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Global trade war fears subsiding: Worldsteel

 


LONDON — Fears that a global trade war would swiftly follow the imposition of Section 232 tariffs by the United States have been overplayed, World Steel Association (Worldsteel) director general Edwin Basson said in the group's short-range forecast published on Tuesday April 17. 

The tariff debate is moving further away from steel, he said, adding that initial fears of a significant effect on steel prices have subsided now that import exclusions have been given to most suppliers to the US.

“Markets are beginning to relax, understanding that this posturing has to [happen] before we know what reality is. Inevitably, some part of that will turn into reality. That reality is not going to have a big effect on steel,” Basson said.

“Trade continues. It is the cost at which the trade continues that sometimes has an effect. But as long as economies are growing [and] as long as economies require steel, steel will be traded,” he added.

Some in the market feel that the global economies are now too interlinked and there has been protectionist behavior to disrupt this, Basson said.

“Eventually, rationality will prevail. The economies are too interlinked at the moment to go for an all-out trade war, it [would be] too damaging on all counts,” he said.

Demand ups and downs
Global demand for finished steel products is forecast to grow by 1.8% this year to 1.616 billion tonnes, according to Worldsteel’s short-range outlook.

Worldsteel also predicts that global steel demand will decelerate in 2019, growing by 0.7% to nearly 1.627 billion tonnes.

Steel demand in emerging and developing economies, excluding China, is expected to increase by 4.9% in 2018 and by 4.5% in 2019.

“In the next couple of years the global economic situation is expected to remain favorable, with high confidence and a strengthening recovery of investment in advanced economies. [As a result,] steel demand in both developed and developing economies is expected to show sustained growth, with risks relatively limited,” Worldsteel Economics Committee chairman TV Narendran said.

“However, the possible adverse effects of rising trade tensions and the probable US and EU interest rate movements could erode this momentum,” he added.

Investment driving growth
Growth is being driven by investment in infrastructure projects due to low interest rates, according to Basson.

“This growth is driven for the first time in many years through some form of investment expenditure, which we are seeing in developed and developing economies,” he said.

“In developed economies, interest rates have been very low for the past 10 years, and over the past 18 months this has started to translate into infrastructure projects and other projects,” Basson added. “In developing countries, naturally there is a faster translation of investment into growth; this, we haven’t seen [to be] slowing down.”

But China is an exception to the rule and figures are predicted to move sideways this year before showing a decline in steel use next year. Other parts of Asia, such as India, show very strong growth.

“Overall, we are seeing a positive environment on a very broad base, the exception being China, where we think steel has peaked and will actually begin to decline next year,” Basson said, but added that he doesn't think the decline will be dramatic due to the country's shift from an investment-led economy to a consumption-led economy.

“Consumption-led demand in China is picking up quite a lot, so it’s quite natural that there may be a lull in steel use when you’re making the shift from investment to consumption,” he said.

Other sectors
Recovery in oil and commodity prices has improved the outlook for countries in the Middle East and northern Africa. The outlook could further improve if geopolitical stability can be achieved.

There was some surprise at the strength of the steel use in developed economies. “Nafta [the North America Free Trade Area] is doing well, the EU particularly well, after a long period of very slow growth. Mature regions are performing exceptionally well,” Basson said.

“Japan is different, even though it is also a mature economy. It is not growing so strongly. There are some indications that the growth rate is beginning to tweak up ever so slightly, to 0.5% next year from 0.1%, probably also helped by the [hosting of the 2020] Olympics and the Rugby World Cup,” he added.

There is no single sector responsible for this positive growth but instead a very strong broad-based recovery in steel use.

“Across the board,” Basson said, “we are seeing a pickup in investment-led behavior. Overall, [we see] a relatively positive and robust picture, despite all the uncertainties and predictions now being made.”

Carrie Bone
carrie.bone@metalbulletin.com

 

Source:amm.com