Will steel demand come back?

A full recovery will likely be drawn out and fraught with uncertainty

Elizabeth Collins, CFA 22 February, 2010 | 2:35PM

World steel prices have recovered some ground since their nadir last spring, but they're still a far cry from the levels that prevailed during the heady days of summer 2008. With demand ultimately resting on activity in construction, automotive, and machinery markets, a full recovery will likely be drawn out and fraught with uncertainty. Exacerbating this still-weak global demand outlook is surging steel production in China--which places the burden of discipline on other steelmakers' shoulders--and increasing costs for key raw materials.

Background: Steel production and uses
China is by far the top steel-producing country, followed by Japan, Russia, the United States, and India. ArcelorMittal is the world's largest steelmaker, with 2008 output more than double its closest peer, Nippon Steel. Major end markets for steel include construction, machinery, and autos.

Demand still weak
While demand for steel in China has remained quite strong and developed nations' demand has begun to improve, a full recovery in global demand for steel will likely be drawn out and uncertain. Indeed, ArcelorMittal expects that the developed world's demand for steel in 2010 will still fall 23% short of the 2008 level. The company's tempered outlook is informed by lingering unemployment and growing government budget deficits.

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About Author

Elizabeth Collins, CFA  is an associate director of equity research with Morningstar.

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