These are difficult times for the global steel industry. Manufacturing output is currently below pre-financial crisis levels of 2007. Canada’s largest diversified miner, Teck Resources, recently announced a 41% drop in profit, in part because of the weak steel market pushing prices of the miner’s metallurgical coal down. Even China, with what seemed like limitless growth, now appears likely to see both its GDP and demand for steel slow toward the end of 2014. However, despite these challenges, delegates at the Coaltrans world coal conference in Berlin were told that there was light at the end of the tunnel for the global steel industry.
Julian Steer, general manager of ArcelorMittal, heads a team responsible for the global economic and steel market outlook. Speaking at the first keynote session at Coaltrans, Steer stressed that there were reasons for optimism despite the currently tough climate.
Return to full capacity
Though Steer admitted it was difficult to say when exactly the steel industry would return to full capacity, it was certainly not as far away as it might seem. “Indications are that steel and manufacturing output will rise,” Steer said. “We have an annual growth rate close to 10%, while business and consumer confidence is increasing.”
Steer told delegates at the conference that global steel demand had risen by 270 million t, but that it had been impacted by a drop in capacity utilisation. As with other areas of the coal industry, an oversupply of both steel and metallurgical coal was keeping prices low.
Industrialisation and urbanisation
With steel demand associated with rising populations, industrialisation and urbanisation, steel manufacturers have often looked to China to support the global industry. Steer said that he expected to see a similar growth (of roughly 8.5%) in China in 2014, but that “the broad trend is that urbanisation in China will slow.” Steer added that “While China is still some years away from peaking, it will peak. [China’s growth] has to slow, otherwise we are in for a hard landing.” The steel industry must therefore begin to identify new and emerging markets.
Steer identified Russia, Brazil and India as being key new markets, but admitted that they did “show weaknesses.”
Looking elsewhere in the world, Steer said that “Relatively low US residential development was responsible for the somewhat anemic growth in US steel market.” However, Steer added the caveat that he was “optimistic over the US and cautiously optimistic over Europe.”
“It is right to be cautious,” Steer said. “However, the competitiveness issues are beginning to be alleviated, and so we’re confident about growth levels picking up.”
Shipyard and automotive industries
Asian net indirect steel exports have been built upon and driven by the shipyard and automotive industries, according to data compiled by ArcelorMittal. While this had supported steel demand, it is not something the industry could rely on long-term, Steer suggested, since it is likely steel usage in these sectors will fall.
The automotive industry had also supported steel demand in the US, while it could also grow in a Chinese economy that is otherwise set to slow, Steer said.
Looking to the future, Steer said that Chinese capacity utilisation was unlikely to increase, as demand growth slows and capacity additions continue.
“After 2020, Chinese demand will come down: like the developed world, [China] will need to have the right system to make the industry sustainable.”
Steer concluded his speech to delegates with the message that there was certainly reason to be optimistic about the outlook for the global steel industry. Specifically, Steer pointed to the number of machinery orders rising in key markets (including Japan and South Korea). However, he also called for the current oversupply in the market to be addressed: “Despite [the reasons for optimism], there is still too much capacity,” Steer concluded.
Written by Sam Dodson
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