WSD Strategic Insights CXXXII: Global steel production heading back up in 2021, but not yet to 2018-2019 levels

Tuesday, 28 April 2020 00:42:33 (GMT+3)   |   San Diego
       

Where’s the beef?

WSD’s “most likely scenario” – based on our assessment as of late March 2020 – calls for global steel production in 2020 decline 12.9% to 1.632 billion tonnes.  Then, in 2021, given our “mid-low” scenario, it recovers only 6.6% to 1.739 billion tonnes.  If so, global output next year would be less than that in 2018 and 2019 at 1.805 billion tonnes and 1.873 billion tonnes, respectively. 

World Steel Dynamics' s Crude Steel Forecast
(million metric tonnes)
                     
                     
  2007 2008 2009 2010 2015 2018 2019 2020e 2021e
                Mid-low Mid-low High
Advanced Countries 509 491 357 452 448 461 458 354 397 426
Japan 120.3 118.7 87.5 109.6 105.1 104.3 100.7 80.5 90.0 95.0
South Korea 51.7 53.6 48.6 58.9 69.7 72.4 72.6 56.0 62.0 66.0
Western Europe 171.8 163.7 114.3 144.3 137.8 136.6 133.2 105.0 115.0 125.0
United States 98.4 91.9 59.4 80.5 78.8 86.6 88.5 62.5 75.0 82.5
Small Cap. Adv. 67.0 63.5 47.2 58.9 56.8 61.1 63.4 50.0 55.0 57.5
                     
China* 499 510 596 660 869 928 996 940 1000 1050
                     
Developing World ex-China 348 335 304 340 368 416 418 338 372 402
Africa 9.2 8.5 7.7 7.8 6.6 6.5 6.2 5.0 5.0 6.0
Brazil 33.6 33.7 26.5 32.9 33.3 34.7 33.7 26.0 29.5 31.0
CIS 125.0 114.8 98.1 108.5 101.6 101.3 102.2 85.0 92.5 97.5
Eastern Europe 21.2 18.5 12.3 14.4 15.0 17.7 12.4 9.5 10.0 11.0
Developing Asia 21.5 20.7 18.3 21.2 23.8 33.9 39.4 30.0 33.5 37.0
India 52.4 55.1 63.5 68.3 89.0 106.5 113.0 95.0 105.0 113.0
Latin America 33.4 32.0 26.4 28.8 30.3 30.8 29.1 25.0 27.0 28.5
MENA 25.9 25.3 25.4 28.8 36.5 47.3 48.3 34.0 39.0 45.0
Turkey 25.8 26.8 25.3 29.1 31.5 37.3 34.0 28.0 30.0 33.0
                     
World Total 1,356 1,337 1,257 1,452 1,685 1,805 1,873 1,632 1,769 1,878
World Ex-China 857.0 826.8 660.5 792.2 815.9 877.1 876.6 691.5 768.5 828.0
                     
Source: WSD Estimates, WSA                    
*Includes WSD's estimates for induction furnace production                  

Global steel production gains in the next year may be hampered by the carryover of some of the adverse consequences from the coronavirus calamity.  Following are nine items that, when combined, may cause the global steel demand recovery in 2021 to be less than expected.  Six of the items are macroeconomic in nature and three are steel industry specific: 

 

  1. Consumers will likely remain far more cautious in their buying habits.  Consumer sentiment the world over has been destroyed in recent months.  This development is particularly bad for the United States because household spending normally accounts for 65-70% of GDP.  Consumer spending in 2021 may be less than that in 2019.  The USA automotive industry will suffer. 

 

  1. Gains in infrastructure spending may be constrained by the deteriorated financial condition of central governments and local municipalities.  Both will be suffering from new debt burdens incurred in 2020 in an attempt to prop up the economy.   

 

  1. Industrial companies will be more cautious in their capital spending decisions.  Many in 2020 will suffer financial setbacks tied to the slippage in the demand for their products.  As well, small businesses will have trouble accessing outside funds on a favorable basis.  Global capital spending in 2021 may be less than in 2019 as many companies, given the lower-than-expected demand for their products and increases in competition, are slow in restarting delayed projects.     

 

  1. The crude oil price may not recover sufficiently to prevent a sizable downturn in the Middle Eastern economy.  This part of the world, given the huge infrastructure spending, may require a Brent oil price of $65-70 per barrel, versus only $26 per barrel in late-March 2020. 

 

  1. Capital is replacing labor at an increasing pace; yet, this development may not be spurring a rise in the global economy.  Instead, it’s reducing costs and shifting investment away from Developing World countries into the Developed World. Currently, a new factory in an Advanced Country will usually manufacture, at a low cost with relatively few workers, the highest-quality product.  There’s no longer a need to build a new factory in Developing Countries because of the low wages.

 

  1. The massive capital circulating the globe that’s looking for high returns have not found these to the extent that is desired.  Hence, good a portion of these funds is being invested in financial instruments, including government bonds, rather than new factories. 

 

  1. Steel buyers in 2021 may not be disposed to add to inventory.  Instead, they may marvel at significant price competition prevailing in home markets and on the world market.  The export market for steel products has become more competitive in recent years even though, in the fall of 2017, the industry entered an “Age of Protectionism.”  Fewer country markets are now open to foreign deliveries.  In the months ahead, we expect a surge in Chinese offerings on the world market at a relatively low price because oversupply conditions have returned to China. 

 

  1. Chinese steel demand is not sustainable.  A risk for the Chinese economy is apartment prices – that, from 1999 to 2019, rose at a rate of 8% per year compounded – start to fall back.  Hence, residential construction activity may lessen.  Also, merchandise exports from China may lag because of the weakened foreign economy.  (Note: By 2030, Chinese steel demand is forecast to be probably at least 10% lower than in 2019 as the mix of the economy shifts to rising household spending as a share of GDP and lower fixed asset investment as a share of GDP. 

 

  1. Reduction in steel intensity(Note:  Steel intensity is defined at the million tonnes of steel demand per $ trillion of GDP.  Hence, if apparent steel demand in 2019 was 1.85 billion tonnes and global GDP was $100 trillion, steel demand per $1 trillion of GDP was 18.7 million tonnes.)  When economic growth rates are low, a higher portion of the gain in GDP will occur in services – that are not at all steel intensive.  By 2021 versus 2019, if there’s been a 1% drop in steel intensity for whatever the reasons – including slowed global economic growth, market share loss to competing materials and lower-weight products due to the redesign of how the steel is used – this factor alone would cause a 19 million tonne decline in steel demand. 

 

 

 

 

 

 

 

 

 

 

This report includes forward-looking statements that are based on current expectations about future events and are subject to uncertainties and factors relating to operations and the business environment, all of which are difficult to predict.  Although we believe that the expectations reflected in our forward-looking statements are reasonable, they can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties, including among other things, changes in prices, shifts in demand, variations in supply, movements in international currency, developments in technology, actions by governments and/or other factors.

The information contained in this report is based upon or derived from sources that are believed to be reliable; however, no representation is made that such information is accurate or complete in all material respects, and reliance upon such information as the basis for taking any action is neither authorized nor warranted.  WSD does not solicit, and avoids receiving, non-public material information from its clients and contacts in the course of its business.  The information that we publish in our reports and communicate to our clients is not based on material non-public information.

The officers, directors, employees or stockholders of World Steel Dynamics Inc. do not directly or indirectly hold securities of, or that are related to, one or more of the companies that are referred to herein.  World Steel Dynamics Inc. may act as a consultant to, and/or sell its subscription services to, one or more of the companies mentioned in this report.

Copyright 2020 by World Steel Dynamics Inc. all rights reserved

 

 


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