Tuesday, March 11, 2008

Steel demand to remain strong in 2008?

Whilst economists talk widely of recession, the Steel manufacturers continue to "talk up" demand.

LONDON, March 10 (Reuters) - Global steel demand shows no signs of slowdown and is expected to remain strong, at least in the first half of this year, a steel industry official told Reuters on Monday.

"Things are going very strongly in the steel intensive sectors of the economy," said Ian Christmas, secretary-general of the International Institute of Iron and Steel (IISI), at the Reuters Global Mining Summit in London.

"Even in North America there is some softness in things like automotive and domestic appliances, but not enough to take away optimism for the first six months of this year," Christmas said.

Fears of a recession in the United States, the world's largest economy, and a possible spillover has weighed on global financial markets since August last year.

Christmas said global steel use grew by about 5-6 percent last year and he expected a similar growth rate for 2008, with Chinese demand rising around 10 percent.

"China is the one factor which continues to drive the global number and has the big influence," Christmas said and added that demand from other so-called BRIC countries such as Brazil, Russia and India was expected to remain robust.

For the second half of the year, opinions were divided, Christmas said.

"Some say it is going to be a very good year altogether while some say consumer confidence in certain states in western Europe will have an impact on steel consuming sectors and there is a risk of a downturn," he said.

"How significant it could be; the jury is very much out on that one."

The more cynical amongst us, may suspect that the talk of unprecedented demand at a time when manufacturing activity is low, smacks of marketing "speak", and a justification for rapidly increasing steel prices. Whilst demand in the east (particularly China, with the pre-Olympic games building boom) has been strong, the outlook for demand in Europe and North America is not great.

The rapidly escalating prices and "shortages" are causing problems for steel users, even leading to short time production in a number of cases. I hope that the steel producers think carefully about their current tactics, lest they damage their traditional customer base. At the worst they may lose customers for ever if manufacturers cease production in the West. Even at the best, they could permanently damage their relationships with customers. I have lived through many "cycles" in the steel industry, and I have learned that buyers have long memories. Steel producers would do well to note this.

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