Blog - SRO: Why our forecasts were right

Dr Nae Hee Han, worldsteel Director, Economic Studies and Statistics

17 April 2019

Our April 2018 Short Range Outlook was based on a rosy picture of the global economic environment, which turned somewhat sour in the third quarter of 2018.  

Two factors contributed to the worsening of the economic environment. First, the global economic cycle peaked during the course of 2018. Second, uncertainties have escalated with trade wars leading to financial market volatilities. Added to this, the world has been nervous about China’s slowdown.

As a result, global economic institutions like the IMF and the OECD have continuously been revising downward their economic forecasts for 2018 and 2019.

As we move into 2019, the risks have not subsided, uncertainties remain elevated and trade tensions are still on top of the list along with China’s slowdown.

The graph below tracks the changes in IMF Global GDP forecasts from October 2017 to 2020. We can see that global GDP growth forecasts for 2018 and 2019 have been revised downward continuously since our October 2018 SRO reflecting the above factors.

 

With this background, the results of our 2019 SRO come as no surprise. Our forecasts for growth of global steel demand in 2018 and 2019 have remained surprisingly stable with virtually no revisions since the April 2018 SRO, despite a rather dramatic turnaround in the economic sentiment mentioned above.  

This is rather unexpected. Usually, steel demand fluctuates considerably around business cycles and is sensitive to business confidence, but it does not seem to be the case this time.

However, when we look at the details of revisions, we do see some upward and downward revisions. China’s steel demand forecast for 2019 was revised up by 1 percentage point on the account of stimulus measures, which was offset by a 1 percentage point downward revisions in the rest of the world. 

But the downward revisions in the rest of the world come mostly from Turkey and the Middle East, which is accountable to region specific factors (i.e. currency crisis and oil price, respectively). 

So, all in all, steel demand stood resilient to the economic downturn in many parts of the world. Later on in 2020, the growth is expected to accelerate in most emerging economies.

 

So, it is true that due to China’s structural transformation, the global steel industry has moved to a slower growth pace, but the global steel industry can still count on the emerging economies to continue to drive growth in steel demand even in difficult times - particularly India and the Association of Southeast Asian Nations (ASEAN).

Add your comment here.

  • 1

    It is also true that downward risks in EU, Turkey, ME and partly in China are mostly taken care of by rise in consumption in USA, India and SE Asia, but not fully. Any sustenance of the downward risks fuelled by uncertain global trade may perpetuate slowdown in 2020 also. Hopefully the continuation of stimulus measures as propagated by MMT (Modern Monetary Theory) in Japan, Korea, Germany and USA duly supported by growing demand from China, India, Thailand, Indonesia, Vietnam and Iran would enable global steel industry to return to a higher growth path.

    avatarSushim BanerjeeApr 19, 2019 11:42:51 AMReply

  • 2

    You don’t seem to take into account the actual situation. Speaking purely from the graphs, it looks as if China's growth contributes to the overall growth path, rather than being a negative contributor as mentioned in your statement: “due to China’s structural transformation, the global steel industry has moved to a slower growth pace”. Could you further elaborate on this?

    avatarGinaJul 2, 2019 5:25:44 AMReply

  • 3

    Thank you for your intervention. It deserves some explanation. Before 2012 when China started to take measures in favour of speeding up its economic rebalancing, global steel demand benefited from the “China Factor”, both directly (strong growth in China itself) and indirectly (the China boom pulling steel demand in the rest of the world as well). For example, during 2000-10, China’s steel demand grew by 16.8% CAGR, whereas the rest of the world was stood at 1.5%, leading to a global growth of 5.8% CAGR. Therefore it can be said China was the dominant growth driver in that period. Since 2014, the Chinese steel demand slowed considerably and in 2014-18, the Chinese steel demand growth slowed to CAGR of 0.8% (after adjusting for the underreporting issue), lower than the CAGR of 1.1% in the ROW for the same period. So we see today that China is no longer driving global steel demand growth in the way it used to. Further, China’s economic balancing is putting pressure on the rest of the world, since many countries are dependent on China, primarily resource-dependent emerging economies. Having said that, it is also true that China’s steel demand growth rate in recent years turned out to be higher than what we could expect from its economic fundamentals due to the frequent interventions by the government to prevent a sharp economic slowdown.

    avatarNae Hee HanAug 8, 2019 12:40:14 PMReply

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