RECENT MARKET DEVELOPMENTS

Transcription

1 RECENT MARKET DEVELOPMENTS DSTI/SU/SC(215)9 Summary of recent developments Economic outlook has weakened Steel market sentiment is down Demand for steel falling in major economies Broad-based decline in production World exports of steel are increasing Sharp fall in steel and steelmaking raw material prices Profitability is likely to have worsened this year Forecasts for apparent steel use have been lowered recently Oversupply and adjustment pressures have increased for the steel industry 1

2 Economic slowdown weighing heavily on industrial production and trade % 2 15 Industrial production (3 month moving average ) World Advanced economies Emerging & Developing economies % 25 2 World trade and unit price in USD (3 month moving average ) World trade Trade prices (unit value in USD) Industrial production and steel production go hand-in-hand (annual growth, 3 month moving average ) 15 % world industrial prod. (left) world steel prod. (right)

3 Market sentiment has weakened 6 Global Steel PMI particularly in Asia 6 Steel PMIs by selected economies Europe US Asia 3

4 Steel demand expectations are also lackluster TSI Survey of demand expectations Global Asia Nov. 11 Nov. 4 Oct. 28 Oct. 21 Oct. 14 Nov. 11 Nov. 4 Oct. 28 Oct. 21 Oct % of respondents Decrease No change Increase Europe % of respondents Decrease No change Increase North America Nov. 11 Nov. 4 Oct. 28 Oct. 21 Oct. 14 Nov. 11 Nov. 4 Oct. 28 Oct. 21 Oct % of respondents Decrease No change Increase % of respondents Decrease No change Increase Indicator of steel consumption: hot-rolled steel products in major economies %, year-on-year Note: Combined consumption of the following economies: Brazil, China, Germany, India, Japan, Korea, Russia and the United States. 4

5 Rebalancing of the Chinese economy leading to a slowdown in steel consumption 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % Value added by sector, % of GDP Services Industry Agriculture Steel production is falling in almost all regions Level, thousand mmt % change, year-on-year Oct-15 Jan.-Oct. 215 Oct-15 Jan.-Oct. 215 EU 14, , Other Europe 2,996 28, CIS 8,284 84, North America 9,66 94, South America 3,961 37, Africa 1,96 11, Middle East 2,267 23, Asia, of which: 9, , China 66, , Oceania 51 4, World 133,64 1,345,

6 World exports of steel have increased by around 4% in 215 And at roughly the same rate excluding trade within the EU 6

7 World average steel price has fallen 25% since the start of World steel price index (LHS) HRC world price (RHS) Rebar world price (RHS) USD/tonne But even stronger price declines for steelmaking raw materials 8 USD/tonne Iron ore Fines, 62% Fe, SPOT, CFR China Hard coking coal spot, FOB Australia Scrap, #1 HMS, FOB Rotterdam

8 Costs are down and the cost curve is flatter World steel cost curves for hot-rolled band as assessed by World Steel Dynamics Source: World Steel Dynamics. With steel sector ranked low in profitability across sectors Pre-tax operating margin, % 12.% 1.% 8.% 6.% 4.% Steel All firms 2.%.% World 79/96 U.S. 84/96 Europe 9/96 Japan 61/9 Emerging Markets 8/96 China 85/94 Source: Damodaran online at 8

9 The demand outlook: renewed demand weakness and oversupply Apparent finished steel use (ind. 25=1) Apparent finished steel use (ind. 25=1) 22 2 EU CIS NAFTA Central and South America 22 2 Other Europe Africa Middle East Asia and Oceania Source: OECD calculations based on forecasts by the World Steel Association (October 215) Oversupply situation may become exacerbated in coming years Scenarios of crude steel production and consumption changes (volume change, mmt) mmt Production (71.9% assumption) Production (5% assumption) Consumption Note: The 71.9% and 5% assumptions refer to the assumed utilisation rates of the capacity additions. Source: OECD calculations. 9

10 Conclusion Exceptionally weak steel market in 215 Further pressures on prices, profitability, and production Government interventions may help the industry muddle through the crisis but they can also prolong the industry s recession 1