During his presentation made on October 20 at the SteelOrbis Fall '08 Conference & 59th IREPAS Meeting, Alocci RI Group COO Ruggero Alocci stated the world is currently going through an important period as it faces its most dangerous-ever financial crisis, adding, "We have not reached the end of it yet."
Mr. Alocci stated that despite everything global development offers advantages to the steel industry. He supported his claim with the following figures:
"The world's population stood at 1 billion in 1900, at around 5.5 billion in 1950, and today is around 6.5 billion. It is estimated that this figure will stand at around 9 billion in 2015. As a result, water, food, energy and steel will all be needed in the future."
Mr. Alocci also stated that the losses incurred at the financial exchanges due to the current crisis amounted to $2.4 billion, and that the magnitude of these losses is evident when one considers that the GDP of Canada is $1.432 billion, that Central America's GDP is $1.146 billion, that Brazil's GDP is $1.313 billion, while Africa's GDP stands at $1.280 billion. He added that those responsible for this global financial crisis are the ones who took out loans they were unable to return, as well as the banks that handed out loans they were unlikely to receive back.
Describing the current crisis as a "perfect storm," Mr. Alocci stated that the problems can be solved if the banking system refocuses on finance and the real economy instead of economic gambling. This will also offer new advantages to the steel markets, he added.
According to Mr. Alocci's presentation, there are two kinds of risks during the time of corrective measures: namely, credit tightening and inflation. While saying that the money obtained in loans from the EU and the US could cause a rise in inflation, Alocci stated that the world's total steel capacity will reach 1.9 billion mt in 2015, with China accounting for 40 percent, and that 1.6 billion of this huge figure will be consumed. He also said that the overcapacity in question may be reduced as a result of the "perfect storm."
In spite of everything, Mr. Alocci went on, the industry has to welcome the current developments. Looking at the global situation in 2000, he said there were political and social disturbances, oil prices had quadrupled and the banking system was in crisis at the time. However, Mr. Alocci said the world has since been developing at a previously unheard-of speed, and that the intervening period has seen the emergence of strong economies such as Brazil, Russia, India and Russia.
Meanwhile, considering the outlook for the global steel market, Mr. Alocci said the World Steel Association has postponed its estimates for the 2009 global steel consumption to the spring of 2009. He added that it is impossible to foresee how much demand will be affected by the current situation, due to macroeconomic factors separate from the steel markets. However, steel consumption is expected to grow faster than global GDP.
According to Mr. Alocci, coke has seen substantial price cuts over the past month as demand has simply dried up in the face of lower blast furnace operating rates. Lower freight costs are further reducing the delivered cost of coke; however, in spite of this, demand remains extremely weak and is not expected to change for some time.
Moving to iron ore, the Alocci RI Group COO said that big investment projects, aimed at exploring iron ore and establishing new mines as well as new ports, will cause prices to maintain their high levels. Due to the "perfect storms," sellers and buyers are obliged to follow the fluctuation of prices and the economic situation, and they may replace the existing benchmark contract system for iron ore with a hybrid pricing system at the upcoming 2009 price negotiations. Further on, a small surplus in the supply-demand balance is expected, with some price deflation foreseen by 2011 and onwards.
As regards scrap, high demand means high prices and more scrap collection, whereas low demand means low prices and less scrap collection, Mr. Alocci stated, adding that today the mini-mills depending only on scrap are working with lower production costs, with better sales prices, and that the result is improved competition with the integrated mills. Scrap prices, following demand, could increase, balancing the integrated mills' production costs or overtaking the same in the short term.
According to Mr. Alocci, it is likely that scrap prices, which saw significant drops following the recent "perfect storm", will register considerable increases due to the consolidations in the scrap recycling sector. He added that today the world's ten major scrap recyclers process around 60 million mt of scrap whereas this figure stood at just 25 million mt in 2000. Mr. Alocci has also stated that, as a result of the "perfect storm," some mergers and acquisitions may take place, with the situation as regards the DRI and HBI markets being far more problematic compared to that of scrap.
Finishing his presentation on a positive note, Mr. Alocci said that the current crisis could be viewed as an opportunity, and that the victory of steel over the errors of the financial system may be seen.