In the U.S., the steel industry has been a major part of industrial production over the years. The building and construction sector has been continuing to show an increase in demand, and the auto industry has been strong recently. However, the major economic slowdown in China, has slowed global demand for steel. This has put downward pressure on steel prices. The World Steel Association reports a 2.2% decrease in global steel production between January of 2015 and July. China, the world’s largest steel producer reported a 1.8% decline in production.
Global Effects on U.S Steel Market
Many analysts do not expect a near term recovery in the demand for steel from China. It seems that there is currently an overcapacity issue in the steel market. The World Steel Association is expected a .5% dip in steel demand for both 2015 and 2016. Due to the decline in steel prices globally, and the cheap imports from overseas producers, the U.S. steel producers have significantly reduced production. The industry has been the subject of increased layoffs in recent months.
Effects of Lower Energy Demand
In addition to the global decline in demand for steel, the industry has about a 10 percent exposure to the energy industry. As oil exploration companies reduce their capital expenditures, in light of the recent decline in oil prices, this is causing a further decline in demand for steel.
Iron ore prices have dropped to very low levels this year, which should over time have a positive effect on oil producers. They use iron ore in production processes and as new contracts are entered at the lower prices, some oil producers will gain a competitive edge.
What is the Outlook for the Steel Industry?
The World Steel Association predicts that demand for steel will decrease by 1.7% in 2015, reaching 1,513 metric tons (Mt). They predict that 2016 will grow by 0.7%. Although, the global steel market demand is expected to grow over the next several months, the U.S. steel industry is expected to have major headwinds due to the cheap imports that are flooding the market. U.S. steel makers are actively petitioning Congress to do something about the unfair dumping of cheap steel in the country.
Factors that Will Impact the Industry Going Forward
The timing of the turnaround in the Chinese economy will be an important factor in determining when the steel industry will turn around. It is reported that many in the steel industry are looking to India as the next big growth area for steel demand. Their manufacturing sector and construction industry are being watched as the next big boost for steel prices. The level of economic expansion in India’s future is a major key to a recovery in the industry.
Analysts are predicting a 2.1% increase in steel demand from Europe in 2015 and 2.8% in 2016. Although, 2015 is not a major growth year for steel demand, the industry is expected to begin a more substantial recovery into 2016 and beyond, due to the auto and construction industries.