Steel Prices / Market Analyses

Slow start to the New Year

Global economic conditions seem to be plunging along with temperatures for much of the developed world. 2011 was a difficult year and will be remembered forever as the year of the sovereign debt crisis; the never ending Eurozone debacle came into sharp focus and so did the increasing US debt burden and the country’s astonishing inability to take decisive measures to deal with it. The US has the largest individual share of the world gross domestic product (18.6 percent) closely followed by the EU15 nations (members of the European Union that joined before 2004) with 17.9 percent. Both these major economic entities are awash in a sea of red ink while China, which currently owns 15.9 percent of global output, has implemented measures to curtail credit in order to cool off an overheating economy. Taking all this into account, the outlook for 2012 is decidedly lackluster; initial estimates by the US Conference Board indicate global growth of 3.6 percent for this year. It also shows that advanced economies hold 50.3 percent of world output compared to 49.7 percent for emerging and developing countries, but it would not be too bold to predict that 2012 will see emerging and developing countries acquiring a larger share of global GDP than the advanced economies. The single most dangerous threat to the global economy, however, remains the festering Eurozone debt crisis with a potentially disintegrating currency.


Last year was a difficult one for the US economy. Going into 2012, there are multiple indications of a turnaround—however modest it might be. The auto industry seems to be on the mend, at least in terms of sales, which increased roughly 10 percent in 2011 compared to the previous year. Ford will remain the industry leader but GM has had significant successes with a range of new models that include electric cars and improved hybrid vehicles. The housing industry will not experience a huge reversal of fortunes but housing starts did improve late last year and broke through the 600,000 unit mark. Again, by traditional standards this is a modest improvement, but some improvement is better than none.  House values, alas, will remain depressed for the year. Still, consumer sentiments are up, interest rates will likely remain low and the job market finally showed some real improvements at the end of 2011. Fiscal stalemate in Washington, however, can always undo any real progress and will be of genuine concern when mandatory spending cuts could come into effect early this year.

As for Latin America, combined growth will not be as strong in 2012 as originally predicted, coming in around 2.5 percent from 4.0 percent in 2011. Brazil’s economy was hit hard by China’s reduced demand for raw materials and was close to stalling in Q4 of last year. The country’s principal objective for this year will be to control the resurgent inflation which had spiked close to 7 percent late last year. Mexico has been keeping a wary eye to the development north of their border because if the US is not doing well, neither will Mexico. Still, economic growth late last year was surprisingly strong and bodes well for 2012. Colombia, on the other hand, remains the region’s top economic performer. Its economy should grow in excess of 5 percent again this year with inflation remaining steady within the target range of 2 to 4 percent. Overall, the region is not unduly indebted which sets it distinctly apart from the US. How times have changed…

Total Steel Production North America Jan-Oct 2011 (‘000 mt): 99,086mt (+6.3% compared to 2010)

Total Steel Production South America Jan-Oct 2011 (‘000 mt):  40,997mt (+11.5%)

Total Vehicle Production NAFTA countries Jan-Oct 2011: 11,206,218 units (+9.3%)

  GDP – latest quarter compared to previous one and forecast for full-year 2011 Consumer Prices latest and year ago Industrial Production year-on-year Steel Production YTD Oct 2011  in thousand mt and change to 2010
United States

+2.0% Q3/+1.7%

+3.5% Oct (+1.5%)

+3.9% Oct



-0.4% Q2/+2.2%

+2.9% Oct (+2.2%)

+3.1% Aug



+4.5% Q3/+3.4 %

+3.2% Oct (+4.0%)

+3.6% Sep



+3.1% Q2/+3.0%

+7.0% Oct (+5.2%)

-1.6% Sep



The dominating event in 2011 was the sovereign debt crisis of the Eurozone with its many “solutions” that were undone within weeks or even days. The unresolved issues on how to get countries like Greece back on track and stop the contagion from spreading to other member countries such as Italy, Spain and even top-rated France will without a doubt remain the central European focus in 2012. European banks are increasingly feeling the stress of this crisis as well, which could result in another credit crunch. The agreement with the US Federal Reserve to pump funds into the European Central Bank came as a welcome relief; but it could turn out to be just another short-term stopgap measure.  France will struggle to maintain its triple AAA credit rating and will face €106.2 billion in bond payments coming due Q1 2012. Italy might be even more exposed when a total of €112.9 billion of its Treasury bonds will have to be honored in the first quarter and financing through new bond sales will have to be conducted with unsustainable interest yields of over 7 percent. A recession for the Eurozone seems very likely and for the UK it seems almost inevitable. Going into the New Year, the Bank of England released a warning of six more years of misery.  The British government has introduced stern austerity measures that will translate into a lot of hardship for the population. Still, the budget deficit for 2012 will be a whopping 8.1 percent of GDP.  Turkey will remain one of the few bright spots and can smugly point to its own experience when it almost faced an economic collapse a few years ago only to emerge as a stronger country based on a sound economy after implementing painful reforms.

Total Steel Production January – Oct 2011 in thousand mt:

European Union (EU 27): 150,781mt (+3.6% compared to 2010)

Other Europe:                   30,744mt (+17.5%)

CIS Countries (6):               94,141mt (+5.3%)


  GDP-latest quarter compared to previous one and forecast for full-year 2011 Consumer Prices latest and a year ago Industrial Production year-on-year Steel Production  YTD Oct 2011 in thousand mt and change to 2010

+2.0% Q3/+2.9%

+2.5% Oct/+1.3%

+5.7% Sep



+1.6% Q3/+1.6%

+2.3% Oct/+1.6%

+2.3% Sep



+1.2% Q2/+0.6%

+3.4% Oct/+1.7%

-2.7% Sep



+2.0% Q2/+0.9%

+5.0% Oct/+3.1%

-0.7% Sep



0% Q3/+0.6%

+3.0% Oct/+2.3%

-1.7% Sep



+4.8% Q3*/+4.0%

+7.2% Oct/+7.5%

+3.6% Oct



+8.8% Q2*/+7.5%

+7.7% Oct/+8.6%

+12.0% Sep


*year-on-year figures


The debt crises in the Eurozone and the United States have affected Asian countries as well. With two of their main markets in turmoil, vital exports are lagging and domestic demand in the area cannot always compensate for the shortfall. In fact, domestic demand in emerging Asian countries (excluding China and Japan) fell more drastically than exports to the US and to the EU. The Chinese government has managed to slow down inflation by tightening credit, but smaller companies are suffering and have to go to the black market to get their financing done. Going into January, economic growth was still strong and in excess of 9 percent. This will likely not be repeated throughout the rest of 2012, when growth is expected to be 8.5 percent. Similarly, India’s economy has slowed down as well. Last year’s growth will likely be in the low 7 percent range and for 2012 it will probably fall to 6.5 percent. Common perception has seen Japan’s economy in stagflation for most of the time not only last year but, in essence, since the beginning of the century. For the second time since the early 1980s experts are talking about a “lost decade.” But look again and you find that this could be a misnomer: Q3 of last year saw an annualized growth of 6.0 percent. Moreover, if you take the period between 2001 and 2010, Japan’s economy grew in aggregate at half the pace of America’s; but on a per capita basis, Japan slightly outperformed the US and the Euro area during the same time period. For 2012 economic growth will be around 2.2 percent which is respectable and takes into account the massive reconstruction efforts going on in the Northeast of Japan in the wake of the 2011 earthquake and tsunami. Excluding Japan, the Asian region will grow by about 6.2 percent in 2012.

  GDP – latest  quarter compared to previous one and forecast for full-year 2011 Consumer Prices latest and year ago Industrial Production latest twelve months Steel Production YTD Oct 2011 in thousand mt and change to 2010

+9.5% Q3/+9.1%

+5.5% Oct/+4.4%

+13.2% Oct



+6.0% Q3/-0.5%

0% Sep/-0.9%

-4.0% Sep


South Korea

+3.0% Q3/+3.9%

+3.9% Oct/+4.1%

+6.8% Sep



+5.0% Q3/+4.4%

+1.2% Oct/+0.6%

+1.6% Sep



+5.8% Q3*/+4.5%

+3.4% Oct/+1.8%

+2.5% Sep



+7.7 % Q2*/+7.8%

+10.1% Sep/+10.1%

+1.9% Sep



+4.8% Q2/+2.0%

+3.5% Q3/+2.8%

-3.3% Q2


*year-on-year figures


Africa / Middle East:

The Arab Spring has shifted the political focus on the area and the world will be watching if economic progress can follow suit. Some of the fastest-growing countries in the world are located in the Middle East, such as Libya with an estimated 13.6 percent growth in 2011 and Iraq with 10.9 percent. If the political situation in both countries can stay stable and peaceful, they should experience similar growth this year. Egypt, meanwhile, is only expected to grow around 3 percent in 2012 and Saudi Arabia should manage a similar performance as last year with 5 percent growth. North Africa and the Middle East combined should grow by about 4 percent. But what about the desperately poor sub-Saharan African countries? Some countries such as Angola and Ethiopia showed a lot of promise last year with about 9 percent growth. More populous countries such as Nigeria (up 6.5 percent) and South Africa (up 3.6 percent) still have not lived up to expectations.  Nigeria’s inflation rate of 10.1 percent is worrisome even though Angola and Ethiopia battle with an even higher rate  (13 percent). Sustained double-digit growth and low inflation is what sub-Saharan Africa is looking for and will once again miss this year.



The African continent has been called many things and many times it was not very flattering. Not too long ago it was referred to as the “hopeless” continent—a never-ending stream of civil wars, ethnic rivalries and famines kept Africa in the global headlines in the worst possible way. Finally, after the first decade of the 21st century, there seems to be some hope. Based on a study by the International Monetary Fund, most African countries have begun to show some economic growth. It is still less than what is needed, but it is a promising beginning. During the period of 2007-2011 at least a dozen states have grown more than 6 percent a year. Angola and Ethiopia showed a gain of close to 10 percent in their gross domestic product. Ghana and Malawi were around 8 percent and Mozambique and oil rich Nigeria grew in that time by 7 percent. This year Ethiopia is expected to grow another 7.5 percent and doing so without a drop of oil to export. Once synonymous with drought and famine, Ethiopia is now the world’s 10th largest producer of livestock. The World Bank estimates that despite the slowdown in the developed world, sub-Saharan African states will grow another 7.5 percent this year.

Trade between Africa and the rest of the world has increased 200 percent since 2000, but Africa’s trading partners are slowly changing in name. There is less dependency on Europe as the BRIC countries (Brazil, Russia, India and China) have taken a 20 percent share of Africa’s foreign trade. This share is set to increase to 50 percent within the next two decades.  Some bullish analysts are already talking of “lion economies” in Africa drawing a comparison to the Asian tiger economies. This is a bit too optimistic for now, but Africa could be on the brink of an economic takeoff similar to China’s 30 years ago. Africa has half of the world’s gold reserves and a third of its diamonds. There are substantial reserves of all kinds of other minerals and metals such as copper. Nigeria is the world’s 12th largest oil producer and ranks 8th in oil exports.

Demography favors African countries as well. The median age is now 20 compared to 30 in Asia and 40 in Europe. Africa’s population is bound to double, from 1 billion to 2 billion in the next 40 years. Additionally, 60 million African households have an annual income of $3,000, and by 2015 this number will increase to 100 million households. That’s not much by any income standard, but it does make for a huge market. More than 600 million Africans have a mobile telephone. In 2010 foreign direct investment into Africa was in excess of $55 billion—five times higher than it was 10 years ago. Of course, not all is well and some numbers still point to the old, well-known problems of African nations. More than half of the continent’s people still live below the poverty line and 118 out of 1000 children will die before their fifth birthday. Embezzlement and corruption still are rampant and there is less food produced per person now than in 1960. Economic conditions have changed, however, and the future for the African continent looks a little brighter now than it did only a short while ago. There is hope—at last.

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