Per-capita consumption: Why it’s important
A key metric to watch with commodities like steel is per-capita consumption. U.S. consumption of 306 kilograms (or kg) is better than the world average, which stands at 217 kg. The key point to note here is consumption trends in other emerging countries like India, which currently are far below world averages. Sustained growth in these economies is expected to raise demand going forward. An increase in this number directly benefits companies like Arcelor Mittal ADR (MT), United States Steel Corporation (X), Nucor Corporation (NUE), and Reliance Steel & Aluminum (RS) and ETFs like the SPDR S&P metals and mining index (XME).
The metal of choice: Dependence on prosperity
Every economy goes through various stages of development. With rising income levels, the per-capita consumption of metals rises. But there comes a saturation point when it stagnates.
As the graph above shows, steel consumption saturates as the per-capita GDP rises above $20,000. Preference changes to other better-quality metals like aluminum or titanium dioxide. As per the Central Intelligence Agency of the U.S., the world GDP per capita (PPP method) is $13,100, while it’s $52,800 for the U.S.
There are lots of emerging countries with incomes much below the world average. A key feature of these developing economies is lack of basic infrastructure. As a country’s infrastructure develops, steel consumption rises. Also, real estate consumption goes up. More people move out of villages, into cities, for better opportunities. But as the country develops, there’s limited scope to further develop infrastructure. Real estate consumption also peaks as, gradually, most of the population gets access to housing. As the economy develops, consumer preference moves to better metals like aluminum and nickel. So demand for steel peaks.
World steel consumption growth still has long-term growth potential. The source of growth could switch from country to country as some countries transition from developing economies to developed economies.