Global Steel Industry Market Trend and 2020 Outlook

A – Steel market conditions

Steel market conditions have been improving gradually in most regions in the past few years, although it is uncertain how long the momentum can continue. Over the short and medium term, important headwinds include the increase in Iron & Steel trade actions. The rising number of new capacity investments and the presence of distortive government support and subsidization, including energy and other incentives, could carefully influence the Global Steel Industry Market Trend and continuing unsustainability in the 2020 Outlook.

This Arij abstractive document intends to provide an overview of recent steel market developments, the historical developments in global steelmaking and opportunities and a brief overview and outlook for regional markets based on the available market information. To summarize, the following key developments are discussed in this commentary piece of work.

The economic situation of Iron & Steel:

The economic recovery seems to have broadened, to some extent stabilized and is more synchronized across the steel industry.

Industrial and Societal Steel Demand:

Market data released suggest that steel demand continues to recover. However, the recovery in demand looks rather fragile given the extent and persistence of political and economic structure imbalances.

Iron & Steel exports:

Global steel exports declined by about 9% year-on-year (y-o-y) in the first three months of 2018. The decline varied significantly across regions, with a marked 27% decline in the People’s Republic of China (hereafter “China”), 35% in India, and less significant declines of 1% in the European Union (E.U.), 4% in Japan, and 3% in the USA.

Global steel prices:

A quick glance through the generally available statistics reveals that steel prices continued to increase in 2018, an upward trend that started in 2016. A more in-depth analysis suggests it is possible that speculative trading in futures markets has been impacting current steel spot prices. Iron ore (Ore Based Metallics, called OBMs), coking coal and ferrous scrap prices have only moderately decreased since the beginning of 2018, after strong increases in 2017 and are somehow stabilizing in a relative fashion.

The financial attributes of steelmaking companies:

Obviously, the financial situation of most steelmaking companies has improved, but important downside risks remain. Deleveraging should continue, and the closure of inefficient production units would help ensure long-term sustainability and increase the performance and efficiency of the steel industry.

Steel products demand outlook:

Worldwide Iron and Steel statistics and trends, as well as forecasts by the World Steel Association (WSA), suggest that global steel market demand will continue to grow irregularly in all regions in the year 2020.

Global Steel Industry Market Trend and 2020 Outlook

B – Main factors that contribute to the steel market conditions

Both the industrial nature and artificially motivated political-economic potentials in the iron and steel industry are regularly confronted with unprecedented fluctuations in prices of raw materials, freight and energy throughout its industrial usage. As a result, the costs of steelmaking have directly risen around the world. However, the impact has not been equal for all steel manufacturers. Differences in regional cost competitiveness have become more emphasized in terms of the benefit of regional steel mills with access to cheaper and more available raw materials, labour, and energy. A firm conclusion could be arrived at to better predict the Global Steel Industry Market Trend and 2020 Outlook.

The Raw Materials Required for Steel Making:

Raw materials are the main cost differentiator in the steel industry today more than ever.

The rising costs of raw materials and freight have had substantial effects on the cost competitiveness of steel producers:

First, they have increased the cost differentials between mills with a captive supply of raw materials, mills with domestic access to raw materials and mills importing raw materials from overseas. Second, as they have gained even more in weight, they have reduced the relative importance of differentials in other steelmaking cost components. Much of the price increases mentioned above are caused by a global imbalance between supply and demand for raw materials and freight, which first emerged in the early days of the current Millennium. This is the result of the unexpectedly strong economic development of China and severe shortages in raw materials production and transportation capacity, not only in vessels but also in railways and handling and storage facilities.

The Labor Required for Steel Production:

Though labour costs account for a much smaller share of steelmaking costs than raw materials, the price of labour varies much more by region than prices for iron ore, coal and scrap.

The Energy Required for Steel Production:

Compared to raw materials and labour, energy has a relatively modest impact on the competitiveness of integrated mills. However, the days of cheap energy are over. Except for the energy released by coal and coke, the steel industry’s energy consumption mainly consists of natural gas and electricity. Unlike iron ore and coal, reserves of natural gas are rapidly depleting: since 1980, global reserves have decreased by 26%. Meanwhile, consumption of gas continues to increase at an ever-accelerating pace in many parts of the world.

• The developments and discussed matters will have a number of consequences for the steel industry:

• Steel producers located in energy-rich countries will have an increasing advantage over their competitors in other countries. While the advantage may be relatively limited for integrated mills, it will be much more significant for DRI and EAF producers;
• Energy that is locked inside coal and is released through coke oven and BF gas will become
• increasingly valuable;
• The BF/BOF route will become increasingly attractive as opposed to the gas-based (DRI/HBI/CBI)/EAF route in countries without cheap gas and electricity.
  • To maintain their competitiveness, steel manufacturers should seek to further reduce dependency on external energy by maximizing energy efficiency and recycling. Although mills in Russia and the Middle East are likely to retain advantageous energy prices, at least in the short term, it may be foreseen that in the longer term, their governments could come under mounting political and economic pressure from the international communities. In addition to reducing their dependence on external energy, Steel producing mills in countries with expensive energy should also seek to manage their exposure to energy markets.
  • Remarks: We do understand and feel the differences between high- and low-cost steel producers have increased since the early years of this Millennium, as strong price rises in steelmaking costs have had a varying impact on steel mills in different parts of the world. The winners are the mills in
  • the developing markets. The global supply/demand balance for raw materials has tightened and will remain so in the short to medium-term future. In the longer term, however, prices for raw materials
  • and freight tariffs will decrease from current exceptional levels, and the competitive advantage of mills with access to local raw materials will regress. To retain their current cost competitiveness, steel producers in developing countries will also have to improve labour and energy cost efficiency.
  • Low wages will remain a competitive advantage for mills in low-wage countries for decades, though this advantage is often under-utilized because of low labour productivity.

C – Concluding Remarks

It is very clear that much has to be done to lower the risks for Global Steel Producers as well as the end users. Traders, in the meantime, shall take a way in between not to deeply compensate for all consequences alone. In a publication by Bloomberg called Markets” Steel Outlook Dims as Iron Ore Powerhouse Flags Growth Woes” By Phoebe Sedgman on September 29, 2019, the risks to the outlook have risen in recent months as a range of potential downsides emerge. The Australian government said in a quarterly report, citing trade tensions, the possibility of an earlier-than-expected global downturn and prospects of a U.S. recession. World steel production and consumption will be lower than previously expected this year and next, it said. In this article, a cold comparison is made between the previous global outlook and a new one for steel consumption. (https://www.bloomberg.com/news/articles/2019-09-29/steel-outlook-dims-as-iron-ore-powerhouse-warns-of-growth-woes)

Top steelmakers globally have painted a bleak outlook for the sector as the prolonged trade war drags on growth and a first-half jump in iron ore prices hurt profits. Output in China, which accounts for more than half the world’s steel, faces competing pressures as falling domestic consumption is set against rising export prospects and potential stimulus measures, the report said.