Global steel long-term outlook Q3 2016 Report

Commodity Market Report 30 September 2016

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Report summary

2016 is shaping up to be a better year for steel than we had expected. The secret of its success? As ever, China. Trapped between the immediate need of reviving a slowing economy and the structural necessity of reforming excess capacity in the steel sector, the Chinese government ended up stimulating the construction sector. As a result, steel prices shot up in China from US$270/tonne in December 2015 to US$400/tonne in April. Prices have since retracted, and between sluggish demand growth and lingering overcapacity we expect them to remain practically flat in the medium term. It is only in the long term that we expect demand growth and costs structure to support a sustainable price recovery.

China
- Summary
- Demand
- Property construction: demand revised up in the medium term but down in the long term
- Infrastructure: slow growth in 2016 and the medium term
- Manufacturing sector: medium-term gain, long-term pain
- Production and capacity
- Capacity cuts: there are still problems for this year and the medium term
- Production: revised up in 2016 and the medium term
- Trade
- Exports: peak postponed to this year
- Hot metal production
Japan
- Demand in the construction sector has been revised up
- but the manufacturing sector will shrink
- Steel exports will be challenged in the long term
- Japan needs to cut more capacity
Taiwan
India
- Growth continues to disappoint
- Indian construction sector is under pressure
- Little change to medium and long-term steel demand growth
- State-by-state steel demand growth
- How will India meet its steel demand?
- Steelmaking capacity outlook remains highly uncertain
Malaysia
Indonesia
Thailand
Vietnam
Philippines
Europe
- Differing outlook for EU members in the construction sector
- EU automotive sector is still growing, but for how long?
- All other sectors: volatile growth
- EU production declines
- Trade: EU exporters are losing custom
- Resilient capacity despite the sluggish outlook for demand
Turkey
- Construction in Turkey: growth in 2016 will be followed by weaker years
- Turkish automotive, machinery and appliances: growth sectors
- Trade
- Production
Other Europe
- Steel demand growth will remain sluggish
- Competition from imports continues to weigh on steel production
- and so will the threat of anti-dumping duties
Middle East and North Africa
- Conflict impacts steel demand growth in Iraq and Syria
- Iran: gains from the lifting of sanctions dulled by low oil prices
- Iran: steel exporters will face stiff competition
- GCC: low oil prices tip steel demand into contraction
- Saudi: medium-term construction growth will benefit from government support
- Other GCC: long term, there is little room to grow
- GCC: low demand (and high imports) continues to depress production
- North Africa: steel demand grows only slowly
- Egypt: steelmakers continue to seek government protection
- MENA DRI: production remains low
United States
- In the end, it is all about trade, stocks and prices
- Underlying steel demand has continued to grow in the US
- Near-term demand is determined by stocks
- Little change to our long-term view
- Automotive will trend down
- Construction will trend up
- Some revisions to our model
- Steel production outlook is uncertain
- Little interest in upstream capacity expansion
- Steel production to recover but increasingly on the back of EAFs
Mexico
- Mexico: demand flat in 2016, growth from 2017
- Mexican production to grow from 2017
Canada
- Canada: A weak outlook for steel demand
- Canadian production rises despite bankruptcies
Brazil
- Brazilian steel demand to bottom out in 2016, a slow recovery to follow
- Growth in all sectors beginning 2017
- Brazilian net exports to peak in 2016, declining from 2017
- New Brazilian capacity comes online in 2016, utilisation rates to drop
Other South and Central America
- Flat steel demand growth
- Poor prospects for steel production
Russia
- Near-term outlook is now less pessimistic
- Construction activity has been stronger than expected
- Infrastructure – an important driver in the medium term
- A smaller decline is forecast for the construction sector
- Automotive and machinery sectors to grow in the long term
- Overall steel demand will grow, but slowly
- Steel production supported by exports
- Capacity improvement and expansion are ongoing
Ukraine
- Growth has turned positive but recovery will be slow
Kazakhstan
- Slow growth prospects
Africa
- Weak demand outlook, limited production growth
- Volatility in raw material prices is here to stay
- Rationalisation in coking coal has run its course
- Iron ore volatility merely reflected gyration in Chinese steel prices
- Scrap prices
- Steel prices had an eventful first half 2016
- Steel price recovery in China is not in sight, but volatility will remain
- US price premia will linger in the medium term but disappear in the long term
- EU steel prices will remain more exposed to low-cost producers

Tables and charts

This report includes 51 images and tables including:

Key China forecast data

Total building completion revised up in the medium term but down in the long term
China's new long-term plan for railway construction
Wealthier households will promote car demand in the future
Western regions will lead the increase in car penetration in the long term
Changes to crude steel capacity, 2010-2020
Changes to hot metal capacity, 2010-2020
Crude steel capacity cut by provinces, 2016
Hot metal capacity cut by provinces, 2016
Provincial capacity-cutting targets in 2016 and the medium term
China's steel exports will increase in the long term
...supporting crude steel production accordingly
Hot metal production and shares of BOF and EAF steel production
Both automotive production and exports will decline
...Demand in other major end-use sectors will also decrease in the long term
Japan needs extra capacity cuts in the forecast period to maintain typical utilisation rates
Steel demand is highly dependant on investment
Growth in the construction industry has slowed
Steel demand – increase in consumption 2016-2035, Mt
Steel capacity – increase between 2016-2035 including not-committed-to expansions, Mt
Cars in Romania: room to grow, but growth will be slow
A decreasing population and increasing age of cars limits auto growth
Cars in Turkey: room to grow with low vehicle ownership and a growing population
Households with sufficient income to own a car will increase at a faster rate than the working age population.
Scrap/billet spreads: EAF based mills will continue to take advantage of the most economical source
Finished steel imports to Turkey have increased year to date particularly from South Korea
Rest of Europe steel imports remain high
Rest of Europe steel production to decline in 2016
MENA steel demand growth and armed conflict
Iran steel import dependency declines
GCC and peers: per-capita steel in construction
Saudi and other GCC steel consumption outlook
North Africa steel demand by sector
North Africa long-term demand drivers
MENA DRI capacity expansions likelihood
MENA implied scrap requirements
Stocks have finally started to rise
Demand will improve in H2 2016
Reversal of the stock cycle will support apparent demand in H2 2016 and 2017
In the long term, we forecast falling automotive demand and a healthy growth in construction
Utilisation will reach a nadir in 2016, correlating with the output of the three largest South American producers
Although still in decline, 2016's contractions in vehicle production and industrial production are less than in 2015. Growth is expected in 2017.
Steel production is supported by exports
Despite widespread trade cases, finished steel exports continued to rise in 2016
Subdued steel demand growth – particularly in the larger consuming countries
Crude steel production: revised down
Turkey scrap consumption by origin