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Global Steel Industry Trends: Is the perception the reality? - - PowerPoint PPT Presentation
Global Steel Industry Trends: Is the perception the reality? - - PowerPoint PPT Presentation
18 th May 2004 Global Steel Industry Trends: Is the perception the reality? Investors have perceived the steel industry negatively Poor returns over the long term, high volatility, relatively small size and constrained liquidity has moved
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Structural issues have caused poor steel industry returns
Low demand growth Fragmented industry High fixed & capital costs Political industry Historical Industry Performance
Overcapacity Long term price decline Full utilisation, marginal pricing Price volatility Poor returns
Capacity creep Concentrated Suppliers High exit costs Global auto customers
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However, recent dramatic rises in global steel prices may suggest structural improvement
60 80 100 120 140 160
Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04
Global Flat Products Long Products
CRU Global Steel Price Index
(Index April 1994 = 100)
Source: CRU International
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What is changing?
Global economic growth – synchronised Global steel demand, especially China Supply/demand gap in China Industry behaviour in OECD/privatisations Input costs Different pattern for capacity additions
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Strong global economic growth outlook
Real Global GDP % Growth
0% 1% 2% 3% 4% 5%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2010
Forecast
Source: Consensus Economics, IISI
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Likely to be synchronised growth in OECD
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- 6
- 3
3 6 9 12 15
Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04
US Europe Japan
OECD Leading Indicators
6 Month Annualised % Change
Source: OECD
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Also, strong growth in large emerging economies
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- 4
- 2
2 4 6 8 10 12
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
China India Russia Brazil
Forecast
GDP % Growth - Emerging Economies
Source: Consensus Economics, IISI
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Australia performing strongly – including steel using sectors
0% 4% 8% 12% 16% 20%
90 92 94 96 98 '00 '02 '04 '06
90 Day Bank Bills CPI Unemployment Rate
Real Interest Rates
Forecast
Inflation, Interest Rates & Unemployment (%, pa)
0% 1% 2% 3% 4% 5% 6% 90 92 94 96 98 '00 '02 '04 '06
Forecast
Australian GDP Growth (%, pa)
Source: BIS Shrapnel, Access Economics 10 20 30 40 90 92 94 96 98 '00 '02 '04 '06
Construction Value (Constant A$bn)
Residential Engineering
Non-Residential
4 8 12 16
90 92 94 96 98 '00 '02 '04 '06
Manufacturing
Mining
Agriculture
Forecast Forecast
Sectoral Investment (Constant A$bn)
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Global steel demand growing strongly – largely driven by China
87 101 103 111 123 124 153 186 233 275 295 315 385 563 558 595 571 576 623 601 619 631 654 668 672 705 650 659 698 681 699 748 755 805 864 929 963 987 1,090 200 400 600 800 1,000 1,200 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2010
China ROW World
Forecast
Global Steel Demand – IISI Base Case
(million tonnes)
By 2010, China may be 35% of global demand, vs 27% in 2003
Source: IISI
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Has the steel industry returned to the demand growth seen before the 1973 oil crash?
World Steel Consumption by Region
(million tonnes crude steel)
Forecast
1,200
China
1,000 800
Japan Other Asia
600
West Europe
400
East Europe Ex Soviet Oceania, Mid East, Africa
200
Canada USA
1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Source : Macquarie Bank, ‘The Steel, Iron Ore & Coal Outlook’, Jan 04
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There is currently a large Supply / Demand gap in China
“Let China sleep, for when she wakes she will shake the world” - Napoleon
8 12 14 14 20 29
4 3 2 4 4 9
1998 1999 2000 2001 2002 2003
Flat Products Long Products
Total Chinese Steel Imports
(million tonnes)
12 38 24 18 16 15
Source : Macquarie Bank, ‘The Steel, Iron Ore & Coal Outlook’, Jan 04
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China is experiencing massive capacity growth
Estimated Chinese Industry Capacity Expansion from 2002 vs 2006
(million tonnes)
167 195 58 12 230 267 108 38
Ironmaking Steelmaking Hot Strip Mills Cold Rolling Mills
2002 2006
63 68 45 26
Source: HB Advisors/Rothschild, ‘China – Should We Be Scared?’, Feb 04, World Steel Dynamics
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Consolidation in OECD
Production Share of Top 3 Steelmakers in Each Region
(%, 1998 vs 2003)
Japan
‘98 ‘03 49% 64%
JFE, NSC, Sumitomo
EU
‘98 ‘03 31% 50%
Arcelor, LNM, Corus
US
‘98 ‘03 33% 55%
USS, ISG, Nucor
Source : POSCO, ‘POSCO Growth & Innovation, Jan 04
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Input costs are rising - Scrap
US #1 Heavy Melting Scrap (US$/ mt)
90 91 92 93 94 95 96 97 98 99 00 01 02 03 60 80 100 120 140 160 180 200 220 240
Source: Datastream
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Input costs are rising – Steelmaking raw materials
Source : ANZ Bank ‘Resources Market Outlook’, Mar 04, Tex Report
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Increased Chinese demand is causing rise in input costs. Currently no excess seaborne iron ore capacity Seaborne Iron Ore Demand Vs Theoretical Capacity
(million tonnes) 100 200 300 400 500 600 700
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2010
Others China Japan EU Forecast
Theoretical capacity
DEMAND
Source: IISI
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Shipping costs have risen dramatically: Global fleet cannot meet demand – exacerbated by port congestion
64 72 77 82 81 82 87 90 93 1995 1996 1997 1998 1999 2000 2001 2002 2003
Capesize Fleet Capacity (Million DWT) Shipping rates (Index)
2,000 4,000 6,000 8,000
Jan- 95 Mar- 96 May- 97 Jul-98 Oct- 99 Dec- 00 Feb- 02 May- 03 BDI Index BCI Index
Port Congestion Index – Aust Coal Ports
16
SSY Coal Port Congestion Index
12 8 4
Jan-02 Jan-03 Jan-04 Sep-02 Sep-03 May-02 May-03
BDI – Baltic Dry Index, BCI – Baltic Cape Index Source: IISI, Baltic Dry Index, SSY
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Other raw material costs also increasing
Source: Datastream
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What is changing?
Global economic growth – synchronised Global steel demand, especially China Supply/demand gap in China Industry behaviour in OECD/privatisations Input costs Different pattern for capacity additions
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