WSD Strategic Insights XXXIV: 2014: Adverse outlook for most steel mills

Monday, 28 April 2014 10:42:49 (GMT+3)   |   San Diego
       

Fixed asset investment stagnating

The steel mills' prospect for 2014 has been deteriorating at an accelerating pace since the fourth quarter of 2013, in WSD's opinion.  Steel demand has been about flat on a year-to-year basis and steelmaking oversupply is substantial.  Hot-rolled band prices have remained depressed on the world market.  Iron ore and coking coal prices are down sharply; although the iron ore price delivered to China has rallied moderately.  More steel plants have been put up for sale.

 

"Most Likely" Scenario for the Steel Industry in 2014-2017

                                                   (Odds %)

Scenario

2014

2015

2016

2017

Shake out times

20

10

10

5

Bad times

55

25

15

10

Fair times

20

35

25

20

Good times

5

25

40

45

Boom times

0

5

10

20

 

The fixed asset investment outlook is hard to track precisely.  However, recent events in the Ukraine, along with slow growth rates for many economies, appears to be boosting the odds that contagion - i.e. financial malaise - is spreading sufficiently to slow construction and capital spending in many countries.  And, when economic growth rates are low, non-steel-intensive services, account for a higher share of the overall growth.  Hence, WSD does not see much of a rise in steel demand this year, with demand probably down in the Developing World ex-China.

New global steel trade patterns are emerging in 2014 reflecting: a) the strong U.S. dollar versus many Developing World currencies; b) unsettling political developments in the Middle East, Turkey and, now, Russia/Ukraine; c) regional steel demand shifts; and d) an avalanche of steel trade suits against the Chinese. 

Steel is a late-in-cycle industry.  Even when there's an initial pick-up in the global economy, steel demand may not increase much because it's tied significantly to fixed asset investment (FAI).  FAI typically rises sharply only in the second or third year of an economic recovery; and, then, remains strong for about a year or two when the economy is peaking.

For additional information of WSD's services, please contact us at:
wsd@worldsteeldynamics.com
Or visit our website at:
www.worldsteeldynamics.com


Similar articles

BCG: Steel industry may face scrap shortage with EAF transition

15 Mar | Steel News

Cleveland-Cliffs and USW blame US Steel for ITC ruling

01 Mar | Steel News

USW receives Biden’s support on opposition to sale of US Steel

06 Feb | Steel News

Biden: Acquisition of US Steel by Nippon Steel needs to be investigated

28 Dec | Steel News

Traders at IREPAS: Prices increase amid regional trade flow interruptions

21 Sep | Steel News

Markets fear possible consequences of escalation of US-Iran tensions

08 Jan | Steel News

Worldsteel in Monterrey: Energy sector to boost steel demand in Americas after 2020

21 Oct | Steel News

Guillermo Vogel at worldsteel in Monterrey: Mexican steel industry focuses on inclusive growth in López Obrador period

17 Oct | Steel News

WSD CEO: Stability in China is a key factor supporting prices

19 Jun | Steel News

Michael Setterdahl: We are looking forward to a more stable and predictive market in 2019

10 Dec | Interview