The global economic outlook continues to improve in 2010. Global steel demand also seems to pick up accordingly. The World Steel Association has remarked that the recovery was possible, as a result of massive government stimulus packages and the recovery in emerging Asian economies, especially China. Additionally, many mills have started to rebuild inventory which will result in more demand in the market. In terms of GDP growth, the World Steel Association noted that the recovery, which started in the second half of 2009, will follow a stable path with the world GDP growing at around 3-4% per annum up to 2020. Industrial production is expected to follow the same pace as GDP growth. Construction sector will pick up significantly in the long run, especially in China, South Asia and Middle East. Meanwhile, the construction sector in North America will only start to recover in 2012. The European Union, however, will experience a stable pace in construction sector growth up to 2020.
However, there are signs of uncertainties regarding the outlook for iron ore production. Talks of consolidations among the steel manufacturers as well as iron ore suppliers are the current hot issues. In the last issue of SEAISI newsletter, we mentioned about the increasing iron ore price trend in China. The outlook for domestic iron ore production in China is one of the main uncertainties in the iron ore market. According to Citigroup Global Markets, China’s iron ore import share has increased from 60% in 2008 to 73% in 2009.
The question is whether or not the China iron ore import trend will persist. China’s crude steel production is expected to grow by about 10% per annum. Citigroup has predicted that in the longer term, Chinese imports of iron ore will continue to increase at a robust level. With China’s iron ore import share expected to increase up to 80%, the supply side will have to boost their capacity to serve the growing demand. In this connection, Australia and Brazil, the world’s largest iron ore suppliers, are expected to boost up their capacity utilization to meet the increased demand. Nevertheless, it is expected that there will be a shortage of iron ore from 2009 to 2012. However, iron ore demand will slow down in 2013 and there will be sufficient supply of iron ore from 2013 onwards.
Source: Citigroup Global Markets