A brief outlook on steel stocks for 2013

The steel industry is indicative of the overall economic health of nations. This is mainly because of the critical role steel plays in infrastructure and economic development. As a global commodity, steel stocks and prices are impacted by a range of country-specific and worldwide factors. Although world economies have been recovering well from the global economic recession of 2008, the steel stocks outlook for 2013 and beyond was significantly impacted by the recession.

The steel industry after the recession

The steel industry is intensely competitive and highly cyclical. When the global economic recession hit in 2008, nearly a decade of sturdy industry growth suffered a major setback. Consumers used existing steel stock inventories instead of buying new stocks, which negatively affected prices. But, because the steel market operates in cycles, it was only a matter of time before the industry bounced back and showed signs of recovery.

In late 2009, the steel industry begun to witness a positive turn in fortunes. Demand for steel increased in developing economies mainly in Asia, which countered sluggish market performances in developed economies. The steel industry continued to witness significant growth throughout much of 2010 and 2011 in tandem with recovering global economies. China remains the principal driver of this growth, as of 2013.

Steel stocks price trends

There has been a steady, but slow improvement in steel prices since 2009. Slight growth patterns in the steel industry saw production of 1,149 Mt of crude steel worldwide by the close of the last quarter of 2012. This production represented a mere 0.6% improvement year over year. The paltry growth reflected low global demand for steel stocks relative to the global pre-recession demand levels.

As would be expected, steel stocks prices were also below the pre-recession levels at the close of 2012. This is despite the slight price gains seen in the post-recession period. A downside to the slow industry growth is that sustained, below-par stock price levels would adversely affect steel stocks margins for 2013.

Steel stocks price projections for 2013

Concerns surrounding the Euro-zone debt crisis and the lingering doubt about the sustainability of China’s growth rate create uncertainty in the outlook on steel stocks for 2013. Improved stock prices, however, will depend on the price recovery momentum experienced in 2013.

The steel stocks price recovery momentum in turn will depend on factors like quick resolution of the Euro-zone debt crisis and resumption of robust construction activities in developing countries like India, South Korea and China.

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