KASIKORN RESEARCH CENTER (KResearch) has analyzed steel markets globally and domestically in 2006 and has looked ahead into the year to come, summarizing our findings in the following:
Presently, China is both the world's largest iron and steel producer and consumer, accounting for around one-third of the global supply and demand. Out of the world's estimated steel supply totaling 1,215 million metric tons this year, 407.5 million metric tons of iron and steel will have been produced in China. This represents a growth of 16.7 percent over the year before. Despite the world's rising supply, global demand for this strategic material is also expected to post high growth of 9 percent this year (demand from China is expected to grow some 14 percent). Given this, the supply and demand in the world's steel market in 2006 will be more in equilibrium than what was seen during the past few years.
However, despite the vibrant market for iron and steel globally in 2006, the market at home has been in the doldrums, blamed on ebbing demand for steel in the midst of a slowing economy and volatile oil prices. The dormant real estate industry and construction sector, as well as the fluid political situation domestically that has resulted in stalled spending on construction projects won't help the situation. As far as estimates go, demand for iron and steel in Thailand this year may drop to only 12-13 million tons, from some 13.8 million tons in 2005.
Looking ahead, the International Iron and Steel Institute (IISI) forecasts that global demand for iron and steel may post a growth of some 5.2 percent in 2007, down from the growth of nearly 9 percent this year, attributed to the world's economic slowdown. Globally, demand for iron and steel is expected to total some 1,179 million metric tons next year, a year-on-year increase of 10.4 percent against the growth of 14.4 percent in 2006. Of this, 413 million metric tons will have been consumed in China. This leads KResearch to forecast that if the global volume of steel production, especially China's production in 2007, grows slower according to the decelerating demand, the condition of the world steel market will remain substantially stable continuing from 2006. On the contrary, if China is not able to implement efficient measures to control their steel production and slow growth, it may lead to a condition of excessive steel supply in the global market such as what has been seen in the last few years. In the preceding 1-2 years, the Chinese government tried to restructure their domestic steel industry and imposed a policy of preference toward mergers in domestic steel business to reduce the number of market participants and increase efficiency in their steel industry, as well as trying to control steel exports. However, these measures have so far not borne fruit in curbing China's steel production and exports.
For the steel market here at home in 2007, it is projected that the situation will improve based on the forecast that the Thai economy will improve and, in particular, the real estate and construction sectors are likely to recover with state sector budgetary spending in infrastructure and the so-called mega-projects, resulting in domestic demand for steel probably returning to 7-8 percent growth and a volume of 13-14 million tons. However, KResearch believes that the global steel market in 2007 will still be subject to the above uncertainties because of a significant dependence on the level of steel production in China – which is still high with one-third of the global supply – as the key factor determining the direction of the global steel market in 2007.
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