By Gorkem Bolaca Director

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1 International Steel Trading In The Light Of Global Economic Facts HONG KONG, NOVEMBER 2012 By Gorkem Bolaca Director

2 AGENDA Economic Growth and International Trade China Turkey The Future

3 Dynamics of the economic growth 1 Fixed asset investment growth drives the global economy to a far greater extent than consumption growth. ( 85% of the global steel demand tied to Fixed Asset investments) 2. The Advanced Countries are out of phase with the forces driving the global economy.( The share of investment credits in GDP is decreasing comparing to share of consuming loans. ( including mortgage) 3. The information revolution is the driving force powering faster growth of the global economy. Information revolution has synchronized the global economy on both a production and financial basis. Faster growth requires more fixed asset investment; in turn, high fixed asset investment provides for more better-paying jobs

4 ECONOMIC GROWTH & DEMOGRAPHY FACTOR *Countries have grown fastest when their median age lies between 22 and 37 AGE China Turkey India Germany France Italy UK 15< %19 %28 %32 %14 %18 %14 % %73 %66 %63 %66 %65 %66 % %8 %6 %5 %20 %17 %20 %16 Median Age

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6 Current picture and upcoming months Good news: Majority of steel buyers don t have big inventories. Bad news: Many steel mills are carrying expensive priced inventory of raw materials. Chinese steel mills are not competitive in terms of prices ( except S. America and Asia) Steel mills do not have any room to cut the export price of hot-rolled band because of high costs FAI will take less share in the budget of governments. Economic outlook + Sentiment + Raw Material cost = Finished steel price

7 Iron Ore Supply vs. Demand 107 million tonnes estimated increase in iron ore usage Next 2 years 278 million tonnes capacity addition is expected Additional Iron ore capacities will outpace the increase in Iron ore demand

8 World Steel Trade Flow

9 CHINA

10 FIXED ASSET INVESTMENTS IN CHINA Fixed asset spending accounts for approximately 50% of the GDP in China. (if Chinese GDP will be about 9 trillion USD in 2012 then adjusted fixed asset spending will be about 4.5 trillion USD. FAI by sectors, 34% Manufacturing, 25% in real estate, 33% Infrastructure and 7% from mining and farming. Less export puts big pressure on the economy because exports account for 25% of the GDP.

11 Chinese regional distribution of the income Population ; % 35 Urban % 65 Rural

12 China

13 The Share of Giant Chinese Mills in total steel production

14 Source: CISA, Ministry of Environmental protection Chinese and EU Integrated mills Cost Comparison COSTS (2008) China EU Iron Ore & Transportation 39% 31% SCRAP 17% 16% COAL 21% 26% Other Ing. 6% 9% Gas, Energy,Water 3% 3% Operational and other costs 14% 15% TOTAL 100% 100%

15 Obstacles to Chinese steel Industry Slower Economic growth ( from 9.2% in 2011 to 7.5% in 2012e) Fragmented steel industry structure makes consolidation almost impossible. ( Top 5 steel producers of China account for only % of the total steel production) Competition works against the profit: 76 mills produce Hot rolled coils. Fierce competition doesn t allow producers to be more than marginally profitable. FAI growth is slowing down. (The boomerang effect of excessive sales of land and big amount of borrowing from central government by municipalities between )

16 TURKEY

17 TURKEY; THE NEW NET FLAT STEEL EXPORTER

18 Turkish steel facts Turkey s crude steel production was 33.5 million tons in Increasing EAF weighted capacity will continue to support Turkey s scrap consumption and Turkey will stay among the largest scrap importers of the world. CIS and EU mills are already facing with fierce competition through Turkish flat steel prices. Eurofer is monitoring the issue very closely. Although GDP is expected to be 3.5% in 2012, economic growth in Turkey still twice as much as any EU country. Economic growth brings positive sentiment and confidence that helps Turkish steel market to grow faster.

19 Strengths of the Turkish Steel Market Majority of the producers are private mills. Mills are very agressive ( as much as raw material cost allows them to be). Quick decision making ( specially for re rollers). Turkey has easy access to Middle East, EU and Northern Africa. Customers abroad are willing to pay premium to Turkish producers regarding to this short delivery terms. High capacity utilization Strong and growing domestic demand

20 Turkish Steel - Challenges Steel Industry is highly dependent on raw material import. Producers are facing with higher raw material cost. Over capacity in both long and flat steel products. Lower profit ( comes with higher input costs) Steel mills are getting more quality oriented but not yet as efficient as EU mills. Very poor usage of financial instruments such as Hedging

21 What Future Holds? Oversupply Mercantilism Hedging the Risk Couple more difficult years before real recovery

22 Some numbers 3.5 % Turkey s 2012 estimated growth rate 3.25 billion; A number of people globally who earns less than 2 usd per day. 60% of China s steel product deliveries made to steel traders. 40% ; 40% of total steel production of the world is being traded internationally. 18 days; The distance between China (Chong Ging ) and Roterdam by train.

23 TAT STEEL

24 TAT STEEL Mton Hot Rolled Pickling Line capacity Mton Cold Rolling Line capacity ( additional Mton will be ready by May 2013) Mton Galvanized Steel production capacity Mton Prepainted Galvanized Steel production capacity

25 Advantages of TAT Tailor made production Quick production and delivery Having an access to Black sea or Mediterranean sea within the same day right after production. Advanced quality control mechanism Customer oriented management

26 TAT- TRADING DIVISION Headquarters in Istanbul and also office in Hong Kong to control sourcing from Far East Concentrates on flat products Supplies coated steel for construction and home appliance producers in EU, South America, Turkey and in CIS Warehouses in Mersin ( Turkey), Ravenna and in Antwerp. Customer oriented approach, tailor made products and advanced logistic options.

27 THANK YOU