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Economic ebb & flow

By Lauren Duensing

October 2013 - Since it entered the world stage, China’s economy has had a huge effect on the fortunes of the global market—for better or worse. And, according to Philipp Englin, director general of World Steel Dynamics, Chinese demand for steel may soon begin to decline as a result of the country rebalancing its economy. “It’s just a matter of time; it could be a matter of two or three years or even less when we are not sitting talking about whether Chinese steel demand is going to be going up 3 percent, 5 percent or 10 percent next year. We will be wondering if it’s going up at all next year,” he said in a presentation at Canacero’s third annual steel conference in Mexico. 

Englin pointed out the country’s investment-driven model is a house of cards because China has compressed between five and 15 years of steel demand into just a few years, which has resulted in the build up of debt. China’s solution to the problem is to move away from investment to promoting consumption, which only generates one-seventh the steel demand than that of fixed asset investment. 

A decline in demand from China would have a huge impact on the entire supply chain. Right now, the country’s demand for steel products seems to be propping up some of the softer global sectors. In early August, ArcelorMittal lowered its 2013 steel demand growth forecast in North America and the European Union but raised the forecast for China. In total, these revisions added up to a largely unchanged global demand growth forecast of 3 percent for the year. It expects China to see demand grow by 5 percent, demand in the NAFTA region to grow by 1 percent and demand in the European Union to shrink by 2.5 percent this year. 

However, it’s difficult to gauge when the country might hit this giant speed bump. Economic data released out of China often is conflicting, and even economists don’t agree on whether the country is slowing down, speeding up or maintaining its pace. 

For 2014, however, the World Steel Association’s Short Range Outlook forecasts apparent steel use in China will grow by 3.5 percent in 2014 and by 2.5 percent in 2014 as a result of the government’s efforts to rebalance the economy. 

In the Short Range Outlook, Hans Jürgen Kerkhoff, chairman of the Worldsteel Economics Committee, noted that in the early part of 2013, “the key risks to the global economy—the Eurozone crisis, a hard landing for the Chinese economy and the U.S. fiscal cliff issue—have all stabilized considerably and we now expect a recovery in global steel demand to kick in by the second half, led by the emerging economies. Yet, the situation on the financial markets remains fragile, and the Eurozone crisis is far from being solved. … In 2014, we expect a further pickup in global steel demand with the developed economies increasingly contributing to growth.”

For more coverage from Modern Metals on the 2014 economic outlook, click hereMM

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