Opportunities and risks of the world steel industry

The economies of steel producing and consuming countries are in quite good conditions. Japan’s economy is relatively stable, thanks to rising capital costs and strong auto and industrial machinery markets, although concerns remain about the performance of the shipbuilding industry. The economies of India and Southeast Asia are growing at high rates and are expected to continue to lead global steel demand growth.

However, the steel market is currently facing two major risks: US trade policy, and the excess steel production capacity in China that still exists.

Impact from the US increasing steel import tariffs

Nikkei news agency quoted President and CEO of JFE Steel (Japan), Mr. Koji Kakigi, as saying that the US imports about 35 million tons of steel each year, of which about 65% comes from duty-free markets. new, including Canada, Mexico and South Korea. In addition, if American automobile and auto parts manufacturers request, imports of materials that are essential to their production and cannot be replaced by domestic products will be tax-free. Japanese steel products account for only 5% of steel imports into the US, many of which are irreplaceable, such as special steel wires.

The global steel market currently reaches 1.6 billion tons, so, based on volume, the new US trade policy will not have a large impact. On the other hand, if protectionism spreads to other countries, it could affect the global economy. For example, South Korea can “escape” the new US tax burden by voluntarily setting quotas on steel exports to the US. Such bilateral “commitments” would change the principles of the free trade system, and could have huge ripple effects, detrimental to the United States itself.

Chinese steel exports are at risk of increasing again

In 2014, as domestic demand began to weaken, China increased its steel exports to international markets, resulting in export volumes increasing to about 100 million tons in 2015 and remaining at that level for the rest of the year. 2016 (previously, in 2013, the export volume was only 60 million tons). As a result, steel prices have dropped sharply, causing steel manufacturers globally to fall into losses.

Recently, to restructure the steel industry, Beijing decided to close illegal steel production facilities (low quality, made from scrap), resulting in a reduction of 120 million tons of output per year. In 2017, Beijing increased spending on public services to stimulate the economy, and steel exports the same year decreased by about 30% compared to the previous year.

According to JFE Steel President Koji Kakigi, basically the overcapacity situation in China has not yet been resolved. If a trade conflict with the US causes (China’s) domestic demand to weaken, Beijing may again have to find solutions to expand exports.

As for the US, this market may be more expensive if production costs increase due to new taxes. Thus, in the end, it is American citizens who will have to pay the increased tax costs due to their government. The same is true for the US steel industry, import restriction measures will also have a negative impact on the competitiveness of steel manufacturers.

Demand outlook for the next 2 years continues to increase

In the most recent report, the World Steel Association (WorldSteel) said that after 2 years of fluctuation and decline, the steel market has stabilized again in 2017, and it is forecasted that global steel demand will continue to increase. in 2018 and 2019 in the context of the global economic situation remaining favorable with high confidence and investment in advanced economies continuing to recover strongly.

Specifically, demand in 2018 will increase by 1.8% compared to the previous year, to 1.62 billion tons, and in 2019 will increase by 0.7% to 1.63 billion tons.

Global steel output in 2017 reached 1.69 billion tons, for the second consecutive year. Output in 2018 is forecast to increase by 4% (276.65 million tons) compared to 2017.

According to WorldSteel, demand in developed countries this year will increase by 1.8%, but will decrease by 1.1% in 2019. If inflationary pressures increase and the US and European Union economies ( EU) further tightening monetary policy, the economy in general and the steel market in particular in these areas may be affected.

The outlook for steel demand in the US remains strong thanks to fundamentals (strong consumption and investment, rising incomes and low interest rates). Manufacturing demand is supported by a weak dollar and increased business investment, and industrial machinery production is also expected to benefit from increased investment, amid rising house prices and continued real estate transactions. continues to flourish. However, WorldSteel believes that the stimulus plan for infrastructure in the US is unlikely to have an impact on steel demand in the short term. In addition, the performance of the US and EU auto markets is expected to remain the same as it is currently due to the “effect of saturation” and gradually increasing interest rates.

In China, the world’s largest steel consumer, the steel market may have many uncertainties. In 2018, the Government actively implemented stimulus measures to promote construction activities, but investment continued to decline, and steel demand in the region continued to decline.