Trends and developments in long-term steel demand – The intensity-of-use hypothesis revisited

Considering the past few years rapid increase in the demand for minerals and metals, mainly stemming from the strong economic growth in China and India, an understanding of the historical development of steel demand is of importance. The purpose of this paper is to analyze the trends and developments of steel consumption in the world by applying the so-called Intensity-of-Use (IoU) method. The empirical analysis is performed using steel consumption and GDP (in constant 2005 US Dollars) data for 61 countries over 42 years. The results show that the IoU hypothesis does not hold for the whole panel, but when dividing the sample into three income groups we find that the IoU hypothesis holds for the Middle income group, indicating that the countries in this income group have experienced the move from an industrialization phase towards a more service based economy in the time period investigated. However, when taking into account time series properties and applying panel unit root tests, the variables are confirmed as non-stationary. A panel cointegration test shows further that the variables are cointegrated, and an ECM model has been performed to test the IoU hypothesis. The results confirm that the IoU hypothesis holds for the Middle income group. Regarding the estimated turning point this is identified at a GDP per capita level of about 19,000 US. There are thus many countries that are far from the level of GDP per capita when steel IoU starts to decline. However, conclusions regarding the turning point should be made with caution.