Message from Secretary General_October 2016

Posted on 03 November 2016

Source: SEAISI
The International Monetary Fund (IMF), in its latest World Economic Outlook report released in October, revised down its global growth forecast for 2016 and 2017 by 0.1 percentage point relative to its April report. Global growth is now projected to slow to 3.1% in 2016 before recovering to 3.4% in 2017. It attributed the downward revision to a more subdued outlook for advanced economies following the June U.K. vote in favour of leaving the European Union (Brexit) and weaker-than-expected growth in the United States.
The 2016 growth forecast for advanced economies has been moved down to 1.6% while growth in emerging market and developing economies is expected to strengthen slightly to 4.2%. Growth in emerging Asia continues to be resilient with India expected to register a high growth rate of 7.6% in 2016 and China seeing a stable growth rate of 6.6% in the same year. For ASEAN-5 (Indonesia, Malaysia, Philippines, Thailand and Vietnam), IMF has maintained its output growth projection for the grouping at 4.8% in 2016 and 5.1 % in 2017. 
Going forward, IMF sees political discord and inward looking policies as well as stagnation in advanced economies as the greatest threat to global economic growth.
Following on the heels of the IMF announcement, the World Steel Association (worldsteel) also released its Short Range Outlook (SRO) in the same month. Stating that the global steel industry is through the bottom of the down cycle, worldsteel forecasts that global steel demand will increase by 0.2% to 1,501 million tonnes in 2016, following a 3% decline in 2015. In 2017, worldsteel expects global steel demand to expand further by 0.5% to reach 1,510 million tonnes. 

While China’s steel demand will continue to shrink, worldsteel expects the decline to be softened by the introduction of a number of mini stimulus measures by the Chinese government, boosting infrastructure spending, real estate market and auto sales.  It now expects China’s steel demand to reduce by 1% this year, compared with the 4% decline it forecast in April, to 665.6 million tonnes. Looking to 2017, worldsteel projects a further 2% decline in Chinese steel consumption to 652.3 million tonnes.

For the other emerging Asian economies, India is expected to register solid growth rates in steel demand of 5.4% and 5.7% for 2016 and 2017 respectively. The country’s steel consumption is projected to reach 84.4 million tonnes this year and 89.1 million tonnes in 2017. worldsteel attributed India’s strong steel demand growth to the country’s consumption-boosting reforms and infrastructure investment but it also voiced its concern over the country’s ability to sustain the growth rate due to the continuing weak private investment.

For ASEAN-5, worldsteel expects the grouping’s steel consumption to increase strongly by 8.3% in 2016 to 70.5 million tonnes. It also projects that steel demand will further expand by 6.3% to touch 75.0 million tonnes in 2017. According to worldsteel, the strong steel demand growth in ASEAN-5 is driven by construction activities which have benefited from the stable macroeconomic policies.

For the developed economies, steel demand in the USA is expected to drop by 1.2% to 95.0 million tonnes in 2016 before picking up by 3.0% to 97.8 million tonnes in 2017. The EU-28, on the other hand, is forecast to see a marginal increase of 0.8% in steel demand this year to 154.8 million tonnes, and the demand will further increase by 1.4% in 2017 to 156.9 million tonnes. In the case of Japan, the country’s steel demand growth is expected to remain subdued, declining by 0.4% in 2016 to 62.7 million tonnes before picking up marginally by 1.4% to 63.6 million tonnes in 2017.

From the above, it is reasonable to conclude that the worst is over for the global steel industry and that the industry is slowly stabilising. Steel prices have also recovered from their record lows in October 2015 although volatility in price movements is still around. However, the global steel environment is still fraught with uncertainties with global economic growth as well as steel demand growth momentum remaining weak. 




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