The World Steel Association (worldsteel) expects global steel demand to grow by 0.2% to 1.5-billion tonnes this year, a turnaround from the 3% contraction in steel demand in 2015.

Worldsteel’s Short Range Outlook (SRO) for 2016 and 2017, which was released on Tuesday, further showed that steel demand is expected to grow by 0.5% to 1.51-billion tonnes in 2017.

“The steel industry environment remains challenging, with escalated uncertainties driven by geopolitical situations in various parts of the world. Recently the UK referendum outcome has further raised uncertainty on the long-awaited recovery of investment in the European Union (EU),” worldsteel economics committee chairperson TV Narendran said in a statement. 

He added that weakness in investment globally continued to hold back a stronger recovery in steel demand.

“However, a better-than-expected forecast for China, along with continued growth in emerging economies, will help the global steel industry to move back to a positive growth path for 2016 and onwards. 

“We expect this slight growth momentum to remain weak for the time being owing to the continued rebalancing in China and weak recovery in the developed economies,” he said.

Downside risks to this outlook come from the high corporate debt and real estate market in China, Brexit uncertainties and possible further escalation of instability in some regions.

On a positive note, Narendran stated that steel demand in emerging and developing economies, excluding China, is expected to grow by 4% in 2017 owing to the resilient emerging Asian countries and stabilisation of commodity prices.

Investment is subdued in many regions, not only in China, which is undergoing a rebalancing away from investment-driven growth, worldsteel said.

In the developed world, despite persistently low interest rates, private investment remains weak owing to a pessimistic outlook on future demand and other continuing uncertainties.

“To help confidence, governments have only limited monetary and fiscal policy tools left to boost investment,” noted the report.

It pointed out that China’s gross domestic product growth this year will be at its lowest level since 1990, but, interestingly, with a higher contribution from services and consumption.

To soften the impact of rebalancing, government issued a number of mini stimulus measures, boosting infrastructure spending, the real estate market and auto sales.

As a result, the decrease in steel demand this year will be less severe than that expected by worldsteel in its April 2016 forecast, when it expected steel demand to contract by 0.8% in 2016 and to grow by 0.4% in 2017.

Steel demand in China is projected to decline by 1% this year and by 2% in 2017.

This year, some low performing emerging economies are showing signs of stabilisation.

After two consecutive years of double-digit contraction, steel demand in Brazil will start a moderate recovery in 2017.

The minor rebound in oil prices also helped to stabilise the decline in Russia.

DEVELOPED MARKETS
The EU’s steel demand recovery is expected to stay on track, backed by resilient consumption and a mild recovery in construction despite heightened uncertainties following the UK referendum on exiting the EU, also called Brexit.

The UK’s steel demand for 2016 and 2017 is expected to decrease owing to the referendum result; however, the longer-term impacts of Brexit are difficult to predict, said worldsteel.

The refugee crisis also poses challenges to the EU, but the immediate impact on steel demand appears to be minor, worldsteel noted.

While the US economy continues to show strength, the report notes that steel demand in the US is struggling to grow due to the strong dollar, which hurts the manufacturing sector, and the collapse in shale-related investments. 

Likewise, Japan’s steel demand growth is subdued owing to structural issues and is negatively affected by the appreciation of the yen after the UK referendum.

Steel demand in developed economies is projected to increase by 0.2% in 2016 and by 1.1% in 2017.