Steel prices are likely to continue their growth in 2008 by about 7-8 per cent on the back of increasing production cost and high consumer demand, especially from infrastructure and electronics consumer goods, said the latest report by India Infoline [Get Quote].

The report further said steel demand to be driven by BRIC (Brazil, Russia, India and China) nations over the next two years. These countries, accounting for 41 per cent of global steel demand, will continue to see 12.8 and 11.1 per cent growth in demand in 2007 and 2008 respectively.

Intense construction activity in the BRIC nations will keep demand for the metal strong over the next two years. These countries are expected to account for 77 and 71 per cent growth in global consumption in 2007 and in 2008 respectively.

In order to curb inflow of funds, the Chinese government levied duties on exports of primary metals. This will lead to lower exports of the metal, as costs will rise, and bring about parity in demand-supply situation in the global market. India Infoline expects this move will result into global steel prices moving northwards.

The increase in raw material prices is expected to push production costs higher by $55-65 in next year. This increase in manufacturing costs will lead to rise in steel prices by manufacturers during the period.

Strong demand momentum driven by the infrastructure sector is expected to continue in the near term. The higher steel consumption globally will allow steel manufacturers to pass through the rise in raw material costs, which are expected to jump by US$55-65 per tonne next year. Rising global demand is expected to help steel price rise in the near term to US$610 in 2008, a substantial rise from US$590 in the fourth quarter of 2007.

Steel consumption in the BRIC nations increased at a steady pace during the decade. China, followed by India, have witnessed their steel consumption rise by a compound annual growth rate of 18.4 and 9.54 per cent respectively in the last five years. Compared with these two countries, the demand growth in the other two has been slower. Brazil and Russia have witnessed their consumption increase by a CAGR of around 5 per cent in the last five years.

Iron ore prices over the last one year have doubled, led by a surge in the demand from China. These prices have been debated largely as markets expect that the surge in iron ore prices have not ended and it will continue to rise in the next calendar year. China has been hungry for raw materials in the last five years and the demand is not expected to slow down soon.

China has seen its steel production triple in the last five years. The raw material for the production rise largely has been supported by iron ore imports in the last two years. China imports a major portion of its iron ore consumed as the local production accounts for only 40-45 per cent of total demand.

Steel manufacturing capacities in China as well as in the rest of the world are rising at a rate of 10 per cent over the last two years. New steel manufacturing capacities are built in areas where the iron ore is easily available. The new capacities in the iron ore producing areas of India,  Brazil and Australia will lead to lower exports from these countries to China.

Global steel production has grown 46.4 per cent in the last five years from 850 million tonnes (Mts) in 2001 to 1,244 Mts in 2006, led by 197 per cent steel production growth in China from 142 to 423 Mts in 2006.

The strong growth in steel demand is expected to continue and the International Iron and Steel Institute (IISI) forecasts 2007 will be another strong year for the steel industry with apparent steel use rising from 1,120.9 Mts in 2006 to 1,197.6 Mts in 2007, an increase of 6.8 per cent.

BRIC nations, which accounted for about 41 per cent of global steel demand in 2006, will again be leading the growth in the next two years. China's apparent steel use is expected to grow by 11.4 per cent in 2007 and 11.5 per cent in 2008. For India, steel consumption is likely to increase by 13.7 per cent in 2007 and 11.8 per cent in 2008.