Global steel production could recover as early as 2010, driven by growth in gross domestic product and improved financial conditions, according to Société Générale.
Production is expected to increase by 4% in the next two years, slightly above GDP, which is set to rise 3% next year and 3.7% in 2011.
The steel industry is moving from a destocking phase, when mills cut production and used up inventories, to a restocking phase as demand begins to rise,
Increased steel production will have a positive impact on tonne-mile demand as the industry is responsible for approximately half of all dry bulk shipments globally. Future growth in steel demand will come from emerging markets, particularly Brazil, Russia, India and China where consumption levels are still very low.
However, although rising steel demand had led to a recovery in prices from June, prices are expected to drop over the next two financial quarters as increased production is set to prevent any further rises.
With the global steel market dependent on imports from emerging makets, China is another factor that affects supply.
Société Générale's view is that steel prices will rise in the long term, but will fluctuate on their way up.