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Global steel rebalances

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In its short-range outlook released in mid-October last year, the World Steel Association (Worldsteel) forecast that global steel demand would reach 1,622.1 million tonnes in 2017. Worldsteel also forecast that global steel demand will increase by 26 million tonnes to 1,648.1 million tonnes in 2018.

Excluding the roughly half of that total contributed by China, Worldsteel forecast that global steel demand would reach 856.4 million tonnes, an increase of 2.6% in 2017, and 882.4 million tonnes, a further increase of 3.0%, in 2018.

At that time T.V. Narendran, chairman of the Worldsteel Economics Committee said that progress in the global steel market had been encouraging. “We have seen the cyclical upturn broadening and firming throughout the year, leading to better than expected performances for both developed and developing economies, although the Mena region and Turkey have been an exception,” he noted.

He also identified prevailing risks to the global economy, such as rising populism and protectionism, US policy shifts, EU election uncertainties and China deceleration, which still cause some concerns today, but he added that to some extent they had abated.

“This leads us to conclude that we now see the best balance of risks since the 2008 economic crisis,” he stated, while highlighting that geopolitical tension in the Korean peninsula, China’s debt problem and rising protectionism in many locations continue to remain risk factors.

“In 2018, we expect global growth to moderate, mainly due to slower growth in China, while in the rest of the world steel demand will continue to maintain its current momentum,” he said.

While noting that world steel demand was recovering well, he added that was driven largely by cyclical factors rather than structural. “The lack of a strong growth engine to replace China and a long-term decline in steel intensity due to technological and environmental factors will continue to weigh on steel demand in the future,” he concluded.

China’s shadow
More recent analysis by others sees modest growth in China’s steel production in 2018.

Alistair Ramsay, Metal Bulletin Research manager, says: “After downwardly revising our crude steel forecasts for 2017 after a harsher than usual retreat in the final quarter brought on by winter restrictions announced in August, we doubt there will be so much of a downward correction to come in 2018, where the outlook is quite robust for both China and the rest of the world.”

He says that this is likely to stimulate further growth in China’s crude steel production, so MBR’s forecast for 2018 is 839.8 million tonnes, up from a downwardly adjusted 837 million tonnes in 2017.

What matters to steel producers outside China is that nation’s steel exports. Ramsay believes that stronger market conditions outside China are likely to stimulate them, “especially if apparent demand falls modestly in 2018 as we expect following a stock-related surge of over 9% this year, which exceeded the growth in underlying or ‘real’ steel consumption in China.” From 72.9 million tonnes of exports in 2017, MBR anticipates a partial recovery to 80.9 million tonnes in 2018 – a significant growth rate of 11.0%.

“As usual, the outlook for prices will depend on how much steel China exports and whether the growth in demand in the rest of the world is effectively greater than the increase expected in Chinese trade in order to absorb the China surplus,” says Ramsay. “We believe that it will be big enough thanks, more than anything else, to an improving construction outlook.”

MBR figures were included in an early-January 2018 poll of 15 analysts’ opinions in the Financial Times. Global steel production is predicted to increase by 2.1%, according to an average of their forecasts. Most of the analysts predicted China’s annual growth in production to be within the 0-2% range, with the average forecast being 0.6%. The average forecast growth for EU steel output was 2.4% in 2018, while that for the US was 3.4%.

After global steel production growth in 2017 proved stronger than MBR had expected, at plus 4.1%, “we have left our outlook on global growth for 2018 unchanged at 1.0%,” says Ramsay. “As the demand outlook has improved with the global economic projections for 2018, so we predict further growth in steel production of 1.0% to 1.71 billion tonnes.”

Regional variations
North America
The US came out top for likely 2018 steel output growth in over half the forecasts in the FT poll.

Ramsay explains MBR’s thinking about steel production growth in the US this year: “By contrast with the EU, we have substantially upwardly revised our US production forecasts to 84.5 million tonnes, up from 81.7 million tonnes in 2017.”

MBR’s revision followed on from recent developments in which local producers have been regaining market share from external suppliers thanks to trade legislation changes and the impact of a weak dollar on external suppliers’ competitiveness.  “We suspect this pattern will continue in 2018, enabling local mills to benefit further from the recent revival in local steel usage following a two-year depression,” says Ramsay.

The US is consequently seeing substantial investments in state-of-the-art steel mills and plants (see box), as steelmakers adjust their capacities and product ranges to serve local markets.

Latin America
While Mexico’s relations with the US remain high on its policy agenda – including uncertainties about the future for Nafta – the minds of many of Latin America’s steelmakers are focused on imports from China, which have been falling. The region’s steel import volumes from China dropped by 10% year-on-year for the period from January to November 2017. Imports fell to 6.3 million tonnes, less than the 7 million tonnes imported during the same months in 2016, according to data released by regional steel association Alacero on January 5. 

Meanwhile, China’s total steel exports amounted to 67.4 million tonnes, down by 32% from 98.6 million tonnes exported during the same period in 2016, according to Alacero’s figures. Of Latin America’s total steel imports from China during January to November 2017, 4.3 million tonnes were flat steel products, 1.1 million tonnes were long steel products and 218,000 tonnes were seamless tubes. 

The region’s own steel producers have been increasing production. Alacero data show that during January to November 2017, Latin American countries produced 58.8 million tonnes of crude steel, up by 7% on an annual basis. Finished steel output grew by 3% over the same period, to 48.6 million tonnes. Steelmakers in the region will be hoping to maintain their momentum in 2018.

Europe
While EU economic growth has been better than many analysts predicted in early-2017, the outcome for steelmakers has been double-edged owing to exchange-rate movements.

“For Europe, we have actually downwardly revised our outlook to 1.2% growth for 2018,” says Ramsay. In tonnage terms, that means an MBR production forecast of 170.2 million tonnes. “The outlook has been compromised not by demand-side considerations, which have improved strongly within the region, but by the high, local prices, which have been strengthened by currency appreciation making imports more competitive and exports less so.”

In a report it released on December 7 last year, Moody’s Investors Service said that sustained demand, higher year-over-year profits and the success of antidumping measures should support European steelmakers’ credit metrics and underpin the stable outlook on the sector into 2018.

“Our 2018 outlook for the steel sector in Europe is stable on the back of expected growth in steel demand from the construction and auto industries. Economic expansion, as signaled by the sustained improvement in Europe’s PMI, and rising profitability, as steel spreads widen, are also key supporting factors for our stable outlook,” said Gianmarco Migliavacca, a Moody’s vice-president – senior credit officer and author of the report.

Moody’s expects that steel demand from the auto, construction and capital goods sectors will grow in 2018, with apparent steel consumption forecast to grow 1.5% in 2018, broadly in line with Moody’s 1.9% GDP growth forecast for the EU.

EU anti-dumping measures against a number of countries, including China, will strengthen European steelmakers’ pricing power into 2018, Moody’s believes. However, steel imports into the EU will continue to rise moderately despite tariffs as countries outside the tariffs’ scope continue to export steel into the region, it noted. Steelmakers’ higher profits should enable steel manufacturers to further de-lever, it added.

Moody’s outlook on the Russian steel sector was also stable, as a result of improving domestic demand, PMI sustainably above 50 and high capacity utilization, and continued profitability on the back of higher steel prices. In its Capital Markets Day in early November 2017, Russian steelmaker Severstal predicted that Russian steel demand growth of 5-6% in 2017 would continue in 2018, with investment recovery as a major driver, including increasing construction activity. By its analysis, in the four years from 2017 to 2021, steel demand will increase by 8%, or 3.3 million tonnes, with 2.5 million tonnes driven by construction. Value-added steel production, which already accounts for 46% of Severstal’s output, is a key part of the company’s strategy to prosper from the recovery.

Middle East
Recovering oil prices should boost investment in the Middle East, but the fact that the region’s steelmakers have been left most exposed to competition from imported steel – not least from China, owing to weak or non-existent trade barriers – has left some producers to run at capacities well below nameplate. Momentum for defensive duties and tariffs did grow last year, but the region faced anti-dumping margins itself on products exported from some of its member nations.

As Metal Bulletin Magazine reported in its final (December 2017) issue, steel production and consumption in Iran, Turkey, UAE, Qatar and Egypt are expected to keep increasing in 2018, while Saudi Arabia’s economy is particularly dependent on oil prices. The region is rich in DRI-based steel production, so the global outlook for ore-based metallics (see box) is particularly relevant to the region.

Turkey’s crude steel production was expected to reach 37 million tonnes in 2017, up from 33.2 million tonnes in 2016. However, the Turkish Steel Producers’ Association (TÇÜD) is worried that the country’s imports of rebar and hot-rolled coil (HRC) will increase because of cuts to import duties made at the start of 2018, it said on January 8. A 10% import duty on rebar was removed completely on January 1 and the duty on HRC was reduced to 3.5% for re-rollers, from the previous 5%, on the same day.

TÇÜD is concerned that local steel production in Turkey may decrease while imports from countries such as Ukraine, Russia, Brazil and Iran may increase.

Long-term outlook
World steelmaking overcapacity and the effects of excess production generating exports that compete with domestic production in importing nations has summarised the global picture for several years.

“We already have sufficient crude steelmaking capacity [globally] and, because re-use of steel will grow in the future, we don’t need to create more and more crude steel capacity,” Worldsteel director general Edwin Basson told Metal Bulletin in an interview in late-October last year. He said that steel re-use is a key issue for the next 20 years, rather than whether excess capacity will grow or reduce.

Global excess steel capacity was estimated to reach around 650 million tpy in 2017, according to a study conducted by the Organization for Economic Cooperation & Development (OECD) in late-September.

Despite global overcapacity, some new steelworks are still being built. “Today, we are seeing capacity-building efforts in countries such as Vietnam and Iran, and it is, to some degree, normal that developing economies will want a steel supply close by,” Basson told Metal Bulletin. “The reality of solving [the problem of] excess global steel production capacity will probably be a combination of some excess capacity rolling forward slowly into the future to satisfy future demand, while other capacity will be closed and replaced with new projects,” he added.

Global nominal steel capacity was expected to fall marginally year-on-year, to 2,356.49 million tpy in 2017, from 2,369.66 million tpy in 2016, according to the OECD study. However, global nominal steel capacity could increase to 2,480.23 million tpy by 2020, should planned steel capacity installations between 2018 and 2020 be realized.


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