Stimulus packages and their impact on steel consumption

Posted on 30 June 2009
 

Source: SEAISI
The global economic crisis has led to a sharp contraction in many industrial sectors in the world market, including the major steel consuming sectors and the steel industry itself. All developed economies (e.g., the EU, US and Japan) have been adversely affected by the economic slowdown, leading to a sharp decline in consumption.

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In the meantime, emerging economies have encountered significant reduction in export demand, contraction in domestic consumption as well as a slowdown in investment due to credit crunch. At the recently concluded Steel Market Outlook Conference in Singapore, Dr. A.S. Firoz, a strategy consultant of Ministry of Industry, India, noted that the percentage of countries in recession in the world reached above 60% in late 2008. Historically, the highest record had been at less than 60% in 1974/1975, 1981/1982 and 1992/1993.

The failure of financial institutions which occured together with the economic slowdown, has mutually reinforced each other and led to a more acute economic crisis at the global level. As a consequence, the governments in many countries have initiated stimulus packages from the third quarter of 2008 to boost up their respective economies.

The impact of stimulus packages on the recovery of the steel industry remains an issue of contention. Many parties expected that the steel industry should benefit indirectly from the significant and widespread government support to key steel-using sectors, mainly infrastructure, construction and automotive.

Nevertheless, Dr. Firoz pointed out that stimulus packages initiated by the governments in many countries will either take time to deliver or are too small to make a significant impact on raising steel demand.

The US measures, for example, have been aimed at rebuilding the economy and most of the measures are not expected to raise demand for steel. A budget of USD38 billion has been allocated in the first wave of the stimulus package for the construction of road, highway, bridge and infrastructure. Only 6% of total US stimulus funds have been spent so far.

On the other hand, there are several key factors indicating a positive sign in China. Home sales went up 45.3% y-o-y in January-May 2009. Automobile sales increased significantly, driven by government incentives and cuts in sales taxes.

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As for crude steel production, it appears that China’s production started to pick up in the beginning of 2009 while the figures for the developed countries (USA, EU and Japan) showed a slight increase only in May 2009. At the OECD’s Steel Committee meeting in Paris on 8-9 June 2009, participants generally expected that steel demand will recover in the period between the end of 2009 and at latest autumn 2010 when world industrial production is expected to improve. Global steel consumption, however, is not expected to recover to 2007 levels until 2012.


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