India will be Foremost in 2nd League of Big Players: worldsteel

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Edwin Basson, World Steel Association (worldsteel) Director General, emphasises worldsteel’s position is that free and fair competition should determine the dynamics of the steel industry. In other words, market-oriented approaches should ensure survival of the fittest and inefficient producers should not be subsidised to remain in operation. Basson has years of experience in the steel industry. After a few years in banking, he joined the steel industry in 1994 as Chief Economist at Iscor Ltd in South Africa. In 1996, he became the Business Unit Manager for coated steel products and flat steel products and later headed Strategic Initiatives at the company. Basson was transferred to Europe when Iscor became a part of Mittal Steel (now ArcelorMittal) in 2004 as a General Manager responsible for Marketing Strategy and was part of the M&A team in Mittal Steel. From 2006 until he joined worldsteel, he was Vice-President, Commercial Co-ordination, Marketing and Trade Policy, at ArcelorMittal.
He joined the World Steel Association in August 2011 as Director General. Steel360 caught up with the man of steel:

Edwin Basson, Director General, World Steel Association (worldsteel)

Q. Things had looked better around two years back, when steel players had seen good profits riding strong demand and slowing exports from China. How would you consider the scenario now?
A. Both production of and demand for steel continue to grow. In addition to this, there are many reasons to be positive about – how collective efforts are showing that the industry is capable of dealing with the challenges it faces. For example, many countries have made impressive efforts in mitigating the global problem of excess capacity. You mention China and, indeed, in addition to the roughly 150 million tonnes (MnT) of capacity that the Chinese government has closed since 2016 as part of its 13th Five-Year Plan, it has also closed just under that amount in induction furnace capacity that did not meet regulatory standards.
A statement from the OECD Steel Committee earlier this year put 2018’s excess capacity at 425.5 MnT, significantly down from the figure of 737 MnT that the G20 Global Forum on Steel Excess Capacity had used just the year before. So there is much to be positive about in the current scenario.

Q. There has been sabre rattling between the US and China yet again. That apart, the USA has brought fresh sanctions on Iran. Steel, no doubt, will continue to be traded but what will the additional costs be?
A. Of course, both the global economy in general and the steel industry specifically face risks at the moment, but I think that while the recent tariffs and other trade defences will make trading in steel more cumbersome and expensive, and may have an impact on trade flows between certain countries, they will have a relatively minor impact on steel trade in the long term.
worldsteel’s position is that free and fair competition should determine the dynamics of the industry. This means that market-oriented approaches should ensure survival of the fittest producers; inefficient producers should not be subsidised to remain in operation. It also means that there should be a level playing field between producers. Long-term sustainable producers have to meet environmental, financial and social expectations.

Q. The last time we met, you had said that in previous periods of trade tensions over the last 20-25 years, one out of every three tonnes of steel produced had been traded internationally. Could you elaborate a bit on that?
A. In 1975, exports of finished and semi-finished steel products stood at 114.7 MnT, 22.6% of that year’s global steel production of 506.9 MnT. Last year, exports were 457.1 MnT, 27.1% of 575.6 MnT, so the total amount of steel being traded today is not too far away from the post-war historic average of 33% of crude steel output, which I think further supports my view that the current trade tensions are not irreparably damaging international steel trade.

Q. What has been the average global growth in steel usage over say the past couple of years?
A. The closure of the around 140 MnT of induction furnace capacity in China, that I mentioned earlier, has had the effect of skewing our Short Range Outlook (SRO) figures in recent years somewhat. It has meant that around 70 MnT of demand that was previously satisfied by the informal sector is now being counted in official government statistics. As such, we have had nominal figures for global growth in steel demand as higher than 5.0% in recent SROs, and the nominal figure for China has been higher than 8.0%. In real terms, global growth in steel use has averaged out at around 2.0%.

Q. Worldsteel’s SRO denotes that global steel demand will reach 1,735 MnT in 2019, an increase of 1.3% over 2018. In 2020, demand is projected to grow by 1.0% to reach 1,752 MnT. Which means the global consumption growth rate is slowing down. What factors are influencing this slowdown?
A. As we know, the world economy is slowing and this will impact on global steel use. China has a preponderance of influence in the steel industry and the deceleration of growth, particularly growth from government-led investment in infrastructure, is the most immediate reason for the levelling out of steel demand. In 2020, we foresee a slight contraction of 1.0% in Chinese steel demand, which equates to about 9 MnT of finished steel.

Q. How is steel consumption likely to behave beyond 2019? And what factors could influence this movement?
A. We predict that growth in global steel demand will be at 1.0% in 2020. This will be offset by India, the star in growth in steel demand for the foreseeable future, as the wide range of continuing infrastructure projects will see increases in steel demand of above 7% in both this year and next year.

Q. To satisfy this demand of 1,752 MnT of finished steel in 2020, how much of crude steel volume would be needed by this time frame?
A. Generally speaking, if you produce 1 MnT of crude steel then about 920,000 tonnes will end up in finished steel products after accounting for yield losses. You would need around 1,892 MnT of crude steel to meet finished steel demand of 1,752 MnT.

Q. The global automotive demand slowdown, started from 2018, is continuing into 2019. What kind of an impact will that have on global steel demand?
A. You are right to say that there was a sharp slowdown in the automotive sector in 2018, with the largest declines being in Turkey (-9.0%) and the UK (-5.5%). However, it is important to note that globally this was a deceleration rather than an actual contraction; global automotive production growth slowed to 2.2% in 2018, down from 4.9% in 2017. A 1% growth is expected this year. The automotive market accounts for about 12% of steel demand, making it the third-largest user of steel after the construction and mechanical equipment sectors, which account for 51% and 15% of global steel use respectively. As such, any slowdown in the automotive market will have an important, but not critical, impact on overall steel demand.

Q. The SRO shows that from -3.9% growth in ‘Other Europe’ in 2019, there is likely to be a turnaround to +6.5% growth in 2020. What would you attribute this positive outlook to? Also, which countries comprise ‘Other Europe’?
A. Other Europe is comprised of those European countries that are not in the European Union – Iceland, Norway, Switzerland, the Balkans and Turkey. The UK will be in this category when (if?) Brexit reaches its conclusion. The 6.5% figure is largely attributable to improvements in the Turkish economy. Turkey is the world’s eighth largest producer and user of steel and we foresee steel demand growing by 8.0% there in 2020.

Q. Where does India stand in this consumption matrix? Many say demand will soften to 7% for the next two years against 7.5% seen in the 2018-19 financial year? What is your take on this?
A. My observation is that although the figure for Indian growth is impressive, India’s steel geography is very uneven; the use of steel in Uttarakhand is many times higher than that of Bihar, for instance. Going forward, I expect to see planned infrastructure projects connecting industrial cities, which will have the effect of boosting steel demand in places where it is already comparatively high. The same is true of places like Haryana, Maharashtra and Tamil Nadu, which are automotive hubs. I expect this inequality in steel demand to persist for the foreseeable future.

Q. With steel demand in China flattening and contracting, is India likely to play a more dominant role in recouping global demand for steel?
A. According to our forecasts, India is set to overtake the United States as the world’s second largest user of steel this year. Given India’s huge population, this is welcome, but it is important to remember that Indian growth in steel demand is from a very low base. Last year, India’s apparent steel use per capita stood at 71 kg, well below the global average of 225 kg. China’s was well over 500kg.
Also, it is important to remember that India’s growth model is very different from China’s; it is less controlled by a central government and it is more service-orientated. For this reason, any comparison between steel demand growth in India and the growth we saw in China over the past two decades is hyperbolic; any talk of India being ‘the new China’ especially so. China will remain in a league of its own in terms of production and use, but India will be foremost in a second league of big players that includes the United States, Japan, South Korea and others for the foreseeable future.

Q. You have been a strong advocate of the “circular economy” in steel. Please elaborate on the concept
A. A sustainable circular economy is one in which society reduces the burden on nature by ensuring resources remain in use for as long as possible. Once the maximum value has been extracted, the resources are then recovered and reused, remanufactured, or recycled to create new products.
The inherent chemical composition of steel makes it fundamental to a circular economy; it is 100% and infinitely recyclable without any loss of strength or other properties. Steel products can be easily remanufactured, restoring used products like automotive engines or wind turbines to like-new condition.
Steel’s durability means many products can be reused at the end of their first life. Reusing a steel product extends its product lifecycle and, therefore, conserves resources.

Q. To what extent has this circularisation taken place in the global economy? Is this also one of the reasons that global demand is slowing down, since circularisation entails taking demand forward or delayed demand potential?
A. This is a very good question. With new lighter and stronger grades of steel being designed all the time, the industry needs less steel to do the same things, which enhances steel’s already notable sustainability credentials, but does have the effect of slowing demand for new steel.
To give an example from construction, in 1937, 80,000 tonnes of steel were needed to make the Golden Gate Bridge, in San Francisco. Today, half that amount would be required!

Q. At the same time, steel usage intensity is coming down… So what should be the blueprint as a way forward for the steel industry?
A. We have extremely interesting data on this question. During the post-war period there has been a consistent pattern demonstrating that when global GDP rises, steel demand growth overshoots it and that when global GDP falls, steel demand growth decelerates much faster, i.e., the steel business cycle follows the GDP, but with higher peaks and lower troughs.
However, from around 2014, for the first time, global GDP has been increasing as demand for steel has been levelling off, meaning, as you rightly say, that the intensity of this is probably the first manifestation of evidence for the effect of circularisation taking place.
This is a new dynamic in the steel industry that, like all new dynamics, has its opportunities and challenges. Whatever this may mean for the future, we are sure to see the steel industry innovating accordingly.