World steel outlook is mostly bright
Long steel market players from around the world gathered in St. Petersburg, Russia September 25-27 for the SteelOrbis & IREPAS Conference and agreed that aside from a few regional exceptions, the outlook for steel around the globe is surprisingly favorable.
Over 250 steel sector executives from 30 different countries attended the SteelOrbis & IREPAS Fall Conference in September, with most of the participants hailing from Turkey, Europe and the Middle East. IREPAS chairman and CEO of Çolakoğlu Metalurji AŞ Uğur Dalbeler gave the opening speech for the conference after the completion of the committee meetings focusing on raw materials, rebar, wire rod, billet, manufacturing and trading.
“Manufacturers are still full of hope for the steel sector,” Dalbeler said, adding that exchange rates are a totally different story due to the uncertainty surrounding the future. In addition, Dalbeler stated that the steel industry will be a strong instrument for the global market in the future, since there is no alternative production to take its place. Dalbeler concluded his speech by pointing out the ongoing opportunities for the sector in the North African and Southern America markets.
Kim Marti: “Long steel demand is improving, especially in developing markets.”
The opening session featured a presentation by Kim Marti Subirana, International Sales Director of CELSA, who said demand for long steel products is improving overall, and improving more consistently in developing countries. Additionally, he said scrap prices show higher lows in a persistent uptrend, indicating that cost pressures will most likely dictate an upward price direction in the long term.
Assessing the world economy, Marti remarked that the IMF revised its world growth forecast downward last week and that global activity has weakened and become even more unbalanced, while market confidence has fallen sharply recently and downside risks are growing.
According to Marti, in advanced economies the outlook is for a continuous but weak and bumpy expansion; the handover from public to private demand in the US has stalled, the euro area has encountered major financial turbulence and the strength of the German economy acting as the European engine has weakened. In the meantime, prospects for emerging market economies have become more uncertain, although growth is expected to remain fairly robust and at a solid pace of about 6 percent in 2012.
To avoid risks, Marti explained that two rebalancing acts need to be accomplished: first, private demand must take over for public demand. On this front, many economies have made progress, but major advanced economies are lagging behind; second, economies with a large external surplus must rely increasingly on domestic demand, whereas those with large deficits must do the opposite.
In his presentation, Marti indicated that global finished steel consumption is expected to grow by 5.9 percent this year, following an increase of 15.02 percent in 2010. Marti also pointed out that the share of global long steel consumption in total global finished steel consumption increased from 42.8 percent in 2000 to 50.9 percent in 2010. Additionally, global long steel consumption reached 648 million mt in 2010, up from 581 million mt in 2009, while the share of rebar in total consumption reached 41 percent last year, said Marti, adding that rebar consumption is moving to emerging and developing economies.
Abdülaziz Hashim: “Strong demand due to investment flows in GCC countries.”
Abdülaziz Hashim, head of market research at Qatar Steel Company (QSC), stated that the Gulf Cooperation Council (GCC) nations, which include Saudi Arabia, Qatar, UAE, Oman, Bahrain and Kuwait, have seen a strong recovery following the economic crisis, led by Qatar and Saudi Arabia. He added that strong economic growth driving massive investments in construction projects is pushing up steel demand in the region. According to the World Bank, the annual GDP growth of GCC countries was 4.2 percent in 2010 and 5.2 percent in 2011.
Hashim also stated that strong crude oil prices are also very supportive of investments in the region as actual oil prices are much higher than in budget assumptions and will thus ensure a surplus for re-investment and, with oil prices expected to maintain their high levels in the short term (at $100/barrel for 2011-2014), construction investments will also remain high, thereby keeping steel demand up in GCC countries.
The growing young population in the region is another strong fundamental for steel-related investments, with needs for housing, infrastructure and industrial investments certain to raise employment. In the GCC, ongoing or planned construction project contracts worth US$1.8 trillion will contribute to rebar demand with an average growth rate of 5 to 7 percent in the coming years, Hashim said. Especially Qatar, which will host the World Cup in 2022, has projects worth US$65 billion for infrastructure development. This country also has a gross domestic investment plan during 2011-2016 worth US$226 billion. In Saudi Arabia, on the other hand, with the country’s ninth five-year plan for 2010-2014, the planned investments in the country are expected to create 1.1 million job opportunities. However, governments’ investment plans in GCC countries also entail some risks such as the political unrest in the Middle East and the weak situation of the global economy.
Hashim said that re-rollers in the region have suffered from high operating costs while EAF mini-mills and integrated mills have expanded strongly. With the billet shortage in the region, re-rollers have been severely affected. Hence, re-rollers have integrated upwards and existing EAF mills/integrated mills have raised their melting capacity. Strong steel demand has prompted both greenfield and brownfield investments and rebar production has strongly increased. High demand for steel has prompted more capacity expansions from GCC mills and this development reduces the import share in the GCC market, Hashim said. The existing local re-rollers in particular have also started to integrate upwards to reduce dependence on imported billets by adding EAF capacities. Rising EAF capacities have increased scrap and DRI/HBI demand in the region and so the GCC has become a net scrap importer.
Chris Evans: “Steel futures activity will continue to grow.”
Chris Evans, head of business development at the London Metal Exchange (LME), stated that the past two years have been times of unprecedented volatility for steelmakers, their suppliers and customers. According to Evans, mill utilization rates have risen, although not yet to the highs of the last decade; however, fears remain about the sustainability of the recovery. While explaining details of how the LME works, Evans said a rolling mill or a construction company may want to lock in input costs. To do so, they would buy on a forward basis at the LME price. Also, a scrap processor, a billet producer or a rolling mill may also want to lock in their sales price. To achieve this, they would sell on the forward basis at the LME price.
Already, the use of steel billet futures is growing exponentially. Evans said that from the LME billet launch in 2008 to September 21, 2011, there has been $16.6 billion of turnover ($6.2 billion in 2011 alone) comprising 26.5 million metric tons of billet (with 11 million metric tons so far in 2011). Also, the LME has 51 brands in 18 countries with 59.2 million metric tons of listed steel capacity.
Evans noted that steel futures activity is destined to grow because there is an undeniable need for them. The industry faces price volatility every day, and successful businesses that have good relations with staff, customers and shareholders are most successful when they can manage that volatility.
IREPAS committee panel:
On the last day of IREPAS, members of the IREPAS committee shared the conclusions reached over the course of the conference.
Ioannis Meimaroglu (Helveco Intertrade), the chairman of the raw materials committee, explained that scrap prices have continued to remain firm, despite some declines in finished steel prices, based on four reasons: First, steel production has been increasing globally since 2006, despite the interruption in 2008, driving scrap demand up. Second, not only are producers keeping their scrap inventories low, but inventories in scrap yards are also lean. Third, scrap suppliers have no problem finding alternative markets—for example, if Turkish mills are not purchasing scrap, the Chinese market appears as an alternative. Finally, scrap collection costs cannot be reduced. Meimaroglu told attendees that the raw materials committee agreed on the importance of stability both in supplies and in prices, reminding attendees that lower raw material prices also mean lower prices for finished products, a situation that is also unfavorable to steel producers.
F.D. Baysal (Seba International), the chairman of the traders’ committee, stated that the steel market situation is positive except for financially and demand-wise depressed Europe and the US. Baysal said that domestic demand in southern Europe, including Spain, Italy and Greece, is very low, but positive reports are coming from Africa, Latin America, Southeast Asia and the Middle East. Concerning the situation in the US, Baysal said that traders are expecting a significant fund injection in the US market in the next two years, once the American Jobs Act passes. Overall, Baysal believes that there is light at the end of the tunnel, and so traders remain optimistic.
Kim Marti (Groupo CELSA), the chairman of the rebar and wire rod suppliers’ committee, said that at the beginning of the event the general mood was pessimistic, due to the depression observed in the European economy. However, the mood rapidly changed as market players found opportunity to share their ideas during the event. Marti stated that rebar and wire rod suppliers have learned to adjust their production levels in line with demand, to remain sustainably profitable, and noted that the market for construction steel in eastern and northern Europe is strong; however, the situation in southern Europe remains negative. Outside Europe, emerging markets such as South America and Africa show strong growth with continuous demand.
Uğur Dalbeler (Çolakoğlu Metalurji), IREPAS chairman and also chairman of the billet suppliers and producers’ committee, said that in the three main steel billet supplier markets (Ukraine, Russia and Turkey), tonnages available for exports have declined in the last three years, due to increased consumption in the domestic markets in Russia and Ukraine. Dalbeler stated that the market situation for steel billet is firm, and prices are unlikely to decrease in the short run. The IREPAS chairman also stressed that firm raw material prices will provide support for the firmness in steel billet prices, due to the fact that inventory levels are currently low in general.