The Hamilton Branch hosted Peter Hall, vice president and deputy chief economist, Export Development Canada, in early February, and were treated to a global outlook on steel and other commodity markets for the coming year or so.
Hall’s presentation, titled Awash in Steel? The Effect of China on Global Steel Markets, offered an EDC perspective of the steel market. He set the stage by explaining the international growth context, then discussed global growth capacity and the impact of the “supply shock,” and the effects on the steel markets to date. Finally, he discussed China’s response to global demand and what future impacts on the steel markets are to be expected.
Overall, the global slowdown is already in process, Hall explained. Though 2006 was still very hot, at 5.1 per cent growth, expectations are for it to slow down to 4.3 per cent growth for the current year. Corporate profits and liquidity are still strong, but the risks are rising he said - global synchronization means the weakness spreads; however not like before. Regional economic and financial balances have improved over the past three years, increasing resilience to possible shocks.
Hall discussed the global oil industry, as it impacts the steel markets. There are expectations for modest price increases this year, but overall steadiness should mean little major impact on the steel markets. The Canadian dollar, he said, is a petro-currency. Lower oil and base metal prices expected this year will weaken the dollar, to between 82 to 84 cents by year’s end.
Overall, the outlook suggests some future challenges for the steel markets. While production plans at large firms continue to rise aggressively, the quality of Chinese steel is rising and authorities have not been able to rein in production. The world demand growth is slowing and the steel markets are threatened by a potential over supply in the future.
The bottom line is that downward price pressure on steel is expected for the next two years, and consolidations are likely to continue. However, faster world growth projected for 2008 and beyond would be a positive development for steel.