The African Steel Market: The View from Established Players

Transcription

1 PRESENTED BY : Kaizer M. Nyatsumba Chief Executive Officer Kaizer@seifsa.co.za The African Steel Market: The View from Established Players 23 June 2015 Maputo, Mozambique

2 THE STEEL AND ENGINEERING INDUSTRIES FEDERATION OF SOUTHERN AFRICA SEIFSA is a National Federation representing 27 independent employer Associations in the metal and engineering industries, with a combined membership of over companies employing over employees. The Federation was formed in 1943 and companies in Associations federated to it range from giant steel-making corporations to micro-enterprises employing fewer than 50 people.

3 CORE BUSINESS SEIFSA s Core Business is to represent and promote the interests of business in Southern Africa, in particular the metals and engineering industries, through lobbying and capacity building, provision of related services and building of good relations with key stakeholders

4 SEIFSA TRAINING AND CONSULTING SERVICES Skills Development and Human Capital Health, Safety, Quality and Environment Economic and Commercial Legal Industrial Relations Marketing and Communications Administration and Accounting for Associations SEIFSA Training Centre

5 INDUSTRY INITIATIVES The Federation presents the annual SEIFSA Awards for Excellence, which are open to all companies in the metals and engineering sector in Southern Africa ( SEIFSA also presents the annual Southern African Metals and Engineering Indaba, which takes place in Johannesburg, South Africa in May each year (

6 SEIFSA TRAINING CENTRE Situated in Benoni, East Gauteng, the SEIFSA Training Centre is accredited by merseta, CHIETA and EWSETA It provides quality, competency-based training in: Apprenticeships Learnerships (NQF 2-4) Instrumentation Courses Basic Safety Courses Multi-skilling of Artisans Other services include: Trade testing Assessments

7 DISCLAIMER The views expressed in this presentation do not necessarily represent those of SEIFSA Associations and/or their membercompanies

8 Contents The World Economic Environment Implications for the African Metals and Engineering Sector The Steel Market in Africa Policy Implications

9 The World Economic Environment In recent years, World GDP growth has slowed down considerably Disappointing economic recovery: Despite lower oil prices Structural problems in advanced economies due to financial crisis overhang Ongoing geo-political instability Divergence in growth rates amongst countries and regions: US vs EU, vs China, vs Japan, vs India vs Africa China dominated the steel industry for a decade; its steel intensive growth is slowing down and new growth drivers are currently being sought.

10 Low World Growth Implications for the African Metals and Engineering Sector Lower demand that requires lower production of steel and engineering products; Less trade in steel and engineering products; and Global over supply. Over supply/surplus products mean lower prices, surplus production capacity, financial strain for steel and engineering companies and lower prices for commodities exported from Africa, thus impacting negatively on economic growth on the continent.

11 World Steel Production, Capacity and Trade Production of steel and steel containing products have exceeded world demand since 2010: Crude steel production peaked in 2008 and declined by 10%, only to rebound and exceed the 2007 levels from 2010 unabated. The trade in crude steel declined substantially more than production (-30%), only to recover to 2007 levels by Indirect trade in steel-containing products recovered in the same way as crude steel production since the financial shock of 2008/9

12 World Steel Production, Capacity and Trade Cont d Apparent steel use in the world (demand) has structurally declined from the peak of 2007 (-9%). However, steel production capacity kept expanding despite the oversupply (estimates are of 30%+ over capacity world wide). Due to the oversupply/lower world demand for steel and surplus production capacity, the commodity and metal price cycle went into its downward phase since 2010, with few signs of recovery.

13 World Steel Production, Capacity and Trade Cont d Both the demand and prices paid for commodities exported from Africa declined strongly, thus impacting negatively on economic growth on the continent. There has been a remarkable synchronicity between gross domestic economic growth on the continent and that of the Asian economies. These slower growth trends have led to serious financial strain for steel and engineering companies worldwide. Studies by McKinsey & Company showed how net debt has risen above 2,5 times EBITDA since 2008, and Thomson Reuters data show how EBITDA margins have steadily declined to below 17% (the viability benchmark).

14 Chinese & African GDP synchronicity

15 The Steel Market in Africa Size and Structure Dominant Countries Trade in Steel and Steel-containing Products Drivers of Steel Demand in Africa The advantage of low world steel prices vs the temptation to become self sufficient

16 Size and Structure Africa consumed (apparent steel usage) an estimated 37 million tons of steel in 2014 Africa consumption of steel was 2,4% of total world demand in 2014 Africa consumed a total of 47,2 million tons (true steel usage) if the steel equivalent of steel containing imports (value added products) is taken into account. Africa consumed 32,4 kilograms of steel per capita of its population in 2014; Egypt = 122 kg/per capita; South Africa = 97,5 kg/per capita & Algeria = 152 kg/per capita (2013) The world average consumption per person is 217kg

17 Apparent Steel Use: World Market Share Source: World Steel Association: 2015

18 Apparent Steel Use: Country Market Share

19 Share of Net Imports of Steel Containing (value added) Products as % of local consumption

20 Growth Drivers of Steel Demand GDP/per capita growth rates: Africa is growing faster than most regions, with middle class advances Urbanization levels and growth: urbanization is accelerating and infrastructure follows Population growth: Africa s population is growing fast NB: Steel use per capita is still very low in Africa, which means growth can be expected

21 Steel Consumption In Infrastructure Projects Depending on their nature, generally infrastructure projects use the following categories of steel/steel-containing products: Metal products where steel usage could be between 80% and 110% of the tonnage of the product installed, Mechanical machinery where it ranges between 10% and 165% of the weight of the finished installed product/equipment. From these relationships, it is clear that the more investment takes place in infrastructure and mining and industrial installations, the more steel would be used. Depending on the project, 40% to 50% of its value could be on steel and steel containing products. The countries with the highest gross fixed capital formation (GFCF/GDP are Kenya = 18%, SA 18%, Egypt = 19%, Ghana = 23%, Algeria 25%, Morocco = 28% (World Bank)

22 The Advantage of Low World Steel Prices vs the temptation to become Self Sufficient Facts about the economic environment are: World Steel prices are depressed; There is huge (+/- 30%) over capacity in production; Most steel producing companies are financially strained. Africa is aiming to lower its dependence on imports and increase self sufficiency. Egypt and SA have been important suppliers in the past. New projects are mainly concentrated in North Africa: Egypt: planning 6,56 mill tons (current consumption is 10,2 mill tons Algeria: considerable capacity to be added (5 years) SA: Hegang to build 5 mill tons capacity

23 The Advantage of Low World Steel Prices vs the temptation to become Self Sufficient Conclusion: It seems to be counter intuitive to build new capacity when world prices are low and there is an over supply. Steel prices in Africa are distorted due to : Exchange rate depreciation and volatility; Tariff barriers still being the policy instrument of choice to protect domestic producers; Non-tariff barriers on imports and exports; and Dominant players in small markets (either producers or trade concerns).

24 Iron and Steel Exports from South Africa

25 Seifsa Awards for Excellence 28 May 2015

26 Metals and Engineering Indaba 28 & 29 May 2015

27 Metals and Engineering Indaba 28 & 29 May 2015

28 Metals and Engineering Indaba 28 & 29 May 2015

29 PRESENTED BY: Kaizer M. Nyatsumba Chief Executive Officer Web: Tel: 0861 SEIFSA THANK YOU