Macquarie Securities Group in London believes that steel prices should rebound by the end of 2009 from their massive decline during the recession, as Chinese demand picks up, Chinese exports slow and users in the United States and Europe resume buying.
Mr Jim Lennon executive director at Macquarie citing a slow rebuild of shuttered said that production capacity outside China relative to demand Steel's longer term outlook remains strong.
Speaking this week at American Metal Market's Steel Survival Strategies conference, Mr Lennon forecast 2009 world steel demand at 1.214 million tonnes compared with 1.352 million tonnes consumed in 2008. Excluding China, demand should fall 19.9 percent this year to 702 million tonnes.
Biggest user China, should consume far more steel this year than any other region at 511 million tonnes, a 7.6% jump above its 475 million tonne demand last year.
China's demand will be 25 to 30 million tonnes higher than actual consumption, because buyers have undergone a heavy inventory restocking after a deep destocking period last year. The analyst said that “That explains why we can come up with a production number of 540 million tonnes compared with 500 million tonnes last year, despite the fact that it will no longer be exporting 50 million tonnes. But the 540 million has upside rather than downside risk.”
He said that “Construction should dominate Chinese demand, with more than half of the total going to that sector. While export-oriented sectors should fall, China's domestic industries, like autos, shipbuilding, railways, oil and gas will all grow.”
So far this year, motor vehicle production was up by 20%, shipbuilding rose by 40% and construction activity grew by 10% compared with last year.
By contrast, he said that he sees North American steel demand at 88 million tonnes this year, a steep 28.7 percent decline below the 123 million tonnes used in 2008. Unlike the United States, where little government stimulus money has made it to infrastructure rebuilding, the Chinese government has devoted massive funds to infrastructure.
China's long steel product demand rose most sharply. Through May, it went up 23% YoY, whereas flat product demand was up only 2% to 3%. Output also rose for long products, but fell for flat steel products.
Mr Lennon said that “This suggests demand growth was very much been driven by construction, rather than flat product segments.”