In the latest sign that a slowing world economy and, in many parts of the world, a subdued construction industry are affecting upstream industries in the building and construction supply chain, growth rates in the demand for steel have plummeted and are expected to continue to do so, with growth rates in Canada and elsewhere in North America expected to drop by more than half next year, albeit from high levels.
In its October, 2012 Short Range Outlook, the World Steel Association (worldsteel) says it expects growth in the overall demand for steel around the world to drop from 6.2 per cent in 2011 to 2.1 per cent this year and 3.2 per cent next year.
Though worldsteel has not issued specific forecasts for Canada, it says current strong levels of growth in steel demand throughout the North American Free Trade Agreement zone of nine per cent and 7.5 per cent in 2011 and 2012 respectively will drop by more than half to 3.6 per cent in 2013.
Worldsteel economics chairman Hans Jürgen Kerkhoff says the latest forecasts, which follow a downgrade in global economic expectations from the International Monetary Fund, reflects deteriorating conditions in the world economy, particularly in China.
“Earlier this year we were seeing some signs of recovery from the slowdown of the last quarter of 2011 and we expected a better second half performance in 2012,” Kerkhoff says. “However, the economic situation deteriorated during the second quarter of this year due to continued uncertainty arising from the debt crisis in euro zone and a sharper than expected slowdown in China. These factors have weighed heavily on business confidence and manufacturing activities around the world. As a result momentum in both the developed and emerging part of the world weakened considerably.”
Kerkhoff does say, however, that demand will recover slightly next year if the crisis in Europe can be contained, the US is able to deal with its impending fiscal woes and the Chinese government is able to facilitate a soft landing for that country’s economy.
Along with slowing demand, steel producers around the world are being hit by a build-up in inventory resulting from overproduction in China, which is then sold onto world markets.
In August, the world consumed only just over three-quarters of the volume of steel it has the capacity to produce, according to earlier worldsteel figures released last month.
All of this is hampering prices, which according to data from MEPS Ltd are down by nearly 20 per cent since their peak in April last year.
While none of this is welcome news for steel manufacturers, it produces a silver lining for the construction industry in terms of weaker prices and less pressure on input costs.
This is particularly the case in Canada, where conditions in the construction industry are currently holding up reasonably well on the back of a strong resource sector, increasing volumes of work in non-residential building and strong residential construction demand in the condominium sector.
The latest figures follow an earlier report from worldsteel saying that steel makers around the world had beefed up their environmental and sustainability commitments.
