The World Steel Association (worldsteel) has forecast 1.8% year-on-year growth in global steel demand to 1.62-billion tonnes this year.

Worldsteel further reports in its April Short Range Outlook (SRO), published on Tuesday, that global steel demand will grow by a further 0.7% to 1.63-billion tonnes in 2019.

Worldsteel economics committee chairperson TV Narendran said that, in the next couple of years, the global economic situation is expected to remain favourable with high confidence and strengthening recovery of investment levels in advanced economies.

“Benefitting from this, steel demand in both developed and developing economies is expected to show sustained growth momentum with risks relatively limited. However, possible adverse impacts from rising trade tensions and the probable US and European Union (EU) interest rate movements could erode this current momentum.”

However, the SRO indicated that upside and downside risks to this forecast are mostly balanced.

In 2018, high confidence, strong investment levels and a recovery in commodity prices are generating a virtuous cycle for steel demand globally both in developed and developing economies.

The slight deceleration in 2019 will be due to further deceleration in China and weakened investment momentum due to higher interest rates.

On the downside, the possible escalation of trade tensions, rising inflationary pressure and tightening of US and EU monetary policies may cause volatility in the financial market and challenge highly indebted emerging economies.

In addition, the SRO indicated that China will return to the deceleration trend.

In 2017, the mild government stimulus measures provided some boost to construction activity, but investment continued to decelerate, and steel demand showed only a moderate increase despite the stimulus.

In 2018 and 2019, gross domestic product (GDP) growth is expected to decelerate mildly, but as the Chinese government continues to focus on shifting the growth driver toward consumption, investment is likely to further decelerate.

Steel demand in 2018 is expected to stay flat and is expected to contract by 2% in 2019 with a further slowdown in construction activity.

In manufacturing, the machinery sector is expected to maintain positive growth on the back of a strong global economy while automotive and home appliances are expected to decelerate.

High corporate and local government debt continues to raise concern but a hard landing for the Chinese economy is unlikely in the short run, worldsteel said in the outlook.

However, the SRO highlighted that the outlook for developed economies remains robust with steel demand in the developed world expected to increase by 1.8% in 2018 and decelerate to 1.1% in 2019.

The outlook for steel demand in the US remains robust on the back of the strong economic fundamentals through strong consumption and investment owing to high confidence, rising income and low interest rates.

Meanwhile, the EU economy has developed strong momentum with broadening recovery across countries.

Prompted by robust domestic and external demand, the SRO notes that investments are expected to remain a major growth driver while low inflation, and wage as well as real income growth will support private consumption.

Steel demand, in turn, will be supported by a pickup in nonresidential construction and strong manufacturing activities.

The automotive sector in both the EU and the US is expected to moderate due to saturation effect and rising interest rates, while the machinery sector is expected to benefit from rising investment.  

An expected monetary tightening in the US and the EU is responsible for the forecast deceleration of steel demand growth in 2019.

However, steel demand in Japan has been benefitting from an improving investment sentiment and government stimulus, but the scope of growth will continue to be limited by structural factors such as an ageing population, worldsteel warned.

“Despite improved consumer sentiment, steel demand growth in South Korea will be constrained by high consumer debts, weakening construction and a depressed shipbuilding sector.”

Steel demand in emerging and developing economies (excluding China) is expected to increase by 4.9% and 4.5% in 2018 and 2019, respectively, with recovery in oil and commodity prices having improved the outlook for countries in the Middle East and North Africa region.

Provided that geopolitical stability can be achieved, worldsteel notes that the steel demand outlook for the region could further improve as a result of reconstruction activities.