Steel demand slows globally with Europe setting back ArcelorMittal

According to the median estimate of 14 steelmakers, analysts and traders surveyed by Bloomberg, global use of the alloy will rise 4.5% in 2012, less than the 5.4% forecast in October 2011 by the World Steel Association. Growth may be as low as 1.2%.

The lowest in three years
Analysts said that the gain, the lowest in three years, is tempered by cooling economies in China and Europe, where orders for steel products for houses, cars and machinery are stagnating and will keep the alloy’s prices and overseas shipments muted.

Ms Helen Lau, an analyst with Hong Kong based brokerage UOB Kay Hian, said that "I'm bearish on Europe’s demand outlook in view of the negative impact from budget deficits and the debt crisis. China is maintaining its tightening stance on the private property market and developers are still suffering from tight bank credit and high inventory of homes."

According to the mean of five analyst estimates compiled by Bloomberg, ArcelorMittal may report a profit of USD 157.6 million in the three months ended December 31st 2011, its worst quarterly earnings in a year. According to the average of 23 estimates, Tata Steel, including its European unit, is expected to report an INR 3.3 billion net income in the same period, the worst fiscal third quarter numbers in at least five years.

Forecast to become cheaper
According to data compiled by Bloomberg for the Iron Steel index, steel companies are forecast to become cheaper, with a price to earnings ratio forecast to decline to 8.5 times, from almost 13 times currently.

According to the World Steel Association, steel production in China, which accounted for about 46% of the global total in 2011, fell in each of the six months through November 2011 before gaining in December 2011.

The World Bank on January 18th 2012 cut its global growth forecast by the most in three years, saying that a recession in the euro region threatens to exacerbate a slowdown in emerging markets such as India and Mexico. The world economy will grow 2.5% in 2012, down from a June 2011 estimate of 3.6%. The euro area may contract 0.3% as compared with a previous estimate of a 1.8% gain.