Steel Demand In The Lucky Country
It is almost 60 years since Donald Horne wrote “The Lucky Country”, a damning critique of Australian complacency. But instead of embracing the book´s core message, generations of Australians have preferred to use the book´s title to imply that Australia is the land of plenty: a place where the good times just keep on rolling. Best place in the world…Austrayyya. (The problem for Donald Horne, 60 years later, is that Australia has in fact become one of the world´s most prosperous nations). For this reason, it´s perhaps not surprising that Australia is bucking the trend outlined in the World Steel Association´s Short Range Outlook, released in October. The WSA predicts steel demand in the world´s developed economies will see a contraction of 1.8% during 2023. Meanwhile, here in the Lucky Country we have some key issues which should significantly increase steel demand. The first of those issues is population growth. More people means more houses are needed and more infrastructure is required to help those people get to work and to keep them entertained. According to the Australian Bureau of Statistics (ABS), Australia´s population stands at 26 million, of whom just under 30% were born overseas. In the past
year alone, 601,000 people over the age of 15 have come to Australia to live. That creates an enormous demand for housing – and thus steel. Yet, the irony is that the number of dwellings being built is not keeping up with the number of people needing a home. The ABS says this year´s rolling annual sum of approvals is running at 167,000. Pre-pandemic, in 2019, there were 177,000 dwellings approved.
So, on the basis of population increase compared to available housing, there should be massive demand for steel. However, if we delve into the details, a more complex picture appears. A large chunk of the recent new arrivals are students who have lower expectations regarding their housing needs. They are more likely to bunk in with friends than to seek a place of their own. Likewise, there is a view forming that Covid-19 has changed attitudes to living conditions. The ABS reports that the average household now contains fewer people than in the pre-Covid era as people have become more comfortable with less interaction with other people: effectively, less people at home. The ABS notes the ratio of population per new dwelling approval is running at 3.6, the worst in the history of the series which dates back to 1984.
In this climate of a housing shortage, it´s reasonable to wonder who might be the first to spot the opportunity to make a dollar? The answer has already arrived – investors – the scourge of the first home buyer. According to the ABS, new home lending to investors rose by 2% in September, whereas for owner-occupiers it fell by 0.1% and is down by 8.4% compared to a year ago. It stands to reason that if investors are seeing the opportunity, then even a half-asleep developer could not miss the trend. Anecdotally, the second-tier suppliers to the builders servicing this market are seeing increasing demand as their part of the market improves.
Of course, another key issue which is driving Australia´s demand for steel is infrastructure. In their efforts to kick-start the economy after the Covid-19 shock, the federal and state governments directed vast sums of money to infrastructure projects which are currently in progress and which will continue to drive steel demand for years to come. Tunnels, bridges, airports, roadways and housing – all requiring huge quantities of steel. The ongoing activities in the non-residential market, coupled with pressure from the residential and infrastructure sectors, will continue to drive competition for limited resources, and thus underpin steel prices.
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