A new era for the global steel industry

Transcription

1 A new era for the global steel industry Prepared for: Alacero 58: Paradisus Resort Hotel, Cancun November 2017 Prepared by: Dr. Paul Butterworth Research Manager - Steel Raw Materials, Steel Costs and Thermal Coal

2 Agenda A new era for the steel industry The current steel market: underlying drivers Medium-term expectations for the global steel sector Some risks and opportunities: Conclusions

3 Agenda A new era for the steel industry The current steel market: underlying drivers Medium-term expectations for the global steel sector Some risks and opportunities: Conclusions

4 Steel timeline: a new era approaches Global apparent steel consumption, Mt 2500 Regional consolidation EU consolidation wave 1 US industry rebirth China supercycle GFC First China peak Global oversupply Protectionism EU consolidation wave 2 China reform China reborn Second China peak 2000 EZ crisis China World excl. China 4

5 Agenda A new era for the steel industry The current steel market: underlying drivers Medium-term expectations for the global steel sector Some risks and opportunities: Conclusions

6 From a profitability perspective, the global steel industry is performing well today Global steelmaking profitability, % EBITDA 35% 30% 25% 20% 15% 10% 5% 0% (5)% (10)% (15)% (20)% Data: CRUSteel Cost Review: Note: EBITDA margin average of China, Europe and N. America regions. 6

7 China is driving the current upturn Chinese costs and domestic and export HR coil prices, $/t Chinese costs and domestic and export rebar prices, $/t Data: CRUChina Steel Service. HR coil export price Export cost assuming full recovery Domestic HRC Variable cost Rebar export price Export cost, assuming full recovery Domestic rebar Variable cost 7

8 Chinese crude steel production is not at record high levels, only reported production is CISA average daily crude steel production, Mt/m Chinese crude steel production, Mt/m 1,9 1,8 1,7 1,6 1,5 1, Reported production (LHS) CRU-estimated production (LHS) Data: CRU, CRU Crude Steel Market Outlook. 8

9 China supply reform: capacity utilisation has improved remarkably LHS: production and capacity of crude steel, Mt RHS: capacity utilisation, % 1,500 90% 1,300 85% 1,100 80% % % % Capacity Crude steel production Capacity utilisation 60% Data: CRU Capacity Database, CRU Crude Steel Market Outlook. 9

10 Agenda A new era for the steel industry The current steel market: underlying drivers Medium-term expectations for the global steel sector Some risks and opportunities: Conclusions

11 Steel demand will continue to expand over the mediumterm but the majority of growth is outside China Change in apparent finished steel demand, 2021 vs. 2016, Mt Demand increase (2021 vs. 2016): CAGR 1.8% or 149 Mt SE Asia India Europe US JKT China CIS L. America Other N. America Other Data: CRU Crude Steel Market Outlook. 11

12 Supply reform in China will ensure that profitability in the domestic market will remain elevated x-axis: capacity utilisation of the Chinese steel sector, , % y-axis: profitability of the Chinese steel sector, , notional EBITDA margin, % 25% 20% 15% Upper line: demand growth (mean) - 13% Sustainable profitability region 10% 5% 0% (5)% (10)% Lower line: demand growth (mean) - (2)% (15)% (20)% 65% 67% 69% 71% 73% 75% 77% 79% 81% 83% 85% Data: CRU Steel Cost Review, CRU Crude Steel Market Outlook. 12

13 and strength of the domestic market is a key determinant of propensity to export x-axis: profitability of the Chinese steel sector, , notional EBITDA margin, % y-axis: steel exports as a percentage of steel production, , quarterly, % 16% 14% 12% Outlier data (2014), significant cost advantage due to high scrap prices and strong US market lifted exports. Green data point represents April, May, June period for profitability and exports. 10% 0% (25)% (20)% (15)% (10)% (5)% 0% 5% 10% 15% 20% 8% 6% 4% 2% Data: CRU Steel Cost Model, CRU Crude Steel Market Outlook, IHS. 13

14 Agenda A new era for the steel industry The current steel market: underlying drivers Medium-term expectations for the global steel sector Some risks and opportunities: Conclusions

15 Agenda A new era for the steel industry The current steel market: underlying drivers Medium-term expectations for the global steel sector Some risks and opportunities: heating season controls, scrap and cost competitiveness Conclusions

16 Heating season restrictions: large production cuts could lift Chinese steel prices and lower exports further Hot metal capacity and production during the heating season, annualised, Mt Potential shortfall in steel supply Cap. util.: 87% Cap. util.: 87% Cap. util.: 44% Cap. util.: 120% 0 Data: CRU Crude Steel Market Outlook. 16

17 Supply side restrictions have led to sharp increases in the graphite electrode price 17

18 Supply side restrictions have led to sharp increases in the graphite electrode price Operating at close to 100% capacity Very little increase in demand for needle coke (despite market commentary to the contrary) 18

19 Supply side restrictions have led to sharp increases in the graphite electrode price Operating at close to 100% capacity ~20-30% of needle coke production was sold to battery manufacturers this year. Very little increase in demand (despite some market commentary to the contrary) 19

20 CRU multi-client study: Impact more likely on cost, rather than production. Market study currently being undertaken Graphite electrode representative price, $/t Graphite electrode cost input to steelmaking, $/tls jul-17 oct-17 ene-18 abr-18 jul-18 oct-18 Spot price Contract price (9 months until delivery) Data: CRU; Note: not a formal price assessment. 20

21 but we believe the majority can be absorbed within the Chinese steel sector, certainly up to 2030 Crude steel, hot metal production and implied scrap availability, Mt Obsolete Prompt Home Hot metal Crude steel HM (net of scrap) Data: CRU Long Term Steel Outlook, CRU Metallics Market Outlook. 21

22 Changes to cost competitiveness will open up opportunities for some steelmakers Change in cost position, , BOF only, $/tls (5) (10) (15) (20) (25) (19) (15) (9) (6) (3) (2) Global median Exchange rate, , local currency vs. US Dollar, 2017 Q4 = 1.00, index South Africa Brazil India Turkey Japan Euro Russia China Chile Data: CRU Steel Cost Model. Data: CRU Industrial and Economic Outlook. 22

23 Conclusions The steel industry has entered a new era: Chinese supply-side reform has transformed the fortunes of the global steel industry. In the medium-term, steel demand outside China is forecast to grow: coupled with lower volume/higher priced exports from China, profitability of the steel sector should sit at sustainably higher levels. There are risks and opportunities: operating at high capacity utilisations will introduce price volatility. additional heating season controls are likely to exacerbate price volatility. constrained supply of electrodes limits the sector s ability to respond to supply shocks. scrap generation in China will impact on bulk raw material and scrap pricing. exchange rate and raw materials exposure will shift underlying cost competitiveness, but trade friction is likely to diminish. 23

24 About CRU CRU's reputation with customers across mining, metals and fertilizers is for integrity, reliability, independence and authority. CRU's insights are built on a twin commitment to quality primary research and robust, transparent methodologies. CRU s office locations CRU invests in a global team of analysts, the key to gaining a real understanding of critical hard-to-reach markets such as China. We strive to provide customers with the best service and closest contact flexible, personal, responsive. CRU big enough to deliver, a high quality service, small enough to care about all our customers. 24

25 Thank you for your attention 11 Dr. Paul Butterworth Research Manager, Steel Raw Materials, Steel Costs and Thermal coal E: T: Marcio Goto Regional Manager Latin America & Caribbean E: T:

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