The economic background 13/5/215 RECENT MARKET DEVELOPMENTS IN THE GLOBAL STEEL INDUSTRY DSTI/SU/SC(215)1 78 th Steel Committee Meeting Paris, 11-12 May 215 Naoki Sekiguchi Email: naoki.sekiguchi@oecd.org Market Sentiment The global steel PMI has declined in recent months, indicating weakening sentiment 6 Global Steel PMI 6 6 Steel PMI Europe US Asia 6 5 5 5 5 4 4 4 4 3 3 3 3 Source: Markit Economics. 1
Steel demand outlook The impacts of falling oil prices 27 28 29 21 211 212 213 214 215 216 27 28 29 21 211 212 213 214 215 216 27 28 29 21 211 212 213 214 215 216 27 28 29 21 211 212 213 214 215 216 27 28 29 21 211 212 213 214 215 216 27 28 29 21 211 212 213 214 215 216 13/5/215 Growth of Key Steel-Using Sectors The output of key steel-using sectors is expected to continue to grow moderately 3 2 % World China ROW Prospects for Key Steel-Using Sectors 1-1 -2-3 Construction Automotive Machinery Metal products Transport Domestic appliances Source: OECD based on data from IHS Global Insight. Impacts of Lower Oil Prices Lower oil prices are having important effects on demand and prices for pipes and tubes 4 3 25 2 15 Rig count Oil Prices and World Rig Count Jun. 14 - Mar. 15 1 2 4 6 8 1 12 14 Crude oil price index (25=1), average of three spot prices (Dated Brent, West Texas Intermediate, and the Dubai Fateh) 23 21 19 17 15 13 11 9 7 5 Steel Pipes & Tubes Prices USD/tonne Welded pipe (OCTG carbon ERW, J, 4 1/2-8 5/8inch) / N.America domestic Ex-mill Welded pipe (OCTG carbon ERW, J, 4 1/2-8 5/8inch) / N.America import Gulf port Welded tube (S2, 5-17mm dia) / Europe domestic delivered Sources: International Monetary Fund for crude oil price index, Baker Hughes for world rig count and Platts Steel Business Briefing for steel pipes & tubes prices. 2
The impacts of falling oil prices Steel capacity and production 13/5/215 Mixed Impacts of Lower Oil Prices Negative effects Affects many steelmakers business, particularly in the OCTG market segment Large energy companies plan to cut capital spending by 1-2% in 215 OCTG demand may fall by 3% in 215 Pipe destocking, decreases in pipe production, mill closures, layoffs and a deterioration of business earnings Future reduction in steel demand for infrastructure investments financed from oil revenues Positive effects Several studies suggest positive impacts on the economy (Jimenez- Rodriguez and Sanchez, 25; World Bank, 213; IMF, 214; Arezki and Blanchard, 214; OECD, 215; etc.) Increase GDP output of major oil importers by several percentage points Higher household incomes and lower production costs for major oil importers Iron and Steel Making Investment Projects Regions that are net importers of steel products are continuing to add new capacities Region Economy Company Location or Project Type Unit Details Capacity (' tpy) Start Date Year Month Notes Other Europe Turkey Kardemir Karabuk BF x 1 128 m 3 12 215 January 1/ CIS Kazakhstan ArcelorMittal Temirtau Temirtau BF x 1 32 38 m 3 13 23 214 December Middle East Iraq Mass Global Investment Sulaimaniyah EAF x 1 12 t 1 215 March Middle East Iran MIDHCO Bardsir DRI Plant (SISCO) DR x 1 n/a 5 215 February Asia India SAIL Burpur, West Bengal (IISCO) BF x 1 416 m 3 25 214 December Asia Malaysia Eastern Steel Kemaman,Terengganu BF-BOF x 1 na 7 214 December Asia Viet Nam POSCO SS-Vina Phu My, Ba Ria-Vung Tau EAF x 1 12 t 1 215 January 1/ Official start up. Note: Iron and steel making investment projects that have started up since the last meeting of the Steel Committee in December 214. Source: OECD based on various sources. 3
Steel capacity and production Price developments 13/5/215 Regional Crude Steel Production Weaker steel demand has caused major steel-producing countries to cut steel production 12 1 8 6 4 2-2 -4-6 -8 y-o-y, % Contribution to Crude Steel Production Growth Oceania India China Asia (excl. China & India) Africa & Middle East Latin America NAFTA CIS Other Europe EU-28 Growth rate (world) Source: OECD based on data from the World Steel Association. Raw Material and Steel Prices Falling raw material prices have placed downward pressure on steel prices 4 3 25 2 15 1 5 Iron Ore and Coking Coal Prices USD/tonne USD/tonne Iron ore Fines, 62% Fe, SPOT, CFR China Hard coking coal spot, FOB Australia 4 3 25 2 15 1 5 5 4 3 25 2 15 1 5 Global Steel Prices World steel price index (LHS) HRC world price (RHS) Rebar world price (RHS) USD/tonne 13 12 11 1 9 8 7 6 5 4 Sources: Commodity Research Unit for iron ore and coking coal prices and Platts Steel Business Briefing for global steel prices. 4
Profitability developments Summary 13/5/215 Outlook for Steel Prices and Profitability Excess capacity has led to a deterioration of the financial situation of steelmakers 3. 25. 2. 15. 1. 5. % Profitability (EBITDA/sales) World sales (RHS) World profitability (LHS) World profitability (excl. China) (LHS) USD Million. 2 22 24 26 28 21 212 214 e 2 18 16 14 12 1 8 6 4 2 2 18 16 14 12 1 8 6 4 2 Profitability (EBITDA/shipment) USD/tonne USD/tonne Global EBITDA per tonne shipped (RHS) World HRB export price (LHS) 2 22 24 26 28 21 212 214 e 12 1 8 6 4 2 Source: OECD based on data from World Steel Dynamics. Conclusions The outlook for the steel sector remains weak. Many uncertainties cloud the prospects for the global steel industry: World economic growth Geopolitical tensions The future evolution of oil and raw material markets The impacts of excess steelmaking capacity 5