World steel demand is growing faster and earlier than expected, driven primarily by China's runaway growth, and is now expected to hit pre-crisis levels this year, the World Steel Association said.

The $500 billion steel industry is recovering from one of the worst downturns it has seen in its history, which cut demand by 6.7 per cent last year, according to Worldsteel estimates.

The group now expects apparent steel use to rise by 10.7 per cent to 1.241 billion tonnes this year, an improved estimate compared with late 2009 forecasts, while demand is expected to hit a historical high at 1.306 billion tonnes in 2011.

'The world steel industry now seems firmly set on a path to recovery,' Daniel Novegil, chairman of the association's economics committee said in a press release.

'The recovery is not only earlier, but also stronger than expected. It was driven in large part by government stimulus packages and recent inventory re-stocking,' he added.        China's apparent steel use in 2010 is expected to increase by 6.7 per cent to 579 million tonnes. In 2009, it was estimated to have risen to 542.4 million tonnes.

The forecasts are from Worldsteel's short range outlook, which its board, where steel giants like ArcelorMittal, the world's largest producer, hold a seat, approved in Vienna over the weekend.

While the growth picture for this year and next was looking robust, Novegil noted a much slower pace of recovery in key developed economies.

'The emerging economies, who in total maintained positive growth through the crisis, will continue to show strong growth, driving world steel demand in the future,' he said.

'However, the current recovery in major developed economies is slower and the projected steel demand for them in 2011 is well below 2007 levels,' he added.

Raw material pain

But despite the stronger-than-expected recovery in the $500 billion industry, Ian Christmas, director-general of the World Steel Association was doubtful that all the steelmakers would be able to pass on the costs to their customers.

'We're in a different world today than 2007, when last time raw material prices were going up...I'm not sure...whether you could be so confident about passing on the costs,' he said.

The world's top three iron ore miners -- Brazil's Vale, BHP Billiton and Rio Tinto -- are either in talks with their customers or have reached an agreement to supply ore priced on a quarterly basis.

Miners have not dislosed the price hike they obtained so far in this year's talks, but analysts estimate a rise of around 80-90 per cent in iron ore, which has more than doubled in price since September in the spot market.

Asked when the jump in raw material prices could derail the recovery in the steel industry, Christmas said: 'I don't think it derails the real recovery. What drives the the industry is the underlying steel demand,' he said.

He said he did not know how the individual steel companies were planning to respond to the shift to quarterly pricing mechanism. He said acquiring mines to boost self-sufficiency would be one priority, while producers were still sceptical towards hedging.

'But in increased volatility, naturally steel customers would be asking what protection do I have? But the CEOs don't want to go there,' he said, referring to using hedging tools to mitigate the price risk.

The association also published March global crude steel production figures, which showed a hefty jump of 30.6 per cent year-on-year, bringing the production to 120 million tonnes.

In the first quarter of this year, crude steel output rose to 342.3 million tonnes, rising 29 per cent compared with the same period last year. – Reuters