High corporate and local government debt continues to raise concern but a hard landing for the Chinese economy is unlikely in the short run.
Developed economies – a robust outlook
Steel demand in the developed world is expected to increase by 1.8% in 2018 and decelerate to 1.1% in 2019.
In the US the outlook for steel demand remains robust on the back of strong consumption and investment due to high confidence, rising income and low interest rates. The manufacturing sector is supported by a low dollar and increasing investment while rising housing prices and steady non-residential sector growth point to a healthy construction sector. Recent tax reform is expected to boost steel demand, but there is some concern over a possible overheating of the economy. The announced infrastructure plan is unlikely to affect steel demand in the short term.
The EU economy has developed strong momentum with broadening recovery across countries. Prompted by robust domestic and external demand, investments are expected to remain a major growth driver while low inflation, wage and real income growth will support private consumption. Steel demand will be supported by a pick-up in non-residential construction and strong manufacturing activities.
In the automotive sector both the EU and the US is expected to moderate due to the saturation effect and rising interest rates. The machinery sector is expected to benefit from rising investment, but an expected monetary tightening is responsible for the forecasted deceleration of steel demand growth in 2019.
Steel demand in Japan has been benefitting from an improving investment sentiment and government stimulus, but the scope of growth will continue to be limited by structural factors such as an aging population.
Despite improved consumer sentiment, steel demand growth in South Korea will be constrained by high consumer debts, weakening construction and a depressed shipbuilding sector.
Developing economies
In developing and emerging economies (excluding China) steel demand is expected to increase by 4.9% and 4.5% in 2018 and 2019 respectively.
Recovery in oil and commodity prices has improved the outlook for MENA countries. Provided geopolitical stability can be achieved, steel demand outlook for the region could further improve as a result of reconstruction activities.
In Russia and Brazil a mild recovery is expected to continue. In Russia, credit expansion, easing monetary policy and improving consumer and business confidence will support it. In early 2017 Brazil started to come out of its deep recession, but uncertainty remains as to the sustainability of this recovery momentum. Recovery of construction activities has been slow. In other Latin American countries, recovery is also underway and growth in the region could accelerate if reforms are implemented, but the forthcoming elections lead to uncertainty.
Turkish steel demand showed strength in 2017, backed by supportive government measures. While slightly decelerating due to subsiding special economic stimulus, steel demand in Turkey is expected to show stable growth in 2018/19.
The Indian economy is stabilising from the impact of currency reform and GST (Goods and Services Tax) implementation and steel demand is expected to accelerate gradually, mainly driven by public investment. Stronger growth is hampered by still weak private investment.
Steel demand in ASEAN-5 countries dipped in 2017 due to slow construction activity and destocking. In 2018/19 however, steel demand is expected to regain growth momentum backed by infrastructure investment.
Sources:sxcoal
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