The Conversation (0)
Keeping track of the steel market is key for investors with an eye on molybdenum.
By Michael Montgomery—Exclusive to Moly Investing News
Steel demand
The weak demand for steel outside of China has only been exacerbated by the recent volatility seen in world markets. ArcelorMittal (NYSE:MT), the world’s largest steel producer, plans to shut down its plant in Eisenhüttenstadt, Germany due to a decline in demand. While some of the weak demand has been attributed to the seasonality of steel production, “the overall slowdown in the global economy has added to the decline in demand and has raised fears that the recovery in the European market may be slower than expected,” according to a report on Forbes.
China is also affected by demand lull as Chinese steel manufactures have lowered their expectations for profits in the second half of the year due to weak demand from auto manufacturers.
“Angang Steel Co., the biggest Hong Kong-based steelmaker, last week said first-half profit tumbled 91 percent from a year earlier because of higher raw-material costs and slowing demand from automakers,” reported Rebecca Keenan, for Bloomberg.
Despite demand for steel being at its lowest over the last years in China, the overall forecast for steel consumption in the Asian nation, as well as worldwide, is set to grow on the year. Steel consumption worldwide is expected to grow by 6 percent on the year. In China, consumption is forecasted to grow between 7-9 percent in 2011.
Steel production
While some plants have shut down to come in line with supply and demand fundamentals, overproduction of steel in China could potentially wreak havoc on the steel market going forward.
While steel demand in set to grow in China, the production of steel in the country is outpacing the demand. The country is set to produce approximately 700 million tonnes this year. China is forecast to produce upwards of “850 million [tonnes] in 2012,” according to Mu Wenxin, an analyst for Custeel.com. This increase in production is has worried some market onlookers.
“The danger at the moment is that global steel production is running well ahead of steel consumption. Steel consumption is at 5-6 percent and global production is at 8 percent. So there is far too much steel being produced in the world at the moment. Crude steel is in surplus and that is putting a downward pressure on prices and we expect that to continue for much of the rest of this year,” stated Roger Manser, a consultant for Steel Business Briefing.
The surplus could mean a severe cut back on production at the start of next year, which would limit the consumption of molybdenum, therefore putting downward pressure on prices. The uncertainty of the global economy is carrying over to the molybdenum market. The production of steel in China is set to remain high for the rest of the year which is good for molybdenum. However, if a large surplus is created a large cutback in production could be realized at the start of next year.