Steel summit: A forecaster's alert for Australian investors

Company News

by Glenn Dyer

A respected industry forecaster has strongly suggested that peak steel demand in China may have already occurred. The World Steel Association (WSA), comprising the top 71 steelmakers globally, predicts that Chinese steel demand could decline from 2025 onwards, impacting Australian investors due to the country's reliance on iron ore exports to China. While global steel demand is expected to increase slightly in the coming years, concerns linger about China's slowing real estate investments and infrastructure growth. Despite growth prospects in other regions like India, risks such as geopolitical tensions and persistent inflationary pressures cast shadows on the steel market's future trajectory.

The WSA's annual demand outlook for the coming year suggests that 2025 could witness Chinese steel demand and production coming under pressure domestically and externally, potentially resuming the decline that began in 2020. This situation warrants close monitoring by Australian investors and governments, as iron ore exports to China serve as a significant driver of economic growth and tax revenues.

China's massive steel industry is already feeling the effects of reduced demand due to a downturn in the property sector. The government is expected to resume active monitoring of supply and demand after neglecting it in 2023 to facilitate a rebound from stringent COVID-19 lockdowns.

CISA (the Chinese Iron and Steel Association) supports this initiative and advocates for active monitoring of demand and supply, along with advancing maintenance schedules to offset the downturn in demand since the New Year break in February.

While steel production is still forecasted to reach around a billion tonnes this year, the WSA anticipates a modest increase in global demand by 1.7% to 1.79 billion tonnes, down from the previous forecast of a 1.9% rise in October. Although 2024 is expected to see a recovery from the 1.1% slide in global steel demand in 2023, the WSA foresees a further 1.2% rise in 2025 to 1.82 billion tonnes.

Despite this, the WSA predicts that Chinese steel demand will remain relatively stagnant in 2023, hovering around the same level as in 2023, as real estate investments continue to decline. However, the association expects this loss in steel demand to be offset by growth in infrastructure investments and manufacturing, particularly in electric vehicles, white goods, and associated equipment, fueled by a widespread scrappage scheme recently announced by the government.

Looking ahead, the WSA forecasts a decline in Chinese steel demand in 2025, with a predicted 886.7 million tonnes, significantly lower than the peak demand observed in 2020. The WSA observes that Chinese steel demand might have peaked and is likely to continue declining in the medium term as the country shifts away from an economic development model dependent on real estate and infrastructure investment.

Prominently, India has emerged as the strongest driver of steel demand growth, with the WSA predicting an 8% growth over 2024-2025 driven by continued strong consumption in all steel-user sectors, especially infrastructure investment.

However, the WSA warns of "significant risks" such as further escalation in geopolitical tensions, persistent inflationary pressures, and high and rising public debt levels triggering fiscal consolidation in major economies, which have the potential to slow or derail the ongoing economic recovery.

Meanwhile, world crude steel production covered by the 71 members of the WSA jumped 3.7% in February to nearly 149 million tonnes. This saw production for January and February surpassing 300 million tonnes, a rise of 3% to 307 million tonnes.

Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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