Odds for non-Chinese steel industry scenarios: 2015-2017
The fundamental problem for the steel mills in 2015 and 2016 is likely to be stagnating steel demand. In China, it may recede due to declining residential construction (given the accelerating decline in housing prices). Elsewhere, the demand will be impacted by lagging fixed asset investment (due to spreading financial contagion) and less spending on energy and energy-related projects.
For 2015, we place the odds at 95 percent that the steel industry will be in either a Shake-out Times or Bad Times condition. Not until 2017 does WSD turn optimistic about the steel industry profit outlook - with the odds for Good Times and/or Boom Times placed at 65 percent. The outlook by 2017 is bolstered by: a) rising steel demand outside of China (largely due to increased fixed asset investment); b) reduced steelmaking capacity both in China and elsewhere; and c) a sufficiently high operating rate, on an ECO capacity or efficient capacity basis, for "pricing power" to start to shift back to the non-Chinese mills.
Initial gains in 2017 could set the stage for a steel industry boom in 2018 as steel demand rises strongly outside of China and gains in ECO capacity are constrained.
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