Blog: SRO 2017-2018 - The good and the not so good

Dr Nae Hee Han
Director, Economic Studies and Statistics

Short Range Outlook 2017 - 2018 - The good and the not so good | 21 April 2017

The good news is that the global recovery is broadening while at the same time gaining in strength; the not so good news is the absence of a strong growth engine.

The latest world economic outlook of the IMF and OECD both point to an improving picture of the global economy for 2017 and 2018 accompanied by improving business and consumer confidence.  worldsteel’s April 2017 Short Range Outlook echoes this picture: recovery in steel demand is broadening and strengthening.

Especially in 2018, all regions/countries, except China, are expected to show growth.  So, the worst is over and we can expect a cyclical upturn in steel demand in the next couple of years. However, the bad news is that the growth rate will only be in the range of roughly 1% while the global GDP growth is expected to exceed 3.5%. 

How can we explain the steel demand growth lagging behind the GDP growth despite the cyclical upturn?  In the past, the pattern was as follows: during a cyclical upturn, steel demand growth tended to outpace GDP growth and during a cyclical downturn, steel demand deceleration outpaced GDP deceleration.

The situation we are facing now can be explained in the context of the structural changes of the global steel industry in the post crisis period.

First, since 2013, when the Chinese steel demand peaked, the growth engine has shifted from China to much smaller regions.  From 2014, other emerging economies, especially the Asian emerging economies such as India and ASEAN have been the main contributors to growth, but they are much smaller in size than China (see chart below).  

Secondly, investment has remained weak globally since the financial crisis. Economic recovery has been driven by consumption rather than investment, with China rebalancing toward consumption, major emerging economies suffering from structural problems, and the developed economies going through deleveraging. Steel demand is far more responsive to investment than consumption.

Thirdly, there is an important long-term force at work.  Global steel intensity (the amount of steel used to produce one unit of GDP) has been declining and will continue to do so due to the long-term forces such as environmental regulations and the shift toward the circular economy which will lead to a more efficient use of materials and require lighter but stronger steel.  We have already experienced a similar phenomenon in the past: following the oil crises of the mid 70’s until the year 2000, the steel intensity of GDP declined at an annual rate of 1.7%.

Most of these structural factors are not likely to change the course we are on. We can only hope that investment will become stronger on the back of improving business confidence and that the never receding uncertainties, which are today increasingly politically driven, do not kill the green shoots.

Thank you for leaving your comments.

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  • 1

    Excellent blog and a very helpful complement to the press release.

    avatarMartin TheuringerApr 21, 2017 2:33:05 PMReply

  • 2

    Short and to the point. Thank you!

    avatarIgor BaranovApr 26, 2017 9:18:48 AMReply

  • 3

    Even with a low growth rate, I hope we can feel this effect here in Brazil.

    avatarMarcos CorreaApr 26, 2017 6:03:09 PMReply

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