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Steel demand remains low in sluggish economy

More than 150 global steel producers, suppliers and end users said in a Platts survey released on Thursday that oversupply and a sluggish global economy were the greatest challenges facing the European steel industry.

The report said the region’s economy had recovered far more slowly from the 2008 global financial crisis than other markets, including the US. This meant steel consuming sectors were hit by continued poor business confidence and financial constraints, which subdued spending and investment.

While Angola’s oil and gas industries were booming, and Mozambique gas shows huge promise, this scenario boded ill for South Africa’s struggling steel sector, which mainly relied on a vibrant domestic construction industry.

But major construction and engineering projects in South Africa have been few since the end of the 2010 Soccer World Cup.

This has meant a crisis in the industry, made worse by the country’s dependence on European Union demand for steel-related products, including for its struggling automotive industry.

South Africa’s government has already embarked on a R4-trillion strategic infrastructure programme over the next 15 years, but the country’s major construction companies say there has been little evidence of this, and that the construction and engineering market remains moribund.

While there has been evidence of a slight uptick in the sector, independent steel consultant Charles Dednam said on Thursday conditions in Europe had affected the steel market in South Africa.

“This very much reflects the steel manufacturing market in South Africa. Demand is rather sluggish with expected growth in steel demand for this year to be close to zero,” Mr Dednam said. “The big infrastructure projects such as Medupi and Kusile are taking very little additional steel as the majority steel requirement has already been supplied. Other big steel consuming projects are not part of this year’s planning.”

Steel manufacturers in South Africa produce more for the export market than for the local market, especially amid the downturn in the local construction industry.

Mr Dednam said the slow worldwide growth in steel production was also reflected in the Worldsteel Association forecast released on Wednesday, which revised estimated global steel production last year sharply down from a 2.1% growth forecast in October last year, to 1.2%.

However, he said South Africa was enjoying reasonable demand from projects in Africa, although the environment was extremely competitive, because global construction companies were targeting African infrastructure activity.

Manufacturing production in South Africa fell unexpectedly 2.9% year on year in February to its lowest level in almost a year, Stats South Africa said on Thursday. The drop was mainly due to lower production in basic iron and steel, nonferrous metal products and metal products, among others.

“The … decrease … is a direct outcome of … our pressurised domestic policy environment, and tepid demand, both domestically, as well as in our export markets,” Coenraad Bezuidenhout, Manufacturing Circle executive director, said on Thursday.

He cited steep increases in administered prices, such as electricity and transport fuels, the slow roll out of the government’s infrastructure spend, and difficulties in relation to market access.

Global head of power and infrastructure at Standard Bank David Humphrey said on Thursday the global recession had hurt South Africa’s construction sector. He said the government’s infrastructure plan would help restore confidence, but had yet to be realised.

But because the sector had to look beyond South Africa’s borders, he said it had seen “much more success” in recent years.

“The South African construction industry will be a major beneficiary of  the increased resource-based infrastructure spend on the continent,” he said.

“This should come as no surprise because South Africa is an active investor in … Africa and our construction sector has been highly proactive in diversifying (its) business (there).”

South Africa’s primary steel producer ArcelorMittal South Africa in February declared force majeure at its major Vanderbijlpark works after fire halted significant production there, creating more uncertainty for steel markets.

The company said on Thursday that this was still in force.

Source : Business Day Live