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Steel, iron ore industries face tough years: analysts

Steel, iron ore industries face tough years: analysts
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First Published: Wed, Nov 26 2008. 12 04 PM IST
Updated: Wed, Nov 26 2008. 12 04 PM IST
Sao Paulo: A quick recovery for world steel and iron ore producers looks more remote every day the global financial crisis weighs on economic growth, analysts said on Tuesday.
Stuart Reynolds, manager at Global Steel Consultants, presented a bleak revised medium- to long-term outlook for the steel sector on the first day of the three-day America’s Iron Ore Conference in Rio de Janeiro.
The conference’s proceedings were largely drown out by news across the world earlier in the day that BHP Billiton abandoned its hostile takeover bid of Rio Tinto.
Participants in Rio were widely tight-lipped about the deal as many were restricted legally from making public statements about it. Others were simply reluctant to comment.
“It’s a much less rosy picture today than it was just a few months ago,” said Reynolds before a room full of steel and iron ore representatives who were still openly confident in demand projections from emerging markets like China.
The broad study on world steel demand presented by Reynolds suggested the most likely scenario would be for “no growth in steel demand through 2012” and a similar fate is seen for demand of iron ore, the sole purpose for which is steel.
The global construction sector consumes over half of all the steel produced in the world, followed by the mechanical engineering sector. Growth in demand for steel from these sectors requires investments, which have become much harder to come by in the current credit climate, Reynolds said.
Equity research analyst Roger Downey at Credit Suisse said that steel output grew by nearly 6% annually from 2001 through 2007 and “I see China steel output growth growing 5.5% through 2012.”
But China’s expected increase in capacity that is set to come online through 2012 and beyond may not find sufficient demand at home.
While world supply and demand for steel was nearly balanced in 2007 and 2008, Downey’s model showed an oversupply growing to 3 percent in 2009, 7 percent in 2010 and to 15% by 2015.
However, he was more modest in his view that iron ore prices would fall significantly in 2009.
But Reynolds was much more pessimistic, suggesting that Japan may have to retire a third of its steel-making capacity over the next five to 10 years as prices fall to $600 a tonne for hot rolled coil and rebar and less competitive mills get squeezed out of the market.
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First Published: Wed, Nov 26 2008. 12 04 PM IST
More Topics: Steel | Global | Iron | Japan | Economy |