In 2015, the steel industry is forecast to turn to the Open Road path to the future. We expect a number of circumstances to come together in 2015 and the years just following that will work strongly to boost steel mill profitability. Among these are:
- An improved growth rate for global steel demand, even though Chinese steel demand may be expanding at only an anemic pace. The key development will be rising fixed asset investment as a share of GDP outside of China.
- A reduction in global effective steelmaking and rolling mill capacity as many marginal plants will have been closed and/or de-emphasized. WSD believes that about one in seven steel plants located outside of China can't "make it" in a low profit margin environment.
- No sustained major spurt in the prices of iron ore and coking coal because of a continuing oversupply of these products. Although, steel scrap price volatility might be a never ending prospect for this commodity.
- Widespread, actions by steel mills and their customers to hedge the steel price risk. This writer knows of no top management at any steel company that believes in our prognostication that liquid futures curves will be beneficial to steel mills profitability.
Might the return to a "good times" environment for the steel industry be delayed beyond 2015? The answer, of course, is "Why not?" If so, a development that might dampen the expansion of the global economy could be another financial crisis. Examples of possible financial crises include: the bursting of the USA stock market bubble (which WSD thinks is not far-fetched); loss of confidence in the U.S. dollar, which means that it plummets in value (probably not likely given the vitality of the U.S. economy and the growing supply of low-priced natural gas); and/or a collapse of the Chinese economy (while a sizable slowdown seems possible, a collapse seems unlikely).
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