Globalisation has pervaded each economy so comprehensively that all economic events have lost country-specific features, as upward or downward event no longer remains confined within a geographic limit. This was truly evident in the latest World Economic Outlook report of IMF as it has coined the term ‘synchronised slowdown’ to describe the global economic movement in the recent period and make projections for next year.
Global GDP is to come down to 3.0% against 3.3% projected in April ‘19. This slowdown in growth is contributed by EU (from 1.3% to 1.2% ), China (from 6.3% to 6.1%), Japan (from 1.0% to 0.9% ), Brazil (from 2.1% to 0.9% ) and India (from 7.3% to 6.1% ).
One of the major reasons for the economic downturn across the globe indicated by IMF relates to uncertain and fluctuating global trade and the vicious implications for merchant trade, capacity creation, job losses and massive indebtedness among the nations, arising out of the trade wars between the two large economies — the US and China. The trade conflict that was simmering for the last one decade, as evidenced by the rising number of trade disputes, resulted in innumerable numbers of trade measures among the trading partners and culminated in mid-March 2018 with announcement by the US to impose 25% tariff on all steel imports to the US. As retaliation, China announced additional tariff on all US exports which included agriculture, software packages and instruments, machinery and equipment and had a disastrous implication for the US investment in China and vice-versa.
The ‘quota and tariff’ measure adopted by EU on the basis of average of last three years’ exports to EU had reduced import arrival to EU, but dealt a severe blow to all steel exporters to EU countries. The latest revision in the quota-cum-tariff formula by EU has further restricted global steel trade. Turkey has been penalised by the US for its assault on Kurds of Syria with a threat of enhancing the tariff rate from 25% to 50%, which has since been withdrawn, but the trail of uncertainty it generated is unmistakable. It has been estimated by IMF that current trade disputes would hurt the global GDP by $600 billion in 2019 and by $800 billion in 2020 via direct and secondary effects.
The current economic trend has directly impacted steel production. The global crude steel production in the first nine months of the current year at 1,391.2 MT has grown by 3.9% compared with last year, but during the month of September ‘19, the total crude steel production is 0.3% lower than September ‘18. EU production of crude steel declined by 2.8% during January-September ‘19 against last year.
Though US production of steel is up by 3.2%, it came down in Japan by 3.8%, South Korea less by 0.1%, Russia by 0.9%, Brazil by 7.3%, while China has increased its crude steel production by 8.4% and India could hold on a 3.5% growth in steel production. Vietnam on a low base has clocked 53.8% growth in steel production at 15.5 MT during the period. It appears that steel production growth has suffered more in export-dependent countries like Japan, Korea, Russia and Turkey. China is battling its own excess steel capacity scenario by closing down inefficient and polluting units and replacing them with capacities for special and value-added steel. During 2018, China has added net capacity of 34.9 MT in 2019 and the target for 2020 is fixed at 0.73 MT only.
The WSA short-range outlook for global steel demand at 1775 MT shows 3.9% growth over 2018. The primary factors responsible for low growth are trade dislocations, leading to market uncertainty, declining trend in automobile, machinery and equipment sectors and subdued growth in infrastructure and construction sectors.
China is likely to consume 900.1 MT with 7.8% growth over last year (modified at 4.5% growth taking into account unreported closure of IF capacities). EU-28 at 166.8 MT would reduce its steel consumption by 1.2% . Japan at 64.5MT is to consume 1.4% less steel in the current year. Turkey impacted by political factors and fall in exports is to consume 14.5% less steel at 26.1 MT in 2019.
India, with an expected level of steel consumption at 101.6 MT, is to clock 5.0% growth in consumption over last year. This being lower than the growth rate in 2018 (+9.1%) is still one of the highest growth rates among other major steel-producing countries and would place India second in consumption of steel surpassing the US. The latest report by the World Bank on doing business in 2020 has put India at 63rd position, a climb of 14 notches from the last report. India has done remarkably well in construction permits, getting electricity and resolving insolvency but poor in starting business, property registration and enforcing contracts. The reforms in these areas would facilitate market dynamics, facilitate investment and attract foreign capital.
The writer is DG, Institute of Steel Development & Growth (Views expressed are personal)