In response to a presentation I posted recently on this blog, I received the following questions from an investment firm based in Switzerland.
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1) Is your indicated correlation also applicable to Europe only, i.e. could it be used to forecast steel demand in Europe?
2) Europe is expected to grow below 2,5% real GDP for the next decade. So your correlation would indicate falling steel demand for the next years, even beyond the current recession. Is that realistic?
3) What sources could you recommend for historical data and forecasts on prices and demand?
I’ll take a stab at addressing each of the questions but would like to encourage our readers, especially those with expertise on Europe, to contribute as well via comments on this post.
The correlation between GDP and steel demand does appear to be applicable to Europe, which means GDP growth projections have some explanatory power when thinking about future steel demand. As can be seen in the graph below, steel demand among the EU 12 grows when GDP in the region grows by more than 2%, and falls when GDP growth is under 2%.
The correlation between GDP and steel demand growth is not as strong in Europe as it is in the US, which is probably a function of the fact that the EU (as defined in the graph) is comprised of 12 countries and there are exchange rate issues involved in converting GDP to a single currency. However, there is a strong enough relationship to suggest that GDP growth below a threshold level of 2% is unlikely to be associated with growing steel demand.
The second question asks whether steel demand in Europe could fall for several years, beyond the current recession, if GDP growth remains below the threshold level of 2.0%. The short answer is I don’t see why not, if we are defining Europe as the EU 12. This group of countries has already reached the stage of economic development when steel demand growth tends to stabilize, and it has a shrinking population and a relatively high manufacturing cost structure when compared to some of the new EU members.
For the newer EU members, especially those in central Europe, we would be surprised if they experienced years of stable or declining steel demand. Instead, we expect steel demand growth in central Europe will resume once the current global recession abates.
The final question has to do with sources. We have several links on this site to sources of information on European and global steel statistics. Under the data section we have links to a number of steel industry associations, including the World Steel Association, formerly known as the International Iron & Steel Institute, and Eurofer, the European steel industry association. Both provide historical data on steel demand in Europe. The WSA provides a short-range outlook and occasionally a medium-term forecast.
The best sources of pricing data for Europe are Metal Bulletin, Steel Business Briefing, and the Steel Index.
Hope this helps.
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Nice writing. You are on my RSS reader now so I can read more from you down the road.
Allen Taylor
Hi. nice article. would you be able to give me some idea about what is the per ton cost of setting up a steel plant??