outlook for the global steel market - indmin

©2014 Metal Bulletin Research www.metalbulletinresearch.com

Outlook for the Global Steel Market

Metal Bulletin Research

Julia Tilley Metals Analyst


Disclaimer: Prices and other information contained in this presentation have been obtained by us from various sources believed to be reliable. This information has not been independently verified by us. Those prices and price indices that are evaluated or calculated by us represent an approximate evaluation of current levels based upon dealings (if any) that may have been disclosed prior to publication to us. Such prices are collated through regular contact with producers, traders, dealers, brokers and purchasers although not all market segments may be contacted prior to the evaluation, calculation, or publication of any specific price or index. Actual transaction prices will reflect quantities, grades and qualities, credit terms, and many other parameters. The prices are in no sense comparable to the quoted prices of commodities in which a formal futures market exists. Evaluations or calculations of prices and price indices by us are based upon certain market assumptions and evaluation methodologies, and may not conform to prices or information available from third parties. There may be errors or defects in such assumptions or methodologies that cause resultant evaluations to be inappropriate for use. Your use or reliance on any prices or other information published by us is at your sole risk. Neither we nor any of our providers of information make any representations or warranties, express or implied as to the accuracy, completeness or reliability of any advice, opinion, statement or other information forming any part of the published information or its fitness or suitability for a particular purpose or use. Neither we, nor any of our officers, employees or representatives shall be liable to any person for any losses or damages incurred, suffered or arising as a result of use or reliance on the prices or other information contained in this publication, howsoever arising, including but not limited to any direct, indirect, consequential, punitive, incidental, special or similar damage, losses or expenses. We are not an investment advisor, a financial advisor or a securities broker. The information published has been prepared solely for informational and educational purposes and is not intended for trading purposes or to address your particular requirements. The information provided is not an offer to buy or sell or a solicitation of an offer to buy or sell any security, commodity, financial product, instrument or other investment or to participate in any particular trading strategy. Such information is intended to be available for your general information and is not intended to be relied upon by users in making (or refraining from making) any specific investment or other decisions. Your investment actions should be solely based upon your own decisions and research and appropriate independent advice should be obtained from a suitably qualified independent advisor before making any such decision.


Introduction

Latest Developments

Outlook

Conclusions


Steel news, prices & analysis

Market analysis and forecasts

Company data for metal and mining industries

Prices for the physical spot iron ore market


Introduction

Latest Developments

Outlook

Conclusions


Crude Steel Production, year-on-year % growth

-4.9…

-1.9…

7.0%

-1.4…

-2.0…

-3.1…

2.3%

-1.8%

0.8%

-4.1%

-0.8…

0.2%

14.8…

5.6% 4.

2%

8.4% 2.

1%

3.6%

3.2%

7.5%

2.9%

-1

9…

-4.4…

-2.9…

2.6%

3.6%

2.3%

Key

World Total

2012

2013

Q1 2014

8.1%

3.9%

2.1%

Source: MBR, WSA


0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

Mill

ion

tonn

es

Global Crude Steel Production by Region

Other

Middle East

CIS

Other Asia

Americas

Europe

China

-15%

-10%

-5%

0%

5%

10%

15%

20%

Global Average Industrial Production vs Steel Production, year-on-year % change

Steel IP


0

100

200

300

400

500

600

700

800

900

Mill

ion

tonn

es

Chinese Crude Steel Production

2001-2013 CAGR = 15.3%

1993-2000 CAGR = 5.0%

0

100

200

300

400

500

600

700

800

900

Mill

ion

met

ric to

nnes

Rest of World Crude Steel Production

Other Asia Europe Americas CIS Middle East Other

1993-2000 CAGR = 4.5%

2001-2013 CAGR = 2.9%


10% 11%

20% 20% 16%

15%

5%

54%

34%

5% 7%

16%

38% 38%

47%

4%

-4%

-33% -40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

2008 2009 2010 2011 2012 2013

Year-on-year growth in key Chinese industries

Area under construction Passenger car production

Vessel deliveries (CGT)

55%

21%

7%

5%

2% 1%

9%

Construction

Machinery

Automotive

Energy

Shipbuilding

HomeAppliancesOthers

Source: MBR, CEIC, MIIT

Chinese steel consumption by industry, 2013


0%

2%

4%

6%

8%

10%

12%

14%

16%

Chinese finished steel production, Jan-Apr 2014, year-on-year growth

Total Finished Steel Production

• Chinese finished steel production grew 5.9% year-on-year in the first four months of 2014 but the growth rates are questionable given the far slower growth in crude steel at 2.7%.

• Reported rebar production growth was well above average levels and given the steep price falls and margin reductions at producers, it would appear that such output growth has been excessive.

• However the even higher growth for coated steel has not had the same impact, thanks to stronger domestic and external demand.

• Mill profitability overall has been negative, thanks particularly to a terrible first two months, affecting longs mills especially.


2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

6,000

Chinese Domestic HRC Prices, RMB/tonne

-23.8%

2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

6,000

Chinese Domestic Rebar Prices, RMB/tonne

-35.8%


55.0 – 75.8

75.8 – 86.4

86.4 – 96.0

96.0 – 107.1

107.1 – 116.2

European production in construction (Index, 2010 = 100)

• German, Polish and Hungarian construction activity indices are well above levels in 2010

• While in Italy and Portugal construction activity has not recovered and market sentiment is languishing with debt laden economies and high unemployment rates impacting investment spending

• The construction industry is a key driver of long product demand, such as rebar, which is used to strengthen concrete, and beams, the ‘skeletons’ of buildings

• The resulting weak domestic demand in Italy and Spain means steel producers have re-orientated business to export to faster growing Middle East and North Africa

• However, competition is stiff in these markets from CIS and Turkish exporters in addition to increasing local capacity.


0

25,000

50,000

75,000

100,000

125,000

150,000

175,000

200,000

225,000

EU28 Crude Steel Production

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

EU28 Crude Steel Production vs Prices year-on-year change

Production (LHS) Domestic Rebar Prices (RHS)


50

70

90

110

130

150

170

190

210

230

250

Domestic HRC Prices, Index 100=Jan 2006

EU US China

50

70

90

110

130

150

170

190

210

230

250

Domestic Rebar Prices, Index 100=Jan 2006

EU US China


0

5

10

15

20

25

30

Mill

ion

Tonn

es

Middle Eastern Crude Steel Production

Iran Saudi Arabia Qatar UAE Other

2010-2013 CAGR = 9.7%

1994-2009 CAGR = 5.9%

• Fifteen consecutive years of growth

• 2010 - 2013, UAE’s CAGR was 79.2%, Iran’s was 8.7%

• A booming construction industry necessitating higher steel consumption

• Steel demand is coming from oil country tubular goods (OCTG), a growing market, driven by the oil and gas in the region

• Cheap gas in the region makes DRI plants attractive; as these come online the Middle East will be less import dependent

• This could hurt Turkish producers who export a lot of long products to the Middle East


0

10

20

30

40

50

60

2012 2018

MENA DRI/HBI production growth (M tonnes)

• The key theme over the next five years will be backward integration

• MENA crude steel capacity is 96 million tonnes

• Long products and HR flat capacity are 84m tpy

and 34m tpy respectively

• Thus, the region is short of crude capacity, necessitating semi-finished steel imports

• MBR’s MENA EAF-based steelmaking outlook for the coming years is therefore positive

• Production will be partly fed by significant volumes of new DRI/HBI capacity


Introduction

Latest Developments

Outlook

Conclusions


• Traditionally, apparent steel demand and supply softens over the second half of the year overall and especially within the EU.

• As a result, recent failures by European mills to

raise prices in the first half have given many market participants the impression that any subsequent efforts, in the traditionally weaker months to follow, will also fail particularly if Chinese production simply gathers pace as usual.

• Mills for their part, however, claim that typical restocking over the first half has not occurred and judging by recent data we have, they may well be right as the dotted lines indicate.

• As a result, the second half could be shaping up to be stronger than usual.

21.5%

22.5%

23.5%

24.5%

25.5%

26.5%

27.5%

Q1 Q2 Q3 Q4

Average production splits by quarter since 2000

World EU

China EU 2014

China 2014 World 2014


0

50

100

150

200

250

300

350

400

450

500

Chinese stocks of HR & CR coil, '000 tonnes

HR COIL

CR COIL

0

200

400

600

800

1,000

1,200

Chinese stocks of rebar & wire rod, '000 tonnes

Wire Rod

Rebar


• Crude steel production to grow by 3.0% this year, down from 3.6% in 2013.

• We anticipate that production will rise in the second half of the year as restocking returns, with the growth rate year-over-year accelerating to 4.0% from just 2.0% in H1.

• We expect low margins will force Chinese mills to curb production during the second half of the year, enabling mills in other markets to bolster production and their capacity utilisation.

• As in China, however, we anticipate that production will slow in Europe over H2 for similar reasons, contrary to the trend from the start of the year when regional growth exceeded all other major markets.

0

50

100

150

200

250

Mill

ion

Tonn

es

Global crude steel production

EU USA Other Asia Other World Chinese steel


0

50

100

150

200

250

300

350

400

450

500

Q110

Q210

Q310

Q410

Q111

Q211

Q311

Q411

Q112

Q212

Q312

Q412

Q113

Q213

Q313

Q413

Q114

Q214f

Q314f

Q414f

Domestic HRC Margins over scrap/hot metal, $/tonne

EU HR coilUS HR coil marginChinese HR coil margin

0

50

100

150

200

250

300

350

400

450

500

Q110

Q210

Q310

Q410

Q111

Q211

Q311

Q411

Q112

Q212

Q312

Q412

Q113

Q213

Q313

Q413

Q114

Q214f

Q314f

Q414f

Domestic Rebar Margins over scrap/hot metal, $/tonne

EU rebar marginUS rebar marginChinese rebar margin


0

50

100

150

200

250

300

350

400

450

Chinese crude versus IP, 100=2003

Chinese steel

Chinese IP

0

20

40

60

80

100

120

140

160

Rest of World crude versus IP, 100=2003

EU

USA

Other Asia

Other World

Rest of World IP


Introduction

Latest Developments

Outlook

Conclusions


• Steel production growth will slow in 2014 compared to 2013

• Chinese IP growth forecast to slow and crude steel production will falter

• In the rest of the world production growth will be faster than China’s

• Thus, overall raw material demand will grow steadily, but be more spread out across the world as steel production mirrors demand growth

• Smaller regions such as the Middle East will continue to rapidly increase production much as China did ten years ago


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outlook for the global steel market - indmin

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