Demand for steel in China, the world's No 1 consumer of the industrial metal, will stay strong in the coming year despite the global financial crisis, the head of the International Iron and Steel Institute said.
"China's got a huge savings surplus and I think the Chinese will encourage domestic demand. I am not pessimistic about China. I think demand will stay quite strong," Ian Christmas, the institute's general secretary said in an interview with Reuters late Monday at a Latin American steel conference. China, also the world's biggest steel producer, will likely do everything in its power to ensure that internal demand does not fall, he said.
"I think the financial crisis has an impact on them because they are a huge exporter of manufactured goods but I think they have the power themselves to actually stimulate demand," he said. The group, which represents 180 steel companies that produce around three quarters of the world's steel, excluding China, has delayed its regular demand forecast because of market volatility that has seen steel prices plummet in recent weeks.
Many steel companies are mulling major production cuts in response to the dramatic fall in prices and a drop in non-Chinese demand as the world slips into a recession. "No one is buying, they are running out of stocks, waiting to see what happens, so the price has fallen If things don't pick up and you see global GDP growth of less than 3 percent, you are not going to see a lot of growth in steel demand," said Christmas.
Steelmakers are still wary of the nascent steel futures market and fear it will bring increased volatility to an industry that has long relied on direct relationships between producers and customers, steel executives said at the conference. Steel production cuts are unlikely in Latin America, however, since the region produces less steel than it needs, said Roberto de Andraca, the head of the Latin American Iron and Steel Institute and an executive at Chilean metal company CAP.
"We are protected by the fact that we have primary materials close by and we are protected by the fact that our economies are growing in an orderly fashion," de Andraca told Reuters in an interview. Chile is a producer of iron ore, one of the main raw materials used in steel manufacturing and prices for that metal have shot up in recent weeks.
Latin American economies, many which produce agricultural products, metals and oil, have been able to build up their state coffers during the recent commodities boom which gives them some breathing room to ride out the current crisis, said de Andraca. Governments like Chile and Mexico are investing in infrastructure projects to boost to national economies, which benefits the steel industry.