There are few signs that steel demand in China is starting to slow.

In fact, it seems likely that China's steel consumption will continue to grow strongly next year and the year after, against the backdrop of a construction boom ahead of the 2008 Beijing Olympics and plans by Chinese automakers to increase production.

As a result, most steel producers are cautiously optimistic about the outlook for the steel industry in the coming years.

That's after taking into account the market volatility that has engulfed the global financial system in recent times. The recent market turmoil was triggered by a "credit crunch" by banks due to poor conditions in the U.S. housing market.

Most people who follow the steel industry believe that while the impact of financial market shocks may lead to a weakening of the steel industry, there are enough positive factors to offset these effects. One of the factors underpinning the steel industry - the effects of which appear likely to last for some time - is the industry's protracted period of consolidation. This consolidation has greatly improved the ability of manufacturers to keep steel prices high.

As steelmakers continue to struggle to consolidate into larger groups - albeit at a slower pace than a few years ago - there is little sign that the industry's major players will loosen their grip on product prices.

The steel industry has been profitable in recent years

Global steel prices have tripled since the end of 2001, boosting the industry's profitability. During the same period, the global steel stock price composite index composed of the stock prices of all listed steel companies outperformed the average stock price performance of all listed companies by nearly 4 times.

One way that these good times for the steel industry could end is for China to become a major exporter of steel in the coming years. If this materializes, the additional supply of steel that goes into global markets will play a huge role in driving down prices.

In 2003, China's net steel imports (imports minus exports) were about 35 million tons. But this year, China's net steel exports are expected to be around 50 million tonnes. Assuming this trend continues, the rise in exports from Chinese steel companies does have the potential to affect the outlook for the global steel industry.

Don't worry about Chinese competition

China's steel exports could have a "dramatic" impact on the health of the steel industry, said Dan DiMico, chief executive of major U.S. steelmaker Nucor. A large portion of China's steel exports are subsidized by the government, he said.

However, optimists in the industry dismiss these concerns. They argue that neither the Chinese government nor executives at China's major steel companies want China to become a major exporter of steel, as it could be more profitable to supply steel to China's fast-growing domestic economy.

A well-known "believer" of this "don't worry" mentality is Indian billionaire Lakshmi Mittal. Mittal is the chief executive and main owner of ArcelorMittal, the world's largest steel company.

Inevitably, there will be concerns about the impact on the steel industry of a general economic slowdown that is becoming clear in the coming months.

Global "steel density" on the rise

Bruno Balfour, chairman of Duferco, the world's largest steel trading firm, noted that the "steel density" of global economic growth -- the amount of steel consumed per unit of economic expansion -- has risen over the past five years.

The reason for this, Balfour said, is that much of the world's economic growth in recent years, both in mature and developing economies, has been tied to infrastructure projects such as new ports, railways and power plants. "These (projects) have a much higher steel consumption than normal projects." He expects financing for infrastructure projects to continue at the same scale as before, so he sees little chance of a downturn in the steel industry caused by banking problems.

"Global steel demand remains strong." Also optimistic is Alexei Mordasov, CEO and main owner of Russia's largest steel company, Sever Steel. He approved a $10 billion investment a few weeks ago to upgrade Severo Steel's plants in Russia, the United States, Italy and France. It is unlikely that his investment projects will be aborted due to a collapse in steel consumption.

From 2002 to 2006, the global steel output increased by 347 million tons, an increase of 38%. In 2006, the global steel output reached 1.2 billion tons. Of the increased production, 245 million tonnes (equivalent to 71%) came from China.

Much of China's increased steel production is used domestically in the construction, engineering and automotive industries, although some is also used for manufactured goods exported abroad.

From 2002 to 2006, former socialist countries such as Eastern Europe, Russia and other former Soviet Union member countries, as well as Turkey, contributed a total of 41 million tons of new steel production, and another 25 million tons came from countries other than the former Soviet Union, China and other countries. Steel plants in Asian countries other than Japan.

Of the 345 million tonnes of steel production added, only 28 million tonnes (8%) came from the "mature" economies of North America, Japan and Western Europe.

China's steel production and demand will continue to lead

World Steel Dynamics, a U.S.-based consultancy, believes that China's steel production and demand will continue to far exceed those of other countries in the coming years. The agency estimates that from 2006 to 2017, global steel demand will grow at an average annual rate of 4.5%, and China's annual consumption growth rate may reach 6.1%, compared with 2.9% in the rest of the world. %.

Assuming that forecast is at least close to reality, the period from 2001 to 2017 will also be a period of growth comparable to the postwar boom from 1950 to 1973. At that time, the average annual growth rate of global steel demand reached 5.8%.

A long period of stagnation followed: Between 1974 and 2001, global steel demand grew by just 0.6% a year, and many steel mills suffered from extreme overcapacity. The steel industry at the time was characterized by thin earnings and a "fit" stock market rating.

A major change in recent years from the boom period of 1950-1973 is that the countries sharing the current steel industry growth are more diverse than those in previous expansions. The postwar steel demand boom was almost exclusive to Western Europe, North America and Japan. Some of the most active companies in the industry today also show that the steel industry is more geographically spread.

Active international mergers and acquisitions

The leader in mergers and acquisitions over the past few years has been Luxembourg-based ArcelorMittal Steel. Last year, Mittal Steel bought Arcelor, Europe's largest steelmaker at the time, for 26.9 billion euros.

Among the steel companies from outside the most developed regions, those that are likely to have a significant presence in the steel industry in the coming years are India's Tata Steel, Jingdal Southwest Steel and Essar.

Nine months ago, Tata Steel bought Anglo-Dutch steelmaker Gruess for $12 billion, making it the world's fifth-largest steelmaker. Gloucester was originally formed from the merger of British Steel and a Dutch steel producer.

In addition, both Severstal and Evraz, Russia's second-largest steel company, appear to be interested in more cross-border acquisitions. Brazil's Gerdau and Argentina's Ternium are emerging as leaders in South America: Gerdau has acquired a string of North American companies, the most recent of which was the $4.2 billion purchase of U.S.-based Chaparral Steel in July.

Not to be outdone, representatives of mature economies that have been active in the past two years include Germany's ThyssenKrupp. The company is building a $3.7 billion plant in the southern United States and another in Brazil.

U.S. Steel, the largest U.S. steelmaker, has been looking to join the North American consolidation effort, having spent $3.2 billion to acquire two companies -- U.S. steel pipe maker Lone Star and Canada's last independent steelmaker Stelco.

But the most interesting deal is the recent deal by an extraordinary consortium to buy Sparrows Point from ArcelorMittal Steel for $1.35 billion. The consortium is made up of U.S. investment group Esmark, Brazilian mining company Vale and Ukrainian steel producer Donbass Industrial Alliance.

The US/Brazil/Ukrainian combination is almost certainly the first such joint venture in any commercial deal - and underscores the increasingly international character of the steel industry.