The Steel Outlook in a Declining Far East Economy

There are a lot of advancements with regard to alternative metals used in plastic mold building these days. Materials such as aluminum and beryllium copper being two popular choices. But no matter how far the technology into alternatives has come, steel is still the best option for most high tolerance, high production molds. The durability coupled with the time tested application of steel is a constant in many industrial applications with plastic molding just being one of them.

So when the World Steel Association releases projections, mold makers take notice. The most recent outlook, a short peek through the remainder of this year, reaching to the end of 2016, is not painting an overall happy portrait of world steel demand. This forecast shows global demand down 1.7% for 2015 and a modest growth projection of 0.7% over the next year. While the current negative figure is something of a concern, the 2016 projection is the number of interest.

While the 2016 number of 0.7% is indicative of a weak recovery continuing to burden the economy, don’t jump to the conclusion of that taking place in your backyard. When the projection for 2016 are broken down by region, you can quickly see that the Chinese stranglehold on these figures is evident. While the world’s demand for steel in 2016 is projected to be 1.5 billion metric tons, China, in the Asia and Oceania region, accounts for over 65% of that total figure, or nearly 1 billion metric tons. So, even the most miniscule shift in demand in that region will alter the entire figure.

This is not surprising when you take into consideration that we have been watching as the Chinese economy has been slowing over the past few years since the recession of ’08. With all of the stories over the past few years surrounding China’s economic manipulation, ghost cities, flightless airports, and empty resorts this should not come as a shock to anyone. If you remember back a few short years when our own housing collapse instigated a perfect storm of economic strife then you can see that this is simply China’s version of the great recession.

China’s appetite for steel to feed its giant construction behemoth simply could not last forever. Now that so much is being done to reshore products in the US and the EU coupled with rising labor costs in the Far East and transportation prices that never seems to come down even when the price of oil and fuel drops, and you now have a perfect storm to feed the Chinese recession. This is forcing the Chinese government to abandon a great deal of frivolous construction projects to assure the resources are available for the more important ones such as those based around their growing need for advanced infrastructure.

So, what does this mean for steel demand in other places? Well, it is still projected to be slow growth, but growth none the less. The North American region is looking to increase demand from a negative -2.7% slide in 2015 to 2.1% growth in 2016. The EU is projected at increasing demand from an anemic 1.3% in 2015 to a slightly more robust 2.2% in 2016. And the big shift is in the projection for the Central and South American region moving from a decline of -7.3% to a growth projection of 2%.

While China’s decline will continue in the coming years it could have positive connotations for the rest of the manufacturing world. A high volume of iron ore coupled with a lower steel demand will keep prices steady which should drive more domestic growth. While the global demand for steel will definitely be adversely effected by the Chinese decline, reshoring efforts even with a slow recovery could mean big things for American mold builders.

Resources:

Title: World’s Steelmakers Predict Falling Demand, Weak Recovery Author: Robert Brooks (American Machinist) http://americanmachinist.com/news/world-s-steelmakers-predict-falling-demand-weak-recovery

Title: China's White Elephants: Ghost Cities, Lonely Airports, Desolate Factories Author: Frank Langfitt (NPR) http://www.npr.org/sections/parallels/2015/10/15/446297838/chinas-white-elephants-ghost-cities-lonely-airports-desolate-factories