In recent decades, with technological advances and large sums invested in construction and infrastructure development across the world, steel has emerged as perhaps the most important industrial metal with application in a wide spectrum of economic activity. Steel is also being increasingly used in automobiles, white goods, machinery and shipbuilding.

No wonder, there is positive correlation between economic growth and steel consumption.

The global steel story is largely China-centric as the giant among emerging economies dominates the world steel market with close to 50 per cent share in output. Japan and the US are a distant second and third, with India ranked fourth, despite being just a tenth of Chinese output size.

Demand-supply trend

In 2011, world crude steel output breached the magic level of 1,500 million tonnes (mt). The rising trend in world crude steel production is expected to continue in the coming years, albeit at a slower pace.

The past couple of years have seen little steel capacity added in the world market. In the immediate context, with demand growth prospects improving in all regions as industrial output increases, global steel utilisation rates will increase, particularly in China, given the ongoing production restrictions. Although easing, margins will continue to be under stress.

Forecast to grow at 2.3 to 3.0 per cent in the coming years, world steel consumption is set to rise to 1,625 mt in 2014, going up to 1,665 mt in 2015. China will dominate consumption too with forecast quantum of 730 mt in 2014 and 765 mt in 2015.

With the Asian major entering a new phase of development, growth is expected to be less steel-intensive, implying that steel demand growth will underperform GDP growth. The future focus is expected to be on capacity closure, environmental performance and upgrading.

At the global level, excess capacity has become one of the biggest challenges facing the steel industry and has impacted its financial health.

According to OECD Steel committee, the steel industry is not financially sustainable, the outlook remains challenging, and the long-term financial health might be elusive without significant restructuring. In the past, low demand and excess capacity have been associated with a proliferation of trade actions.

Taking a three to six months’ view, supply growth will be normal and demand stable. In the medium-to-long term, however, the outlook is not inspiring as the market will continue to suffer from chronic overcapacity, which will take years to restructure.

India picture

While the per capita consumption of steel for the whole world is estimated at 215 kg, that for India is 60 kg.

The potential for a marked increase in steel consumption in the country is well recognised. Investment in infrastructure projects, growth in the manufacturing sector and rapid urbanisation are set to drive steel demand in the coming years. However, environmental issues, iron-ore mining policy, as well as trade and tariff policies, will be crucial determinants of volumes. Based on the assessment of ongoing projects, both greenfield and brownfield, the working group on steel for the Twelfth Plan has projected crude steel capacity in the country to expand to 140 mt by 2017.

To achieve this production level, about 225 mt of iron ore will be required.

Availability, prices and trade policy for iron ore will, of course, have a bearing on steel production as certain restrictions are in operation currently.

Price outlook

In the world market, steel hot rolled cold (HRC) prices averaged $653/t in 2012, which declined to $615/t in 2013.

Given the incipient growth signals emanating under the lead of the US, a small increase in average price can be expected in 2014. A forecast average of $620/t for 2014 would mean that prices can move in the broad range of $590/t on the downside and $650/t on the upside.