World Steelmakers See Demand Growth Cooling Amid Ukraine Crisis

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By Yuliya Fedorinova

Oct. 6 (Bloomberg) — Steel consumption will grow at a slower pace as the crisis in Ukraine and the cooling Chinese real estate market contribute to declining demand, the World Steel Association said.

The industry lobby, which represents producers of 85 percent of the world’s steel, sees 2014 consumption rising 2 percent, with another 2 percent growth in 2015, it said in a statement released at the annual summit of global steelmakers, which started today in Moscow. That compares with an April forecast of about 3 percent each year.

“The positive momentum in global steel demand seen in the second half of 2013 abated in 2014 with weaker than expected performance in the emerging and developing economies,” Hans Jurgen Kerkhoff, chairman of the association’s economics committee, said in the statement today.

The association expects China to use 748.3 million metric tons of steel in 2014, 1 percent more than a year earlier, as the real estate market cools and the government enacts policies to rebalance the economy. Structural economic reforms and falling commodities prices have also hurt demand in South America, with Brazil steel use expected to contract by 4.1 percent this year and rebounding only 1.5 percent in 2015, the association said.

Steel use in the former Soviet Republics, known as Commonwealth of Independent States, is expected to fall 3.8 percent to 56.9 million tons in 2014 as the crisis in Ukraine and economic sanctions against Russia threaten recession.

‘New Reality’

Steel prices in China and Europe fell more than 10 percent this year amid overcapacity, while the price of iron ore touched a five-year low last month. Morgan Stanley sees global steel demand growing 2.2 percent and 2.4 percent in 2014 and 2015, it said in its Commodity Playbook for the last quarter.

“The steel industry still has oversupply,” OAO Severstal Chief Executive Officer Alexey Mordashov said in an interview in Moscow today. “Companies just need to face it and live in the new reality.”

China’s steel demand may deteriorate in the fourth quarter from the previous quarter as infrastructure construction and the property market soften and some steel traders face tighter cash flows, Zhang Hai, vice president at Hebei Iron & Steel Corp., China’s largest steelmaker, said at a conference in Dalian on Sept. 25.

In Russia, 2014 has been a good year so far, especially in construction, Alexander Frolov, CEO at Evraz Plc., said at the steel summit.

He agrees with World Steel’s outlook for next year. “For Evraz, much depends on Russian Railways’ 2015 investment program, which is uncertain yet,” Frolov said.

European Union and U.S. sanctions so far have mostly affected only Russia’s financial sector, but in the longer term they may hurt the general investment climate, Mordashov said.

The major concern now for steelmakers is that customers will have reduced access to borrowing, OAO Novolipetsk Steel CEO Oleg Bagrin told reporters today.

Bagrin said NLMK’s finances remain stable, even as the company aims to keep its $1 billion investment program next year.

Copyright 2014 Bloomberg.