As we begin a new year, it’s natural to wonder how our industry and its segments will fare in 2008. As an indicator, we will look at steelmaking only. While there are some signs that raise a red flag, it appears as though the upcoming year will be a good one for steelmakers globally.

As of this writing, newly released figures show that U.S. real gross domestic product – a measure of the health of the economy – increased at a rate of 4.9% in the third quarter. This was up from 3.8% in the second quarter, and this indicates very good economic growth. Obviously, a healthy economy is positive for steel moving forward.

Third-quarter 2007 steel-inventory data also sheds positive light on future prospects. Steel inventories were at their lowest levels since March of 1998 – down 27% from the same month in 2006. As a result, steel producers are likely to face higher demand and higher steel prices in early to mid 2008.

Due at least in part to the falling dollar, U.S. steel prices are lower than prices in Europe and China, which makes exporting attractive for domestic producers. As of this writing, some U.S. steel companies have already announced price increases for the first quarter of this year. While steel demand is soft due to the weak housing and automotive markets, a domestic turnaround is likely based on the positive market fundamentals.

A recently released study shows that the industry is gearing up for continued growth by initiating a significant number of capital projects. Continuing the increased-spending trend of the past two years, there are currently 136 projects totaling more than $11 billion scheduled to begin after November 2007. Some of these investments, in 2008, may be delayed by the current credit crunch. A spike in interest rates means that the finances of steel users might also be squeezed, which could affect steel demand. Most industry people are downplaying this factor.

The International Iron and Steel Institute’s annual conference in Berlin in October of 2007 discussed the outlook for 2008. Global steel demand is expected to increase 6.8%, which is the same as the 2007 growth. Overall, 71% of the anticipated growth in 2008 will take place in the so-called BRIC economies (Brazil, Russia, India, China). In every global region, the demand change from 2007 to 2008 is expected to be positive with the lowest in the EU and the highest in BRIC. Africa is expected to increase at nearly double digits as well.

A recently released report from India expects the compounded annual steel-industry growth to be 16% in the next five years. This is up from the previous prediction of 11% growth. One thing that could affect India’s growth is the China factor. China’s National Development and Reform Commission – the top economic planner – said that China’s steel supply will continue to outpace demand in 2008 due to increasing capacity. If China decides to export steel to India at its own domestic prices, India will not be able to compete, which makes the Indian steel industry vulnerable to a price war. One thing that might mitigate this is the recent announcement by China that it is ending export subsidies and import substitution subsidies, which support domestic goods against foreign-mad products. The playing field just got a bit more level.

The cost of raw materials is one of the acknowledged factors that will affect the global industry. The cost of energy and perhaps a penalty on CO2 emissions are other potentially negative factors. Due significantly to the heavy demand from China, India and other developing countries – as well as supply constraints from the underinvestment in the mining industry in the 1990s – iron-ore prices may rise 20% and coking-coal prices by 30%. It is yet to be determined how the Rio Tinto/BHP Billiton merger will affect this, but the new entity – if approved by competition regulators – would control 40% of the world’s traded iron ore, a fact that particularly concerns China’s steel industry.

It appears that 2008 will be a healthy year for the global steel industry. While that’s a good thing for steel, it is also positive for all of its suppliers. Enjoy it while you can because one thing is sure about the steel industry – it is cyclical.IH