Weekly Market Update January 26, 2012

Global GDP growth forecast. On Tuesday this week the IMF reduced their forecast for Global GDP growth through 2013 by 0.7% for this year and 0.6% for next year, (Fig 1). 2012 growth is now forecast to be 3.3%. A growth of 2.8% is necessary to get any growth in steel consumption. Christine Lagarde, Managing Director of the IMF reported on Monday, “the economic outlook that the IMF will release tomorrow, we will lower growth forecasts for most parts of the world. Even these lower forecasts assume a constructive policy path that is by no means assured. In too many places, uncertainty is holding back demand and the willingness to lend. A legacy of high public and private debt is hurting economic prospects. The global financial system remains fragile. In an interconnected world like ours, these forces are feeding each other across borders. Capital flows to emerging markets have already dropped off, and growth is expected to slow even in the most vibrant parts of the world economy. Low-income countries are especially vulnerable.”	Fig 1
Global crude steel production in 2011 grew by 6.8% to a new record of 1.53 billion tonnes. Growth has been slowing since July when the annual rate of production was 1.56 billion tonnes, (Fig 2). Capacity utilization is much lower today than it was in July 2008 because 236 million tons of capacity has been added since that time. US production grew by 7.1% in 2011 to 86.2 million tonnes. Chinese production grew by 8.9% to 695.5 million tonnes. China’s production accounted for 46.7% of total global production in 2011.	Fig 2
Market size, long products through December. In three years since December 2008 long product supply has had a compound annual growth rate of 12.7%, (Fig 3). Growth slowed to 6.7% in 2011 compared to 2010. The products with the best performance in 2011 were light shapes, up 22.4% and beams up 11.8%. Wire rod supply picked up a strong 15.6% in Q4 compared to the same period in 2010, (Table 1). Import market share has been in steady decline for almost two years and in December was 10.5%. The import trend will likely reverse if the US$ continues to strengthen and steel demand in Europe continues to decline.	Fig 3
Scrap exports in November totaled 1.94 million tonnes for a total of 24.64 million tonnes in 12 months through November. This is an increase of 21.3% year on year, (Fig 4). 2012 may be off to a slow start. AMM reported on January 18th that overseas buyers were on hold waiting to see if prices would soften. Turkish scrap purchases were steady for three months through November but their largest rebar export markets, UAE and Egypt, are exhibiting a lack of demand. SBB quotes an exporter at a Turkish mill saying, "Up until January we were doing a lot of business with Egypt: now there is very little demand because of lack of political stability." Lack of Middle Eastern demand is probably a significant factor in the surge of Turkish rebar import licenses to the US in January. Among the major steelmaking countries, Turkey had the greatest growth in production in 2011 at 17%.	Fig 4
Indicators we should have been watching. Of all the economic data streams that go into the production of this Steel Market Update, there are two that signaled the onset of recession long before reality struck. Single family housing of course was one but the point is that housing was heading south two years before the recession began in Q1 2008 and should have been of increasing concern through 2006 and 2007, (Fig 5). The other is the production of medium and heavy trucks which have signaled the last three recessions at least a year in advance with one false alarm in 1996 when a recession was narrowly avoided, (Fig 6). Many economic observers are forecasting a recession in 2012, not the least of which is the ECRI. The good news is that truck production is not slowing and housing starts seem to be past their bottom.	Fig 5