Email a friend
  • To include more than one recipient, please separate each email address with a semi-colon ';', to a maximum of 5

  • By submitting this article to a friend we reserve the right to contact them regarding AMM subscriptions. Please ensure you have their consent before giving us their details.

Emerging markets are slightly less attractive in 2014

Dec 31, 2013 | 08:00 PM | AMM staff

Tags  PricewaterhouseCoopers LLP, China, Association of Southeast Asian Nations, Turkey, BHP Billiton Ltd., Jacques A. Nasser, AMM Staff

Often, when metal executives are contemplating their next business decision, a challenge can also be an opportunity--and vice versa. A leading example of this is the issue of emerging foreign markets.

Less than half of the steel executives responding to an AMM survey last year said their companies planned to expand into emerging markets over the next 12 months, down 10 percent from a 2012 survey.

“The emergence of shale gas economics and promised renaissance of U.S. manufacturing tied to it have forced a re-evaluation of the wisdom of investing offshore and laid the foundation for a reshoring movement,” said Sean Hoover, U.S. metals leader for London-based PricewaterhouseCoopers LLP in Pittsburgh. “Adding to the list of disincentives is the economic slowdown in China, fiscal meltdown in Europe, intense competition in the Asean (Association of Southeast Asian Nations) region from Japan Inc. and South Korean steelmakers and weak intellectual property laws.”

Brazil strengthened its status as the top target market for investment among global steel and service center executives in the 2013 survey. Mexico supplanted India for the second slot, while China moved up a notch to No. 3, benefiting from a steep decline in the perception of India as an investment target, which slipped to fourth in the rankings. The biggest investment gainers among emerging markets were Turkey (up 12 percentage points), Indonesia (up 11 points) and Thailand (up 8 points), while the biggest losers were India (down 10 percentage points) and the United Arab Emirates (down 5 points), according to the survey.

“Although growth is a given in the Asean market, competition to harness it is steep, with regional players (Japan and South Korea) already invested heavily there,” Hoover said. Closer to home, “a young, educated labor force, growing population, rising standard of living and close geographical proximity to the U.S. consumer market and the ‘new domestics’ automakers have helped burnish Mexico’s image as a place to invest.”

Although the statistical shifts are minimal, fewer respondents to the 2013 survey indicated plans to establish beachhead operations in emerging markets compared with the previous year. Some 35 percent said they would be pursuing manufacturing and sales, while 29 percent said they were interested in sales only. A preference for establishing manufacturing and sales operations vs. sales-only operations also surfaced among those respondents who did indicate plans to tap into the growth potential promised by emerging markets. As a group, respondents turned a definitive thumbs-down on setting up shared service centers.

But emerging markets are a point of concern for numerous metal industries. Some issues include global steelmaking overcapacity, market weaknesses, foreign government intervention in steel and raw material markets, unsustainable trade deficits, a looming global iron ore oversupply and when China will become a net scrap exporter.

“China and other emerging economies will be the major drivers of global economic growth in the long term, which could deliver up to a 75-percent increase in demand for some commodities over the next 15 years,” BHP Billiton Ltd. chairman Jacques A. Nasser said. “In China ... weaker trade and softer manufacturing activity have been a slight drag on growth relative to expectations. In Asia, we see strong growth overall. In Japan, the renewed policy push is positive for medium-term growth if the government can achieve its stated objectives.”

The global aircraft fleet will double to 36,560 planes over the next 20 years, driven by demand from emerging economies in the Asia-Pacific region, according to the latest market forecast by Toulouse, France-based Airbus SAS. Air traffic is expected to grow 4.7 percent annually, creating the need for more than 29,000 new passenger and freight aircraft worth almost $4.4 trillion, including more than 10,000 that will replace older, less-efficient planes, according to the firm.

“By 2032, the Asia-Pacific market will lead the world in traffic, overtaking Europe and North America,” said John Leahy, Airbus’ chief operating officer of customers. While one-fifth of people in emerging markets take at least one flight per year, this will jump to two-thirds by 2032, he said. Air traffic in the Asia-Pacific region will grow at an average rate of 5.5 percent annually over the next 20 years, Airbus predicts, while domestic air traffic in India will increase by 10 percent, followed by China and Brazil at 7 percent each.

Higher U.S. interest rates as the fiscal stimulus tapers off could constrain demand in emerging markets such as Brazil, Indonesia, Turkey, South Africa and India, which will counteract the benefits of rising U.S. copper demand, according to analyst Max Layton of New York-based Goldman Sachs Group Inc.

In China, domestic consumption of scrap will increase, according to Kensuke Kitani, chief executive officer of Hyogo, Japan-based Shimabun Corp.

“China is not likely to become an exporter in 10 years. For security reasons, the government is likely to keep ferrous scrap inside the country, even when scrap is more than enough,” Kitani said. “The Chinese government plans to utilize more scrap in order to control iron ore consumption. The government restricts scrap exports with excessive export tariffs, which equal a de facto ban.”

Latest Pricing Trends Year Over Year


How will US hot-rolled coil prices fare over the summer?

Rise sharply
Rise modestly
Stay largely flat
Fall modestly
Fall sharply

View previous results