in 2017, the report added.

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