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Developed nations will drive demand: Mittal

Jun 17, 2014 | 02:41 PM | Michael Cowden

Tags  steel demand, ArcelorMittal, Lakshmi N. Mittal, developed markets, developing markets, China, overcapacity, Brazil Russia

NEW YORK — The face of the global steel industry is changing, with demand increasingly expected to come from developed instead of developing countries, according to the top executive of the world’s largest steelmaker.

"The key difference between now and two years ago is that the developed markets are on a much stronger footing," ArcelorMittal chairman and chief executive officer Lakshmi N. Mittal said June 17 at AMM’s Steel Success Strategies XXIX conference in New York. "This is certainly positive for ArcelorMittal, as two-thirds of our shipments are in the developed world."

U.S. indicators as diverse as consumer spending, the Institute for Supply Management’s purchasing managers index and automotive sales are improving, Mittal said, while European markets are "more stable," with ArcelorMittal cautiously optimistic that the "corner has been turned" in the region as it returns to normal demand levels.

As developed markets rebound, "structural" problems underlying developing countries such as Brazil, Russia, India and China have emerged, Mittal said. Dependence on energy exports could prove a long-term risk for Russia, as could an unsustainable growth model in Brazil centered on boosting consumption. In addition, China and India are seeing slower growth, although the situation in India may be improving due to new political leadership there, he said.

But while the return of demand in developed countries may represent a big change for the steel industry, other issues remain constant, Mittal said, listing China’s continued overcapacity as among the persistent challenges. "The clear risk is that overcapacity in China is threatening higher imports to Europe and the United States," he said. "It is important that the overflow to other markets enters on a fair basis."

Another challenge faced by the United States as well as developing markets is decrepit infrastructure, which boosts costs and dissuades investment, Mittal said. Shoddy infrastructure in the United States would require spending $450 billion per year to fix by 2020, although lobbying for more infrastructure spending could be a tough sell, he said. "That’s more than double what (spending) is currently planned. But it is important to invest for the future. And when interest rates are so low, it makes sense to take advantage and address urgent infrastructure requirements that support growth."

Strict emission standards in Europe may force steelmaking capacity in the region to move elsewhere, potentially leading to higher emissions if that production heads to areas with much looser pollution controls, Mittal said. "Any effective program ultimately needs to be global."

Competition from aluminum and other materials in the automotive sector is of less concern, with Mittal noting that steel is less expensive than aluminum, more environmentally friendly and increasingly competitive on the weight front. "No one should doubt that steel remains the material of choice for the automotive industry," he said.

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