CHICAGO India and the Middle East represent the best prospects for future steel demand growth, according to Robert M. Miller, chief executive officer at investment bank Miller Mathis Group Inc.
"India may hold the opportunities that people used to think would develop in China," Miller said at Platts 9th Annual Steel Markets North America Conference in Chicago.
India currently produces 80 million tons of steel per year, but some experts say the market could grow to 200 million tons by 2020 thanks to a middle class of some 300 million people.
Miller acknowledged that Luxembourg-based ArcelorMittal SA and Pohang, South Korea-based Posco Ltd. both failed to get the necessary approvals to build greenfield mills in the country. "India is very complicated," he said. "You can have a five-star hotel across the street from a neighborhood filled with hovels."
But even though 1 billion people still live in poverty in India, those supplying the middle class will be "looking for every kind of raw material and for the long term," Miller said
U.S. companies tend to think in the short term and are unlikely to invest in iron ore mines if they see the market as oversupplied, he said. "But long-term population growth (domestically and globally) will by necessity require infrastructure, which needs steel."
At one time, even Indian companies didnt want to invest in coal, deeming the North American product too expensive and costly to transport. But when natural gas discoveries sent U.S. coal prices down, it became economical for India to buy it.
"The amount of demand for raw materials is outstanding," Miller said, noting that Mumbai-based Tata Group alone needs 200 million tons of thermal coal annually. "I wouldnt count coal out," he said. "People still need it."
The Middle East was a "steel production backwater" until very recently, producing about 20 million of the worlds 1.5 billion tons, Miller said, but his New York-based firm has been talking with the Saudis about their plans to build seven industrial cities over the next decade. "The amount of steel needed for this will be enormous," he said.
Asset prices are down across the board and mergers and acquisitions are at an all-time low, Miller noted. "You want to buy (companies) when prices are low, if you have the wherewithal and the stomach to do it."