Global steel demand shows a structural slowdown

The role of world economic development in supporting steel consumption has become increasingly weak. In the next few years, global economic growth will drive the growth of steel demand to 3%, which is a significant decline from the 5% growth in the past 10 years. US investment bank Morgan Stanley said in a recently released report that the global steel industry’s excess production capacity has reached 334 million tons, of which China has about 200 million tons of excess capacity, Europe has a surplus of about 40 million tons, and the CIS countries have a surplus of about 3,700 tons. Tens of thousands of tons of Japan’s surplus is about 16 million tons, Latin America has a surplus of about 16 million tons, and Korea and South Africa both have a surplus of about 5 million tons. The United States and India are almost nothing.

The overcapacity of the global steel industry is difficult to resolve in the short term. This is already an established fact: On the demand side, because the economic growth slows down significantly, there will be no substantial growth. On the supply side, the iron and steel companies' actions to cut capacity will be affected. Its huge negative impact on the economy and politics is unsustainable.

In this regard, Morgan Stanley stated that although it is unlikely that a "fixed-consumption measure" to quickly solve the problem of overcapacity will be found in the short term, it is unlikely to be affected by the economic development cycle in the case of low profits and high debt in the industry. The future performance of the steel industry in the United States, Japan, and India will be worth the wait.

Consumption: Global Steel Demand Shows a Structural Slowdown Global steel demand is slowing down, which is closely related to the current global economic development stage.

From the point of view of steel strength, the impact of economic development on steel demand can be divided into five stages: the level of steel strength at low levels before economic development; and the rapid increase in strength of steel used to pull steel up to a peak with rapid economic development. Level; With the industrialization approaching completion, the strength of the steel has decreased significantly; eventually it has reached a relatively stable level. This change in the intensity of steel demand is due to the development of an economy from the agricultural economy (low steel consumption intensity) to the manufacturing and construction economy (high steel consumption intensity), and then to a service-oriented economy (low steel consumption intensity). Caused. For developing countries, steel consumption is mainly used for the construction of new roads, railways, buildings and bridges, and the consumption intensity is higher; while the demand for steel products in developed countries mainly comes from the consumables field, and the consumption intensity is low.

In view of the fact that the developed countries’ economies are now mature, and major developing countries, such as China’s rapid industrialization, have entered the peak interval from the fast-growing stage, the intensity of global steel use is gradually moving away from the high-growth zone.

Specifically from the country and region. The growth of China's steel demand has experienced rapid growth and has slowed to a normal level. The growth rate of apparent steel consumption in China in 2013 is expected to be 2% to 3%; the European steel industry has entered the “aging” stage and the demand lacks structure. Sexual growth, this year's apparent demand is expected to drop by 3% year-on-year; along with the United States returning to manufacturing, coupled with shale gas, this will cause US steel demand to rise 2.8% this year; Japan also due to the economy The development has entered a mature stage and there is no structural rise, but demand from Japan's auto manufacturing and construction industry will become the main demand support point. Coupled with the depreciation of the yen is conducive to Japanese steel exports, Japan’s steel consumption is expected to increase by 4% year-on-year. %; India's compound annual growth rate of steel demand in fiscal year 2013 to fiscal year 2017 is 7.9%, flat product is expected to be 8.1%, long product is expected to be 7.7%, and the country’s auto industry and construction industry will become demand-driven. The main driver; Korea's steel demand is expected to increase by 0.7% year-on-year this year, and the auto industry remains the main downstream source of demand for the country.

However, compared with the average annual growth rate of 5% between 2002 and 2012, the global steel demand growth rate will drop to around 3% in the next three years. This means that by 2015, global steel industry capacity utilization will be reduced to 76% to 78%.

Supply: Two major barriers make it difficult to withdraw production capacity Since 2000, the global steel industry has increased its crude steel production capacity by nearly 1 billion tons, while the demand increase is only about 700 million tons. The increase in production capacity is more than the increase in demand. 3 Billion tons. Morgan Stanley expects that global crude steel production in 2013 will grow by 2%, and the capacity utilization rate will be approximately 76%. In 2014, the global crude steel output will increase by 3%, and the capacity utilization rate will be approximately 77%. Overall, the current global excess capacity is approximately 334 million tons. From a regional perspective, capacity utilization in Europe is expected to be below 70%, while capacity utilization in Japan and India will remain at 85%.

The global steel industry has realized its own overcapacity problem, but permanent exit is very difficult. At present, there are two major barriers in the global steel industry that hinder the process of cutting and closing excess production capacity.

The first is that closing production capacity will have an inestimable negative impact on the economy and society.

According to estimates by Morgan Stanley, defusing over 340 million tons of excess capacity around the world will cause 1.2 million people to lose their jobs, and the closure of these excess capacity will also have a ripple effect on other industries, which in turn will result in a total economic impact of US$ 232 billion. Among them, China’s economic impact will reach 153 billion U.S. dollars, Europe 31 billion U.S. dollars, Russia/CIS countries 34 billion U.S. dollars, and Latin America 6 billion U.S. dollars.

At present, the global steel industry employs approximately 6.9 million people. Given the large number of workers in the steel industry, governments around the world are trying to prevent layoffs. Therefore, it is not realistic to reduce steel production capacity to a reasonable level through layoffs. Many European steel companies are located in low-income and high-unemployment areas. This has led to strong intervention from local governments during the past few years when European steel companies have reduced their production capacity.

In addition, in the emerging developing countries, the iron and steel industry is critical to the development of the regional economy and is also one of the main factors driving GDP growth. Most steel mills in developing countries are located in relatively remote and poor areas, which means that the share of steel companies in local GDP is very important. However, given that most of the Chinese steel companies are state-owned enterprises, the Chinese steel industry may choose to continue to reduce productivity to reduce production, instead of cutting excess capacity through layoffs.

At the same time, the chain reaction of shutting down or cutting excess production capacity to other industries cannot be ignored, especially the permanent closure of steel mills. In response, the American Iron and Steel Association stated that every job in the U.S. steel industry supports seven jobs in other U.S. industries. Therefore, the impact of closing excess capacity will far exceed that of the steel industry itself.

The second is that the process of decentralization has further hindered the reduction of production capacity.

At present, the global steel industry is still highly fragmented. Further integration may take place, but this process will take longer. This will lead to insufficient efforts to reduce production capacity.

In the past few years, the steel industry has also undergone numerous mergers and reorganizations, but the market is still highly fragmented and there is still no major change in the structure of the global steel industry. In 1990, the output of the world’s 10 largest steel producers accounted for about 20% of global production. In 2000, this proportion was 25% and in 2007 it was 27%. Therefore, the global steel industry has always been at a low level of concentration.

Specifically, the steel industry in the European region and China is still relatively fragmented. Japan’s steel industry has undergone a very good merger and reorganization. The top three steel companies in the country account for two-thirds of the market in the country; the output of the top three companies in Europe accounted for only 42% of the market; China’s The first three steel companies accounted for about 20% of the market share. In the face of the problem of overcapacity, it is difficult for steel companies in these less concentrated regions to make concerted actions to resolve this problem.

Morgan Stanley said that for China, there are three main reasons that will obstruct China's steel industry from removing excess capacity through mergers and reorganizations. First, long-distance transportation makes the merger and reorganization of steel companies between different regions less feasible; and second, The high employment rate of the steel industry makes local governments less likely to close excess capacity after mergers and reorganizations. Finally, after 2011, the low profitability of Chinese steel companies has caused cash shortages for companies, and few companies have sufficient funds to conduct mergers. Reorganization.

With the remaining production capacity for the rest of the day, the United States and India will perform better due to the current weakness of the global economy, it is impossible to drive a significant increase in demand worldwide. On the supply side, because of these two major barriers, it is difficult for the reduction of production capacity to be effective in the short term. It is estimated that the iron and steel industry will continue to face the unfavorable situation of overcapacity for a long time.

However, due to the different degrees of economic development in different regions and the different characteristics of the development of the steel industry, under the conditions of excess global production capacity, the steel industry in some regions may perform better. Morgan Stanley stated that Japan's Nippon Steel & Sumitomo Corporation, the U.S. steel power company, and India’s Tata Steel Group will have relatively good operating conditions in the future, while European companies such as ArcelorMittal and Rautaruji Steel ( Rautaruukki), Brazil’s National Black Metallurgical Corporation (CSN) and China’s Anshan Iron and Steel Group may face severe operational challenges.

Japan's steel industry has a high degree of concentration, which makes its development show a good momentum of structural equilibrium. In the future, the pace of production and relocation of Japanese steel companies will slow down. At the same time, the devaluation of the yen has increased the share of Japanese steel companies in overseas export markets.

India is one of the fastest growing countries in the past five years, with an increase of 8%. At the same time, India’s steel consumption is also growing rapidly, which consumes additional supply and balances supply and demand. At present, India’s economic development is still in a period of rapid growth, and the intensity of steel use is still low, which also provides room for the future development of the local steel industry. In addition, the land and environmental issues faced by the construction of steel mills in India are very complicated, which makes the iron and steel enterprises in other regions still face high barriers to entering the Indian market.

The recovery of non-residential construction in the United States, the gradual revival of the manufacturing industry, and the shale gas in North America will inject new momentum into the U.S. economy, thereby driving steel demand in the U.S. market. In 2014, the apparent steel demand growth in the United States will reach 4.2%, becoming the fastest growing among developed countries.

If the European economy still cannot find support for recovery in the next few years, the steel demand in the region will continue to remain weak. In addition, high production costs and a stronger euro will continue to place the European steel industry at a disadvantage in the global steel industry competition. The sharp increase in imported products will also put a huge supply pressure on the European market.