China will lead world steel demand to rise 4-5 percent annually to 2006, but high oil prices are raising concerns over economic growth crucial to demand for the metal, the leading industry body said on Monday.
Steel makers must also resist higher raw material prices and focus on profitability rather than size, said International Iron and Steel Institute Secretary General Ian Christmas.
"Before, we used to focus on tonnes. We must now focus on value," Christmas told the annual IISI conference in Seoul. "We used to measure success in terms of steel production, but a much better way is market capitalisation."
Many steel companies have posted record profits this year as prices soar on a China-led surge in demand.
Global demand for finished steel products would be between 1.040 billion and 1.053 billion tonnes in 2006, the institute said, up from 972 million tonnes in 2004.
"The strongest growth continues to come from China, which should see a 10 percent increase in steel demand in 2005 and a further 7-10 percent growth next year," the IISI said.
But prospects for steel demand were uncertain, as the recent sharp rise in oil prices could dampen economic growth.
"Costs of raw materials and energy continue to represent a major challenge for the world steel industry," the institute said in a statement.
Christmas said steel companies should be vocal in warning of the risks to their business from high raw material prices.
Iron ore miners, led by Brazil's CVRD, Rio Tinto Plc/Ltd and BHP Billiton Plc/Ltd, secured a 71.5 percent increase in prices for shipment in the current fiscal year.
"The big three use their market position and their current behaviour is a threat to the long-term competitive position of the steel industry," Christmas said.
He added iron ore prices had climbed 256 percent since January 1999, while steel prices had risen only 156 percent in the same period.
"The situation of iron ore prices rising faster than steel prices is not sustainable," he said.
IISI data released on Monday forecast China would consume 320-330 million tonnes of steel next year, up from 300 million in 2005 and 272 million in 2004.
"China accounts for one third of the total and will grow approximately 10 percent each year," Christmas said.
The rest of the world would consume 720-725 million tonnes next year, from 698 million in 2005 and 699 million last year.
World steel demand this year would be 998 million tonnes, the institute said.