Global Economy on a cyclical upturn; Steel demand to be same


Despite beginning the year in good shape, the global steel industry is starting to experience similar situation as in 2017. According to wsa global growth momentum will strengthen and is on a broader footing . There a steady China re-acceleration and recovery in developing economies. Expecting moderate rebound in oil prices, contained inflation and as a whole it is the most benign global economic environment since the financial crisis.
In an exclusive interview with Steel 360, Edwin Basson, Director General,worldsteel talks about expected future and demand of steel and also restructuring in the Chinese steel sector which may have a short term impact on the statistics and also about digitalisation and Industry 4.0 which will have huge implications for the steel industry in all aspects in coming years to come.

Edwin joined worldsteel in August 2011 as Director General, PhD in economics from Pretoria University; he joined the steel industry in 1994 as Chief Economist at Iscor Ltd. in South Africa. 2004 as a General Manager responsible for Marketing Strategy and was part of the Merger & Acquisition team in Mittal steel. From 2006 he was Vice President, Commercial Co-ordination, Marketing and Trade Policy at ArcelorMittal.

How do you see rising crude steel production of major countries like China, Japan India from 1-2 years down the line?

Worldsteel does not make any forecasts for future steel production, but a glance at our historic data shows us what the trend in production has been over the past decade in these three countries. Chinese production increased by 65% between 2007 and 2016. Japanese production decreased by 13% over the same period, but it has retained its position as the world’s second largest producer of steel. In 2007 India produced 53.5 Mt of crude steel, making it the fifth largest steel producing country in the world at that point. It produced 101.4 Mt in 2017, an increase of approximately 89.5%. During this period it overtook Russia and the United States to become the third largest steel producing country in the world.As such, if current trends continue, India is likely to become the second largest steel producing country in the world in the near future. worldsteel remains confident that India will experience growth in the demand for steel in the years ahead as the Indian economy continues to expand.

How has scrap consumption increased in China in CY17?

China has been importing approximately 2 Mt of scrap in recent years and has been exporting very little, but in 2017 its exports of scrap surged to 2.3 Mt. China closed most of its outdated induction furnaces (which use 100% steel scrap as inputs) last year, which largely accounts for this increase. Nevertheless, this surge in scrap exports has triggered a debate as to whether China should invest in more electric arc furnace (EAF) capacity to make use of its increasing supply of domestic scrap. Today the EAF production route accounts for 6.5% of China’s steel production, far lower than the global average of 45%. However, the Chinese economy is reaching the point where more scrap should be generated in the years ahead, and this change should influence decisions on future technologies used in China.

It is understood the global steel industry will see a slower growth even though the overall production is exceptionally higher. How does worldsteel see this situation for the year 2018?

We do not make production forecasts at worldsteel, but we do publish two Short Range Outlooks (SROs) for global steel demand per year, one in April and one in October. The latest SRO predicted a 1.6% year-on-year increase in 2018, which would bring global demand to 1,648 Mt. This is welcome, but I should point out that this increase reflects a cyclical upturn in the global economy in general rather than being the result of any structural factors. We foresee an increase in demand in every region except China, whose demand will remain the same in 2018 as it was in 2017. We foresee an increase of 5.7% in Indian steel demand, which brings the total to 92.1 Mt. The strong growth in production between 2016 and 2017, has much to do with restructuring in the Chinese steel sector and may have a short term impact on the statistics.

How do you see the steel demand from the development and the developing economic?

We predict developed economies will see an increase in steel demand of 0.9% in 2018 for several reasons: the US economy continues to demonstrate robust fundamentals, rising business confidence and strong consumer spending; Japanese steel demand is benefiting from the government’s stimulus package; the EU economic recovery is broadening and political uncertainty is receding. The South Korean economy faces a number of challenges, but we foresee a modest increase of 0.4% in steel demand nevertheless.
Developing economies excluding China are likely to see a robust 4.9% increase in steel demand. Government reforms in India such as the introduction of a nationwide goods and services tax are expected to bring about a better investment environment that will likelyencourage growth in the coming years. ASEAN remains a high growth region, especially Vietnam and the Philippines. Turkish steel demand is likely to increase by an impressive 6.0%. However, the MENA region continues to suffer from low oil prices, political conflict and high inflation. Latin America has been slow to benefit from the recovery in the global economy.

The steel demand in China is heightens, how do you see as this changing scenario affecting global steel?

In fact, the apparently strong growth in demand in China is the result of restructuring of the industry and that has shifted demand into the formal sector. In the medium term there are a number of structural factors in the steel industry globally that are likely to have a greater long-term impact on steel demand than any political or economic developments of a particular country, even China. One of these is the impact of the circular economy i.e. an economy which reduces the burden on the natural world by ensuring resources remain is use for as long as possible. The reuse and remanufacture of steel is expected to increase the life of steel-containing goods. This, coupled with the fact that the steel industry is continuously producing lighter and stronger grades of steel means that the same applications can be produced with a smaller volume of steel. As such, as an industry it is likely that we will need to deal with slower demand growth for steel on a continuous basis.

How do you foresee the dubious situation of China’s steel demand & production in coming CY18 -19?

Again, I make no comment on Chinese production here, but China’s steel demand is expected to remain flat in 2018. worldsteel will reassess the demand situation in China and elsewhere up to the end of 2019 in April of this year.

How do you reflect on “Technology & sustainability will play key roles for the steel industry in the coming years”?

Digitalisation and Industry 4.0 have huge implications for the steel industry in all aspects, not least safety and health. Being able to better measure variables in the production process and adjust to it quickly, will improve the quality of production and the quality of the product. Automation will support measures to make the industry even safer. We are optimistic that changes in technology will support the steel industry of the future.

Steel remains an exceptional product In terms of sustainability. The fact that steel is 100% and infinitely recyclable makes it the foundation of a sustainable economy. However, with intense competition from other materials, the industry will need to continue working to convince its customers and society at large that steel isenvironmentally competitive. The industry is making great progress in reducing its energy use and carbon emissions per tonne of steel produced. Research into revolutionary steelmaking techniques that will reduce future CO2 emissions continues. The industry will continue to deliver sustainable steel products that will be used in sustainable applications to support modern society and its future development.