Major Industry Trends
Steel production is highly predicated on the health of the global economy, so it is not particularly surprising that through 2008 and 2009, during one of the worst global downturns since the 1930s, global steel production fell significantly. By 2009 it had declined by 8% to 1.23 billion tonnes of crude steel, the lowest level seen in the sector since 2005, when just 1.144 billion tonnes was produced, according to figures from the Brussels-based World Steel Association (WorldSteel), whose members represent 85% of global steel output.
However, while most of the major steel producers were seeing a contraction, China strengthened its position as the world’s top producer in 2009, with its production rising to a record high at 567.8 million tonnes (mmt). After 2009’s 13.5% rise in its output, the country now accounts for 46.5% of the world’s total production, and continued this performance into 2010, when it was once again the engine of growth. China’s output in 2010 was 626.7 mmt, almost six times the output of second-placed Japan, with 109.6 mmt (87.5 mmt in 2009). The United States was next with 80.5 mmt, while India, which was the third-placed producer in 2009, fell to fourth place with 68.3 mmt. The biggest surprise in the 2010 league table of producing nations was the huge leap in US output from 58.2 mmt in 2009 to over 80 mmt in 2010.
By 2010 total world steel production had risen to 1,413.4 mmt. The big five corporate steel producers in 2009 retained their same positions in the league table through 2010 with the top producer, ArcelorMittal, showing an astonishing leap from 77.5 mmt in 2009 to 98.2 mmt. This was almost three times the output of second-placed Baosteel, who produced 37 mmt in 2010 (up from 31.3 mmt in 2009). Third-placed POSCO saw an increase of just 4.1 mmt in 2010, up from 31.1 mmt in 2009, almost losing its 3rd place slot to Nippon Steel, which along with JFE (31.1 mmt) came in at 35 mmt.
According to ThomasNet News, which produces industry trend analyses for the sector, in March 2011 worldwide steel output increased both on a monthly basis and year-on-year, reflecting strong production gains in the first quarter of 2011. Global steel production totaled 129 mmt in March, up from 117 mmt the previous month. Steel output of the 64 countries tracked by WorldSteel also rose by an average of 7% on the figures for March 2010.
By June 2011 world crude steel production was still on the increase, with the figures for the first six months of 2011 some 7.6% higher by comparison with the same period in 2010. All the major steel-producing regions showed increased production.
Turning to the users of steel, China’s steel use in 2010 increased by some 6.7% to 579 mmt, after the impressive increase of 24.8% in 2009. In 2011, the growth rate is expected to be around 5.0%, rising to 605 mmt. This could have been higher, but the Chinese government’s determination not to allow the economy to overheat is likely to hold back usage. Growth for 2012 is expected to be the same as for 2011.
India’s steel demand maintained stable growth during the crisis, and grew by 13.9% in 2010 with growth of 13.7% predicted for 2011. In 2011, India’s apparent steel use will reach 71.6 mmt.
In the NAFTA region, apparent steel use in the United States fell by 41.6% in 2009 and recorded 57.4 mmt. With the recovery in the US economy and stock rebuilding, apparent steel use is expected to grow by 26.5% in 2010, and then 7.5% to 78.1 mmt in 2011, bringing its apparent steel use back to the level of 1991. For NAFTA, the level of apparent steel use that is expected in 2011 is similar to that of 1993.
The EU economies have seen a fall in apparent steel use of 35.2% in 2009, with Spain and Italy hardest hit by the collapse of their construction sectors. In 2010, the region will see an increase of 13.7% in steel demand as a result of inventory rebuilding and a slight increase in real steel use. In 2011, real demand will drive the recovery, and apparent steel use is expected to grow by 7.9% to reach 145.2 mmt, bringing it back to the level of 1997.
Japan, which experienced a fall in apparent steel use of 31.7% in 2009, will see its steel use increase by 10.3% in 2010, but in 2011, its steel demand is expected to stagnate with 20.2% growth. As a result of weakening of its major steel-using sectors. This brings Japan’s apparent steel use in 2011 to 58.6 mmt, the level achieved in 1983.
The CIS region was another major victim of the economic crisis because of its heavy dependence on oil revenue and foreign capital. Apparent steel use in the region fell 28.2% in 2009, with a fall of 41.9% in Ukraine. In 2010, apparent steel use in the CIS region will grow by 11%, and then by 8% in 2011. Turkey, which experienced a 9.4% decline in apparent steel use in 2009, will see an increase of above 13% in 2009 and 2010.
The MENA region continued to record positive growth in steel use in 2009, despite significant falls in the United Arab Emirates and Saudi Arabia. The region’s better-than-average performance, despite the decline in the oil price, is attributable to the strength of Egypt and Iran. The region will maintain relatively resilient growth in 2010 and 2011, with apparent steel use reaching 68.2 mmt in 2011.
Market Analysis
In its April 2011 Short Range Outlook, WorldSteel predicted that global apparent steel use will increase by 5.9% to 1,359 mmt in 2011, something of a slowdown from the steep increase of 13.2% seen in 2010. The growth forecast for 2012 is for 6%, to high a new usage high of 1,441 mmt.
The Association says that the data suggests that by 2012 steel use in the developed world will still be some 14% below the levels seen in 2007, whereas in the emerging and developing economies, usage will be 38% higher than in 2007. Almost nothing shows the two-speed nature of the recovery from the 2008 crash more starkly than this comparison of predicted steel usage. Within the next 12 to 18 months, WorldSteel says, emerging and developing economies will account for 72% of world steel demand. By way of contrast, in 2007 they accounted for 61%. Commenting on the outlook for steel, Daniel Novegil, chairman of the WorldSteel Economics Committee said: “2010 saw a steady recovery of steel demand which began in the second half of 2009, driven by stimulus packages globally, the resilience of emerging economies and an overall market recovery.” Total growth for 2011 will be around 5.9%, he added, though this could be subject to revision downwards if the negative economic trends that were manifesting themselves across the world gain traction and some developed markets slip back into recession, while some Asian markets experience subtrend growth.
The price of iron ore is one of the key influences on the steel industry. By April 2010, the price of iron ore had tripled over the previous year, and iron ore prices will almost double from April 2010 after the world’s largest exporter agreed significant price rises with Asian steel mills. Brazil’s Vale will increase prices of the core steelmaking ingredient by 90%, a spokesman for Japan’s Sumitomo Steel confirmed.
Vale agreed to sell Nippon Steel, the largest steelmaker in Japan, ore at US$105 per tonne for the April–June quarter, according to reports from Japan, 90% higher than the annual price agreed in March 2009. The annual system of setting prices collapsed last year after China failed to reach agreement with major producers.
The news came as BHP Billiton, a major iron ore producer, won its campaign to move to a quarterly pricing mechanism, ending 40 years of annual price agreements. BHP said that it had reached a deal with a significant number of customers throughout Asia to move existing iron ore contracts to a quarterly basis.
Steelmakers will now negotiate iron ore prices each quarter with miners and that price will be determined by a combination of factors, mainly taking the spot price for imports to China and adjusting the price for freight cost differences and quality of the ore. That means costs for steel producers will change every few months, rather than having a set full-year price for contracted material as before.
There is one other significant change in the pricing mechanism, which will favor Australian producers. Shorter-term contracts will be on a “landed price equivalent” basis. This means the miner will pay the shipping costs to its customer. Previously, annual benchmark contracts had been on a “free on board” basis, which meant miners delivered ore to the port and the customer was responsible for the shipping.
In April 2010, Lakshmi Mittal warned that the large rise in the cost of iron ore would lead to “new volatility” in the steel industry by pushing up prices of the metal—a development, he said, that could harm the competitiveness of some ArcelorMittal European plants. The chairman and main owner of the world’s biggest steelmaker said the company had started informing customers in Europe about the upcoming price rises.
Mittal said that ArcelorMittal would do all it could to pass on these costs by raising prices by a corresponding amount. “It is very difficult for us to offer long-term price commitments because we will no longer have long-term price commitments for our raw-material purchases,” Mittal said. While the amount of steel ordered still could be negotiated on a long-term basis, the price for each batch delivered might be priced according to an index or monthly average.
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