The Steel Industry Globalization Trends Abstract of presentation to LME Members May 23, 2003
LONDON METAL EXCHANGE
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Steel is the second largest global material by value Materials Market Value (Billion US$) Precious Metals 33 Non ferrous Metal 90
Grains 29
Cement 101
Steam Coal 109
Coking Coal 40
Crude Oil 679
Finished Steel* 252
*implicit value of crude is around 180 billion US$, twice all traded non ferrous metal
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LONDON METAL EXCHANGE
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In the last century, the world steel industry has gone through three increasingly uncertain eras 1s tO il c 2n d O risis il c Fa ris is ll o fB erl in Wa Ch ll ina as aW orl dP ow er
World crude steel consumption (million of tonnes) 800
600
400
Glorious Thirty
Globalization
1900
10
20
19 29
WW 1
200
WW
2
Pre War National Era
30
40
50
60
70
80
90
2000
Source : Steel Statistical Yearbook, IISI, Laplace Conseil analysis
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Worldwide, steel consumption has declined as a share of GDP and amplifies economic fluctuations Crude steel consumption Per unit of constant GDP (kg per M. US $)
Comparison between GDP growth (%) and World crude steel consumption (Mt)
65
6%
60
5%
55
900
4%
800
50 3% 45 2%
40
1%
35 30
700
71
74
77
80
83
86
89
92
95
98
01
0%
71
74
77
80
83
86
89
92
95
98
01
600
Source : IISI, FMI, World Bank
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Thanks to Far East Asia, the steel industry may have entered a new growth phase WORLD STEEL PRODUCTION AND (CONSTANT) GDP PER CAPITA, 1950-2010 7 000
Period 1950-1073 1973-1994 1994-2002 2002-2010
6 500
GDP 1995 US$/capita
6 000
Δ GDP/cap +2 000 +1 100 +700 +1 100
Phase 3 Far East Asia enters steel intensive phase of developement
Δ Steel/cap +100 - 48 +15 +44
2010 ? 2005 ?
2002
5 500
1998: Asian Crisis 1994
5 000 4 500
Phase 2 1983 The ugly twenty
4 000
Post war expansion to 1973 led to predictions of seemingly endless growth
3 500
1989: Collapse of USSR led to steel consumption collapse in Eastern Europe 1979 1973
1975 1970
3 000
1961 2 500 2 000
Phase 1 The glorious Western thirty
1950
First and second oil prices and subsequent recessions led to massive light-weighting of steel-containing products
1 500 70
80
90
100
110
120
130
140
150
160 170 180 190 kg crude steel production/capita
* source: Macquarie Research, World Bank, US Bureau of the Census, IISI, Laplace Conseil
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Europe is more dependent on world activity. Its production fluctuations are greater than average. Correlation with World consumption (R2) EC & EE
1.50
0.86
EU15
0.80
North Amer
0.81
Lat Amer
0.74
Oceania
2.30 2.90
1.01 0.93
1.40 1.10
0.63
2.50
1.00
0.71 0.56 A high R2 means that a greater share of the monthly consumption variation is "explained" by the fluctuation of the world monthly consumption. (uncorrected for seasonal variations)
NS
1.28
0.75
Asia
Afr Mid East
Sensitivity to World consumption Minimum real GDP Growth fluctuations (%/%) to sustain steel consumption (%)
1.20 A factor greater (smaller) than one indicates that the region monthly fluctuations are greater(smaller) than the world fluctuations, a measure of dependency on the world economy cycles
0.20 This is the difference between the LT real GDP growth and steel consumption growth, a measure of the economic maturity of the region and a LT guide for future demand
6 Source : Steel Statistical Yearbook, IISI, Laplace Conseil analysis LONDON METAL EXCHANGE
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The steel industry sharply reacts to global events. Russia and China currently hold the key. Global Macro-Economic Scenarii
Strong
Russia and Ukraine’s recovery and export capability Weak
Global over capacity and price war
OECD by-passed; moderately high prices
OECD dumping ground; low prices
Good times for OECD industry
Weak
High
China’s and SEA economic growth and import needs 7 LONDON METAL EXCHANGE
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The main factor explaining the upheaval is the customers’ increasing bargaining power. •
"Army, arsenal, shipyard, railways and mines orders represent three quarters of our steel shipments." (Administrator, circa 1950)
• •
"Steel is not sold, it is bought." (Sales Manager, circa 1974) "Our industry is threatened by developing countries." (Minister, circa 1980)
•
"We must produce what we can sell and not the reverse". (New CEO, circa 1986)
•
"We are going to buy all of our steel on a worldwide basis." (Automotive buyer, circa 1997)
•
"This year, steel sales on internet have risen tenfold.” (e-distributor, circa 1999)
•
“I favour more transparent market price so as to better reverse engineer our suppliers costs for their additional products and services” (Auto manufacturer circa 2003)
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Consumption per capita shows extremely wide fluctuations and offers large growth prospects Crude steel consumption per capita (kg/hab) 1000
800
600
400
200
South Korea
Japan
UE
USA
Mexico
CE
China
Turkey
Middle East
CIS
South Rest of America Asia
Africa
Source : Steel Statistical Yearbook, IISI
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In the last 20 years, the net increase in world consumption was mostly attributable to China Evolution of world steel consumption China
800
China + 460% Japan, Korea & ROA
600
Africa & ME South America
Market Economies
400
+ 42%
North America 200
WE +Turkey
Former centrally planned economies - 68% 1980
Central Europe USSR
2001
Source : Steel Statistical Yearbook, IISI, Laplace Conseil analysis
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Steel trade has increased dramatically over the last 50 years Evolution of steel production and exports 900 800
Millions of Tons
700 600 500
36 % exported
PRODUCTION
400 300 200 11% exported
100 0 1950
1955
320 Mt
EXPORT
1960
1965
1970
1975
1980
1985
1990
1995
2000
Source : Steel Statistical Yearbook, IISI, Laplace Conseil analysis
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Of the 300 Mt of world steel trade, over 20% represents recurrent regional imbalances Balance of trade in 1998 Russia & Ukraine
and in 2000
43 Mt
49 Mt
6 Mt
11 Mt
Central Europe EU15+Other West. Eur. +Turkey Latin America
3 Mt
Total imbalance (70 Mt)
8 Mt
Total imbalance (65 Mt)
Export without corresponding import
20 Mt
North America
6 Mt
26 Mt
Africa + Middle East Asia + Oceania
2 Mt
13 Mt
34 Mt
9 Mt
13 Mt 12 Mt
15 Mt
Source : Steel Statistical Yearbook, IISI, Laplace Conseil analysis
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LONDON METAL EXCHANGE
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Steel production is now shared between 5 major trading blocks which account for 85 % of volume Breakdown of World Steel Production (100% = 904 Mt) South America (6 %)
Africa & ME (3 %)
Europe incl. Turkey (23 %)
Rest of Asia & Oceania (8 %)
Russia & Ukraine* (11 %) China (20 %)
North America (12%)
* Plus Byelorussia and Moldavia
Japan & Korea (17 %)
Source : Steel Statistical Yearbook, IISI, Laplace Conseil 13 analysis
LONDON METAL EXCHANGE
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In the past, many steelmaker's strategic horizon was far too short Deregulation
Global Market Berlin Wall
International Market Oil Shocks
Continental Market National Market
Continental Steelmaker
National National Steelmaker Steelmaker
80s
Ispat and arguably Tenaris are the only steel companies with a global presence Arcelor, Riva and a few others are the only steelmakers significantly present in more than one country
Regional Steelmaker
70s
International Steelmaker
90s 14
2000 LONDON METAL EXCHANGE
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The top ten leaders had a share of the open market of 40% in 1973 and have lost share until 1993. Market share of the leaders in 1972 and in 2002 (%) 40
30
Market share of the leaders in the open market* in 1972 and in 2002 (%)
Top 10 in 2002 40
20
Top 10 in 1972 10
72 74 76 78 80 82 84 86 88 90 92
30
94 96 98 00 02e
Top 10 in 2002 20
since 1976 * China India since 1987 Comecon since 1990 South Africa since 1994 without PR Korea
Top 10 in 1972
10
72 74
76 78
80 82
84 86 88
90 92 94
96 98
00
02
Source : Steel Statistical Yearbook, IISI, Laplace Conseil analysis
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The consolidation of the world steel industry only started ten years ago Evolution of the crude steel production of the 2003 Leaders (Mt) 250
200
Arcelor
44
Ispat
35
Nippon
30
JFE
29
Posco
28
Baosteel
20
150
100
USS+Nat 19
50
0 1972
Corus TKS Riva 1976
1980
1984
1988
1992
1996
17 16 15
2000
Source : Steel Statistical Yearbook, IISI, Laplace Conseil analysis
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In 8 years time, the cumulative production of the top ten steel leaders may reach 400 millions tonnes Cumulative production top 10 steel companies (MMT)
50% market share
400
In eight years time, the average size of the leaders might be around 40 MMT, up from 25 MMT in 2003 .
03
300 99
200 96
87 100
1980
1990
2000
2010
Source : Laplace Conseil estimates
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But in 2002, it took the 40 largest steel companies to reach 50% of the world production
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Cumulative Crude steel production in 2002 900
800
700
600
Top 80 = 67%
500
Top 40 = 51%
400
300
Top 10 = 25%
200
100
0
10
20
30
40
50
60
70
80
90
> 800
Producers ranked in decreasing order of production Source : IISI
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Steel is used in most industrial sectors of the economy. Breakdown of steel consumption by sector in Europe Shipyards
Others
Appliances
Metal products
First processing
Structural steelwork Construction
Mechanical engineering
Automotive Tubes Source : Eurofer
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The relative importance of steel in the final product varies, defining market segments Share of steel in total product cost (%)
Illustrative
Barrels (Metal products) Wire applications (Metal products) Pipe-lines (Tubes) Construction (beams) Pressure vessels (Structural) Packaging (other) Construction (flat) Mechanical parts Appliances Automotive 20
40
60
80
Source : Laplace Conseil estimates
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The industry has renewed its technology with growing importance of recycling and continuous processes Crude steel production by process (Mt)
Share of continuously cast production (%)
100
900
Scrap based Electric Arc Furnace 80
700
Ingots
Scrap based Electric Arc Furnace 60
500
Iron ore based Basic Oxygen Furnace Iron ore based Basic Oxygen Furnace
40
300 20 100
Other processes Slabs, blooms, billets
Obsolete processes 70
74
78
82
86
90
94
98
70
02
74
78
82
86
90
94
98
02
Source : Steel Statistical Yearbook, IISI, Laplace Conseil analysis
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Several process routes increasingly coexist with varying de-integration and trade of semis Traditional integrated Steel maker
De-integrated upstream Steel maker
De-integrated downstream Steel maker
Arcelor, NSC, USS
(CST, few others)
(Farrel, few others)
Buy iron ore & coal
Buy coke & pellets*
Buy slabs or hot coil or cold coil
Sinter +coke Blast furnace Liquid steel Thick slab casting Hot rolling Cold rolling Coating Finishing Service centre Sell To end users
Blast furnace Liquid steel Thick slab casting (and/or hot rolling)
Sell Slabs or hot coil
Hot rolling Cold rolling Coating
Modern Minimill Steel maker (Nucor)
Future Minimill (not yet commer-cially proven)
Buy scrap & DRI
Buy scrap & DRI
EAF Thin slab+HRC
EAF Thin strip
Cold rolling Coating Finishing
Continuous Cold roll & Coat. Finishing
Sell Sell Sell Conversion to SSC To Service Centres To Service Centres
* Depending on location, one can keep one or two of 22these steps
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Overlapping roles among steel participants Smelting steel making casting iron ore crude steel semis
hot rolling cold rolling flat & long drawing
coating Zn, Sn
cutting slitting
shaping welding
distributing packaging
incorporating assembling
BOF Integrated mill*
Steel makers
EAF Minimill** Semi producer
Re-roller Steel service centres Processor
Primary transformers and distributors
Stockists, distributors
(Mill owned or independents)
Merchant, traders * Ownership of iron ore mines, coal mine still exists but is diminishing ** Some ownership of scrap processor and DRI production plants
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Tiny, small, medium and large
End users
LONDON METAL EXCHANGE
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The share of the production that is traded at arm's length is growing Traded production
Share 2002
• • • • • • • • • • • •
• • • • • • • • • • • •
Iron ore Coal Coke DRI Scrap Slab Billet Hot coil Cold coil Coated sheets Long products Service centres
60 % 70 % 10% 20 % 90 % 2% 8% 35 % 30 % 80 % 90% 50% 24
Share 2010 • 85 % • 80 % • 30 % • 40 % • 95 % • 20 % • 20% • 45 % • 45 % • 90 % • 95 % LONDON METAL EXCHANGE
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A simplified description of the steel community
Turnover : 160 Billion US$ worldwide (iron ore and coking coal 53 BUS$)
Structural steelwork Transport 30 BUS$
Integrated Sector : 165 companies 207 plants; 733 BOF's + 211 OHF 774 Mt crude capacity; 550 Mt production
Independent Transformers VA : 30 B US$ Rerollers Tube makers Wire drawers …
Others
Traders 2 BUS$
Turnover : 65 Billion US$ worldwide (Scrap purchase 35 BUS$)
Service Centres VA : 20 BUS$
Minimill Sector : 650 companies; 882 plants; 2198 EAF's; 537 Mt crude nameplate capacity; 350 Mt Production
Construction Tubes Metal products Mechanical engineering
Top 10 companies : 26 % Top 20 : 37 % Top 100 : 75 %
Appliances Automotive
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Worldwide, the shipment tonnage of long and flat products are fairly similar. Shipment of flat products 100% = 383 MT
Shipment of long products 100% = 362 Mt
Tin plate
Seamless tubes
Rails
Heavy plates
Welded tubes
Sections Rebars
Galvanized steel
Hot rolled coils Merch bars Wire rods
cold rolled coils
Source : IISI, J. King, Laplace Conseil analysis
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However the flat products unit values are higher than long Indicative flat product prices ($/t)
Indicative long product prices ($/t)
500
500
400
400
300
300
200
200
100
100
Hot Welded Heavy Cold Galva rolled tubes plates rolled steel
Tin Flats Shipments plate
Market value : 140 B$
Longs Seamless Rails Beams Shipments tubes
Wire Merchant Rebars rods bars
Market Value : 100 B$ 27 LONDON METAL EXCHANGE
