Global Steel Demand to Shrink 6.4 per cent- Says WSA, BlueScope Steel to Face Headwinds?

Summary

• BlueScope is climbing the ladder at a rabbit pace with the stock recovering over 55.0 per cent from its recent low amid a rise in steel prices.
• While in the recent past the price of steel rebar futures has spiked over 7.55 per cent on the London Metal Exchange amid inventory shortfall in China, the market anticipates that the steel price could come under pressure ahead.
• In its short-term steel outlook, the World Steel Association suggests that the global steel demand could plunge by 6.4 per cent with a major decline across developed countries such as the United States and developing countries (Asia) excluding China, where demand is projected to increase by a unit per cent.
• BSL’s majority of customer base is across Asia, Australia, and North America, and the recent report from WSA points toward the possible headwinds for the Company ahead.
• However, market behaviour around the stock is depicting an entirely different picture.

BlueScope Steel Limited (ASX:BSL) is climbing the ladder fast with the stock rising from its recent low $8.050 (intraday low on 24 March 2020) to the present high of $12.550 (as on 4 June 2020) to cover much of the lost ground due to the COVID-19 toll on the global steel demand. The stock has appreciated over 55.0 per cent from its recent low thanks to recovery in steel prices across the globe.

In the recent past, steel prices across the globe have been spiking amid inventory shortfall in China and increased consumption. On the London Metal Exchange (or LME) the price of near-month steel rebar futures rose from USD 397 per tonne (as on 27 May 2020) to the high of USD 427 per tonne (as on 2 June 2020), marking a gain of ~ 7.55 per cent.

To Know More, Do Read: Iron Ore- The Rally From 15-Week High to a 52-Week High

However, while the rise in steel price could be a possible reason for the recovery of BSL on the exchange, the recent forecast by the World Steel Association is pointing towards the possible headwinds, which the steel manufacturer could face ahead.

World Steel Association- Short-term Steel Outlook

The World Steel Association (or WSA) recently released its short-term outlook over the steel demand and suggested that the global steel demand could plunge by 6.4 per cent during the year to stand at 1,654 million tonnes due to the COVID-19 crisis.

The organisation also projects the global demand to pick pace in 2021 with an increase of 3.8 per cent to stand at 1,717 million tonnes.

However, most of the lost global demand is expected to offset by a fast recovery in China than in the rest of the world with an actual 1 per cent growth in demand during the year 2020.

The group suggested that the Chinese economy is reaching normalisation at a rapid pace, and by the end of April 2020, all major steel-using sectors were back to near full productivity.

China, which witnessed a 6.8 per cent drop in the Gross Domestic Product during February 2020 and 16.1 per cent decline in the fixed asset investment. However, many iron ore mining companies such as Rio Tinto Limited (ASX:RIO), BHP Group Limited (ASX:BHP) expect China to recover soon.

To Know More, Do Read: How Prudent is the Bet on Iron Ore Miners Over China’s Recovery? – BHP, Rio, and FMG

WSA also estimates that the steel demand would be more prominent in China during the second half of the year 2020, driven by the demand from construction, which would improve considerably ahead due to various new infrastructure initiatives pulled by the Chinese government.

On the counter of developed countries, WSA projects the steel demand to fall by 17.1 per cent during the year amid a downtrend in consumer and service sectors along with a massive dislocation in consumer spending, and substantial job losses.

The European Union steel demand, which witnessed a contraction of 5.6 per cent in 2019 due to the sustained manufacturing recession, is projected to enter a recovery mode during the year.

Furthermore, the United States and North America as a whole is anticipated by the group to witness a fall in steel demand.

Projection Related to the Asian Demand

WSA projects the steel demand across the developing countries (excluding China) to take a hit of 11.6 per cent before witnessing a substantial recover during the next year with an increase of 9.2 per cent in demand.

India is projected to witness a decline of 18.0 per cent in steel demand during the year, and a 15.0 per cent rebound is expected in 2021.

WSA Forecast and BSL

BlueScope steel’s product and consumer are majorly spread across Asia and North America, where the steel demand is projected by WSA to take a considerable hit, which could bring challenges for the steel manufacturer; however, while this is just one side of the story, the market behaviour around the stock is depicting another tale.

BSL Daily Chart (Source: Refinitiv Eikon Thomson Reuters)

On following the daily chart, it could be seen that the stock has recently breached its trendline resistance zone along with the horizontal resistance line. On the standard breakout confirmation counter, the stock has closed above both the resistance with many trading session breaching the high of the breakout candle.

Furthermore, during the trading session on 5 June 2020, the stock has given a volatility breakout as well, with the stock breaching the +1 Standard Deviation of the 20-day simple Bollinger band. Currently, the stock is trading above the 200-day exponential moving average and is fighting for sustaining the volatility breakout.

Also, it should be noticed that the mean value of the Bollinger band, which is a 20-day simple moving average is crossing the 50-day exponential moving average from below, reflecting on bullish sentiments around the stock.

The 12,24,9 MACD is also showing a positive signal with the signal line crossing the base line from below (marked with a circle). It should be noticed that the previous horizontal resistance line of the stock, which should now act as the support, is overlapping with the mean value of the Bollinger band and the 50-day exponential moving average, which in turn, makes the level of $10.869 decisive support for the stock.

The stock is trading at a crucial level and price action above the same could further invite bullish sentiments (through public participation), and failure to do so could seed bearish sentiments.