Ground Breakers: Global steel demand will rise in 2022 but key China market will be flat, WSA says
Mining
October 15, 2021 |Josh Chiat
- Global steel demand is expected to to rise 2.2% to almost 1.9 billion tonnes in 2022, the World Steel Association says.
- That would come after a 4.5% rise to 1.855Bt in 2021, driven by a quicker than expected return to pre-pandemic economic conditions outside China.
- However, a sharp drop in steel demand in China has seen downgrades on previous projections of 2.7% and 5.8% demand growth, respectively.
- “2021 has seen a stronger than expected recovery in steel demand, leading to upward revisions in our forecast across the board except for China. Due to this vigorous recovery, global steel demand outside China is expected to return earlier than expected to its pre-pandemic level this year,” Worldsteel Economics Committee chairman Al Remeithi said.
- “Strong manufacturing activity bolstered by pent-up demand is the main contributor.”
- “The developed economies have outperformed our earlier expectations by a larger margin than the developing economies, reflecting the positive benefit of higher vaccination rates and government support measures.”
- “In the emerging economies, especially in Asia, the recovery momentum was interrupted by the resurgence of infections.”
- With prices back at US$126/t overnight after recently dipping to US$93/t that would appear to be positive for the price of iron ore, Australia’s most valuable export.
- However, growth pains in China remain a headwind.
- Prices are effectively set in China, often referred to as ‘the only market that matters’ in iron ore, where more than half of all global steel production is based.
- “While the manufacturing sector’s recovery remained more resilient to the new waves of infection than expected, supply-side constraints led to a levelling off of the recovery in the second half of the year and are preventing a stronger recovery in 2021,” Remeithi said.
- “But with high backlog orders combined with a rebuilding of inventories and further progress in vaccinations in developing countries, we expect steel demand will continue to recover in 2022.”
- “Persistent rising inflation, continued slow vaccination progress in developing countries and further growth deceleration in China all pose risks to this forecast.”
Steel demand recovers, but China flat
The price of iron ore has fallen from record highs in May to levels closer to historic norms because of China’s determination to keep steel production flat year-on-year in 2021, which has seen it place artificial curbs on factories.
Demand is expected to rise by 12.2% in developed economies like the USA in 2021 and 4.3% next year, erasing the 12.7% fall brought on by the coronavirus in 2020.
Recoveries are expected in other developing economies like Brazil and India, but China is not expecting a boom like we saw in the early parts of this year, according to the WSA.
“From a high base last year and with a continued negative trend in the real estate sector, Chinese steel demand will have negative growth for the rest of 2021,” it said.
“As a result, while the January to August apparent steel use still stands at a positive 2.7%, overall steel demand is expected to decline by -1.0% in 2021.”
“No growth in steel demand is expected in 2022, with the real estate sector remaining depressed in line with the government policy stance on rebalancing and environmental protection.”
“Some restocking activities might support apparent steel use. Recent government action to push for a transition away from the real estate-dependent growth model is likely to continue.”
Rio Tinto’s (ASX:RIO)disastrous third quarter report today, which featured a cavalcade of production downgrades, could provide some confidence for iron ore market outside Rio, even if it inspires the opposite among Rio investors.
RBC’s Kaan Peker said the market is still expected to be in surplus next year.
“Although this report has potential to help sentiment for the iron ore market, on our current forecasts, even with substantial cuts to production from all of the majors, there will still likely be a surplus of iron ore in 2022,” he said in a note.
Across the broader resources market zinc rose 8.5% to 14 year highs on power crisis related supply cuts.
BHP (ASX:BHP)and FMG(ASX:FMG)got gain from Rio’s pain, rising steadily on the open while copper minersOZ Minerals (ASX:OZL)andSandfire Resources (ASX:SFR)were among the top performers with the red metal performing brightly, surging back in the direction of US$10,000/t for the first time since hitting record highs around the middle of the year.
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