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Global steel demand woes exposed by drop in Chinese exports

Monterrey, Mexico — Flagging demand has returned to the forefront of concerns aired by steel industry executives gathered in the northeastern Mexican city of Monterrey for the annual general assembly of the World Steel Association, as the volume of steel China exports has seen steady declines, making it less of a target for criticism as it was in the past few years.

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Among the end-use sectors that have come under scrutiny were automotive and construction, which have weakened this year, but may recover due to the largesse of governments seeking to stimulate demand.

AUTOMOTIVE DEMAND APPROACHING PEAK

Worldsteel expects automotive output to contract this year following shrinkages in demand in major markets such as Germany, China, Turkey and South Korea.

In the short term, this was attributed not just to market saturation and a pullback of purchasing incentives, but also to consumers postponing buying decisions as the auto industry transitions to hybrid and electric-powered options.

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"On a longer-term basis, we're probably approaching a long term peak for steel [demand] in the automotive markets," said Edwin Basson, the association's director general said. "I don't think there will be substantial upticks in automotive demand."

On the sharp declines in Chinese auto output and sales this year, Yu Yong, president of HBIS Group and incoming chairman of worldsteel, said: "The main reasons are perhaps not on the level of the economy, but more importantly due to the influx of new [energy] vehicles, ride sharing and consumer expectations on future demand."

"I think this is a phase and will not have a lasting impact," Yu said.

In China, the world's biggest automotive market, vehicle output has slumped 13.8% on the year in January-August, but could recover in 2020 as the government is expected to introduce tax measures to boost passenger vehicle sales, especially for new energy vehicles, worldsteel said.

CONSTRUCTION PICTURE MIXED

In the construction sector, global growth is seen slowing to 1.5% this year and 1.2% in 2020 after a 2.8% rise in 2018, according to worldsteel.

Developed economies such as the US, Western and Central Europe, Japan and South Korea are expected either to shrink or show no growth this year and next. But in the developing economies of China, Southeast Asia and India, infrastructure investment has underpinned demand growth this year but could ease in 2020.

"In developed economies we do see some replacement activity; trying to make buildings more environmentally friendly, we also see some infrastructure replacement," Basson said. "However in developing economies it is just growing on all fronts."

On Turkey, Saeed Al Remeithi, CEO of Emirates Steel and chairman of worldsteel's economics committee, said "we see a bit of rebound there and things are looking better, [as] the government is trying to reduce interest rates and boost consumption."

Turkey, the top importer of ferrous scrap and an active exporter of rebar and billet after domestic demand slumped as a result of geopolitical events over the past year, is one of the countries Basson singled out alongside Southeast Asia where there should be continued strength in demand for construction steel arising from the shift in rural populations to urban centers.

Chinese steel exports, a punching bag conveniently blamed by industry executives elsewhere for worsening the global oversupply situation, have fallen 6% on the year in January-September to 50.3 million mt, and, annualized, mark the fourth straight year of falls from a peak of 112.4 million mt in 2015.

-- Keith Tan, newsdesk@spglobal.com

-- Edited by Jonathan Dart, newsdesk@spglobal.com