World's top steelmaker says China slowdown is weighing on demand

[LONDON] ArcelorMittal said it expects a drop in Chinese steel demand and weakness in the US and Europe, reinforcing concerns that dark clouds are gathering over the global economy.

The steel industry faces macro-economic risks and persistent oversupply, ArcelorMittal said in a statement. Smaller steelmakers around the world have recently raised the alarm on a darkening outlook, with Salzgitter AG earlier this week pointing to "gloomier sentiment and numerous economic and political uncertainties."

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 per cent in 2018.

Steel demand in China is forecast to fall by 0.5 per cent to 1.5 per cent in 2019, reversing direction after growth of 3.5 per cent 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 US, 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 US and European Union, as well as a deeper-than-anticipated slowdown inside China.

China's not the only region showing signs of weakness. The US and Europe are expected to grow at a slower pace than last year, also partly thanks to weaker demand for machinery, ArcelorMittal said.

Global steelmakers also face rising material costs as iron ore surges amid the fallout over Vale SA's dam burst in Brazil.

BLOOMBERG