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Sector Profiles

Steel Industry


Major Industry Trends

The world steel industry is struggling with overcapacity, but its output is essential to almost every other industry. According to the World Steel Association (WSA), the industry directly employs in excess of two million people worldwide, with a further two million contractors and another four million employed in supporting industries. However, with steel as the key product required by a range of industries, including automotive, construction, transport, power, and machine goods, it is reasonable to use a multiplier of 25 to 1. This means that worldwide the steel industry is at the heart of the employment of more than 50 million people.

In its short-range forecast, issued in October 2013, the WSA presented a very mixed picture. Growth of 2% in the global market for steel in 2012 was expected to improve to year-on-year growth of 3.1%, to 1,475 Mt, for 2013, rising to 3.3% year-on-year growth by the end of 2014, when demand is expected to be around 1,523 Mt. In reality, however, demand for 2013 turned out to be more robust than the WSA had anticipated while the Association has lowered its predictions for 2014. In its latest report on the actual figures for 2013 and its predictions of demand for 2014, the WSA reckons that world steel production for 2013 actually totalled 1,606 Mt. This is a record high for the industry and was achieved despite the overcapacity and weak demand issues that plagued the sector through the year. However, demand is expected to weaken slightly through 2014 as the slowdown in the Chinese economy takes its toll. Accordingly the WSA is forecasting a global growth rate of 3.1% for 2014.

However, the apparent improvement in demand for 2013 is almost entirely accounted for by increased demand from China, following stimulus spending by the government on infrastructure. Demand in China grew 6% year on year, while the rest of the world only managed a combined growth of 0.7%. With China accounting for 43%, or 699.7 Mt, of total global demand, the strong performance there had a major impact on the final figure of 3.1% growth.

As the WSA points out, GDP growth in China is expected to moderate somewhat in 2014, while emerging economies such as India and Brazil, both poor performers in 2013, will in all probability continue to suffer from structural issues in 2014 that will depress demand. The WSA expects Chinese demand for steel to come in at no higher than 3% year-on-year growth for 2014. India, which will probably achieve 3.4% growth to 74 Mt in 2913, could see demand rising to 5.6% in 2014 if it is successful in implementing structural reforms. Under the influence of the highly accommodative monetary policy being pursued in Japan (so-called Abenomics), demand in Japan grew by 1% in 2013, to 64.0 Mt, but the WSA reckons that the outlook is much less positive for 2014, with the possible negative impact from the introduction of a new consumption tax, along with rapidly escalating energy prices. The impact of all this is likely to be a contraction in demand for steel of around –1.6%.

In its latest report on the actual figures for 2013 and its predictions of demand for 2014 (link is: http://www.worldsteel.org/dms/internetDocumentList/bookshop/WSIF_2014_final/document/World%20Steel%20in%20Figures%202014.pdf), the WSA reckons that world steel production for 2013 totalled 1,606 Mt. This is a record high for the industry and was achieved despite the overcapacity and weak demand issues that plagued the sector through the year. The WSA expects demand to weaken slightly through 2014 as the slowdown in the Chinese economy takes its toll. Accordingly it is forecasting a global growth rate of 3.1% for 2014.

The United States, having been a star performer in 2012, when demand increased by 7.8%, is likely to turn in an almost flat performance in 2013, with the WSA putting annual year-on-year growth in demand at no more than 0.7%. This should improve in 2014 to 3.0%, aided by increased activity in the automotive, energy, and residential construction sectors.

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Market Analysis

Overcapacity and Global Demand

One of the major challenges faced by the sector is the current mismatch between capacity—which is still being added to—and global demand, where growth is lagging capacity by a substantial margin. The law of supply and demand dictates that overcapacity forces suppliers to compete on price and cuts margins and profitability, which is exactly what is happening. Over the period from 2000 to 2012, steel production capacity in China, for example, grew by 771 Mt to reach 921 Mt. Actual production rose by 602 Mt to 731 Mt. According to the WSA, the momentum in terms of the major producing countries adding additional steelmaking capacity slowed markedly after the 2008 global financial crash, but emerging economies are still continuing to increase capacity. The result, the WSA points out, is that capacity-utilization ratios continue to fall, and there are no easy solutions to overcapacity in the sector. On the bright side, in its 2014 forecast, the WSA predicts that global demand for steel could reach 2.2–2.3 billion tonnes by 2050.

Steel and Sustainability

The WSA argues that steel is at the heart of the green economy, since it is the main material used in delivering renewable energy from solar, marine, and wind power generation sources. Moreover, all steel created in the last 150 years can be recycled and reused today in new products and applications.

By sector, global steel recovery rates for recycling are estimated to be 85% for construction, 85% for automotive, 90% for machinery, and 50% for electrical and domestic appliances. This leads to a global weighted average of more than 70%. Some measure of the increased efficiency of the steel sector over the last three decades can be seen from the fact that it now takes 50% less energy to produce a tonne of steel than it did 30 years ago. The industry also strives to return water used in the production of steel back to rivers and other sources in a condition that is at least as good as or better than when it was extracted.

China is the world’s leading steel producer by a long way, and it has increased production almost fivefold from 2002, when it produced some 182.249 Mt, to 2013, when it produced 780 Mt. However, there are some serious difficulties ahead for China’s myriad collection of steelmaking enterprises, with many of them losing money as China’s economic growth slows and the overcapacity in Chinese steelmaking weighs on prices.

In fact, the whole shape of steel production has changed dramatically over the last six or seven decades. From 1910 until 1960 the United States was far and away the world’s largest producer, accounting for almost half of global steel production. Then Japan and China came to the fore. Japan produced 107.6 Mt in 2011, while US production for the whole of 2012 was 97.22 Mt according to the American Iron and Steel Institute (AISI). The latest figures from AISI show that the United States will be hard pressed to equal that figure in 2013, with US steel mills shipping fractionally over 81 Mt for the first 10 months of 2013. With October’s figure of 8.2 Mt shipped up 11.5% year on year, the figures for November and December needed to be decent for the country to equal the 2012 result. In fact when November's figures came in (December had not been published at the time of going to press) they were 8% down on the 2012 monthly average, and down 3.6% on the figures for November 2012. So it looks like the best that 2013 can hope for is to be either flat on 2012 or just marginally down.

Brazil and Turkey have moved up the ranks of steel-producing nations, while at seventh place Germany is the only EU member in the top 10, with the Ukraine in eighth place.

Innovations in Steel Production

The entire global steel industry—and arguably the development of much of modern society, which depends on steel for everything from construction to automobiles—owes a huge debt to Henry Bessemer, the inventor of the Bessemer process, which he patented in 1855. This was the world’s first inexpensive industrial process for the mass production of steel from molten pig iron and was a huge contributing factor to the growth of the United States from 1865 until the early 1900s.

In its briefing on the current state of the Canadian steel industry, the Canadian Steel Producers Association points out that more than half of all the current types of steel did not exist 15 years ago. The Canadian industry has invested more than C$2 billion since 2005 in new technologies and better processes, while working hard to reduce its environmental footprint, the Association said. The energy required to produce a tonne of steel has been lowered by 25% since 1990, while greenhouse gas emissions have been cut by 17%.

According to the WSA, the top 10 steel-producing companies in the world at the end of 2012 were:

  1. ArcelorMittal (Luxembourg) 93.6 Mt

  2. Nippon Steel & Sumitomo Metal Corporation (Japan) 47.9 Mt

  3. Hebei Group (China) 42.8 Mt

  4. Baosteel Group (China) 42.7 Mt

  5. POSCO (South Korea) 39.9 Mt

  6. Wuhan Group (China) 36.4 Mt

  7. Shagang Group (China) 32.3 Mt

  8. Shougang Group (China) 32.3 Mt

  9. JFE Holdings (Japan) 30.4 Mt

  10. Ansteel Group (China) 30.2 Mt

The world’s largest steel producer, ArcelorMittal, is the result of the 2006 merger between Arcelor and the Indian steelmaker, Mittal, owned by Lakshmi Mittal. The new company produces about 10% of the world’s steel and is headquartered in Luxembourg. However, overcapacity in the sector has hurt the company, which in 2012 idled some nine of 25 blast furnaces and in October 2012 closed two permanently.

Iron Ore Prospects for 2014

The price of iron ore is one of the key influences on the steel industry. In October 2013 the World Bank pointed out that the general overall improvement in global manufacturing through 2013, which is expected to continue into 2014, means that prices for iron ore will be higher than it was forecasting in July 2013. Iron ore is now expected to average out at US$134 per dry metric tonne in 2013, increasing by US$1 per tonne in 2014, a significant increase on the Bank’s July prediction of US$120 and US$125, respectively. By 2025 the World Bank expects the price to be around US$145 per tonne. Iron ore imports by China rose to a record 74.6 Mt in the month of September 2013, buoyed by strong demand for steel. Iron ore is second only to oil as the biggest seaborne commodity.

Australia is comfortably the world’s largest exporter of iron ore, and in its December 2013 Resources and Energy Quarterly the Australian Bureau of Resources and Energy Economics (BREE) points out that the price for iron ore for the third quarter of 2013 (actual prices for the fourth quarter were not yet available) averaged US$122 per tonne. Unlike the World Bank, BREE expects spot prices for iron ore to moderate in 2014, back to an average of around US$119 per tonne. World trade in iron ore in 2013, BREE estimates, will increase by 4% over 2012 to a total of 1.2 billion tonnes, with a further year-on-year increase in 2014 of 9% to 1.31 billion tonnes.

BREE also differs from the World Steel Association in forecasting world steel consumption for 2013 to reach 1.58 billion tonnes, with nearly 90% of the 3% year-on-year increase in demand being down to increased consumption in China. BREE expects world steel demand in 2014 to be 1.63 billion tonnes, up a further 3%. BREE agrees with the forecast of overproduction, suggesting that world steel production in 2013 will be 1.6 billion tonnes, or 200 Mt of surplus production.

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Further reading on the Steel industry

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