ArcelorMittal said it expects a drop in Chinese steel demand, reinforcing concerns that dark clouds are gathering over the global economy.
The steel industry faces macro-economic risks and persistent overcapacity, the world’s biggest steelmaker said in a statement. Smaller producers around the world have recently raised the alarm, with Salzgitter AG earlier this week pointing to “gloomier sentiment and numerous economic and political uncertainties.”
Austria’s Voestalpine AG said it sees trade tensions and Brexit weighing on the outlook and pointed to a “cooling off” in Europe.
ArcelorMittal, which reported fourth-quarter earnings that missed analyst estimates, projects global steel demand growth of 0.5 percent to 1 percent this year, compared with 2.8 percent in 2018.
Steel demand in China is forecast to fall by 0.5 percent to 1.5 percent in 2019, reversing direction after growth of 3.5 percent last year. Relatively stable demand from automotive and construction in China will be offset by declining machinery output, ArcelorMittal said.
“I’d call the outlook realistic,” said Commerzbank AG analyst Ingo Schachel. “Whether the ultimate outcome is a bit more positive clearly depends on possible additional stimulus measures in China” and the potential for a trade truce with the U.S., he said.
China’s steel industry saw bumper profitability in the past two years following upgrades and capacity cuts that were launched after a 2015 price crash. However, record margins started to decline late last year due to safeguard measures in the U.S. and European Union, as well as a deeper-than-anticipated slowdown inside China.
Still, it’s not all bad news. While China may increase exports because of weaker domestic demand, neighboring Asian economies should be able to absorb the volumes, ArcelorMittal Chief Financial Officer Aditya Mittal said on a call. As a result, the company doesn’t expect a spillover effect for its sales in Europe and the U.S., he said. China’s exports to the U.S. and European Union have contracted due to safeguard measures and will remain limited.
Overall demand, excluding China, is expected to grow by about 2 to 3 percent in 2019, which is slightly stronger than last year, the producer said. The company doesn’t expect a repeat of the 2015 crash, Mittal said.
ArcelorMittal shares dropped as much as 2.7 percent and traded 2.6 percent lower at 10:31 a.m. in Amsterdam.
Source: Bloomberg