The global steel industry in 2005 - - The opportunities The - - PowerPoint PPT Presentation

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The global steel industry in 2005 - - The opportunities The - - PowerPoint PPT Presentation

Nov 05, 2022 383 likes •734 views

The global steel industry in 2005 - - The opportunities The opportunities The global steel industry in 2005 and threats existing for U.S. pipe manufacturers and threats existing for U.S. pipe manufacturers 2005 NAPCA Convention 2005 NAPCA

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The global steel industry in 2005 The global steel industry in 2005 -

  • The opportunities

The opportunities and threats existing for U.S. pipe manufacturers and threats existing for U.S. pipe manufacturers

2005 NAPCA Convention 2005 NAPCA Convention The Registry Resort & Club, Naples, Florida The Registry Resort & Club, Naples, Florida

  • Dr. James
  • Dr. James Ley

Ley, Metals Analyst , Metals Analyst

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SLIDE 2

Presentation overview Presentation overview

  • Overview of the global steel industry
  • The China factor
  • How has this contributed to steel prices in the

USA?

  • Price forecasts for steel products through 2005
  • Outlook for US steel pipe manufacturers
  • Conclusions

NAPCA 2005 NAPCA 2005

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SLIDE 3

Steel production rapidly accelerates in 2004... Steel production rapidly accelerates in 2004...

5 10 15 20 25 30 Jan-95 Nov-95 Sep-96 Jul-97 May-98 Mar-99 Jan-00 Nov-00 Sep-01 Jul-02 May-03 Mar-04 Jan-05 EU (15) (m tonnes) Japan (m tonnes) China (m tonnes) USA (m tonnes)

Source: IISI, MBR

Chinese steel production now three times the levels in the USA US steel production increased by just under 8% year-on-year in 2004

NAPCA 2005 NAPCA 2005

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SLIDE 4

… …as has consumption, noticeably in China... as has consumption, noticeably in China...

50 100 150 200 250 300 350 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 EU (15) (m tonnes) China (m tonnes) Japan (m tonnes) USA (m tonnes) Chinese steel consumption grew at 25% in 2003, and 24% in 2004 US steel consumption picked up impressively in 2004, rising by 16% year-on- year

Source; JISF, AISI, IISI, MBR

NAPCA 2005 NAPCA 2005

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SLIDE 5

50 100 150 200 250 300 350 400 450 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005f 2006f 2007f 2008f 2009f 2010f

Source: custom statistics, MBR estimates

Forecast

Million tonnes Chinese demand overtook Japan and represented 10% of the global market Chinese demand surpassed both the EU and US China accounts for 25% of global steel demand, more than the rest of Asia combined China could account for 40% of global steel demand

… …on current growth China could account for

  • n current growth China could account for

40% of global steel demand by 2010 ... 40% of global steel demand by 2010 ...

NAPCA 2005 NAPCA 2005

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5 10 15 20 25 30 Jan 03 Feb 03 Mar 03 Apr 03 May 03 Jun 03 Jul 03 Aug 03 Sep 03 Oct 03 Nov 03 Dec 03 Jan 04 Feb 04 Mar 04 Apr 04 May 04 Jun 04 Jul 04 Aug 04 Sep 04 Oct 04 Nov 04 Dec 04 500 1000 1500 2000 2500 3000 3500 (LHS) Chinese steel production (m tonnes) (RHS) Flat imports ('000 tonnes) (RHS) Long products imports ('000 tonnes)

Source: custom statistics, MBR

...imports have fallen in 2004 but China still ...imports have fallen in 2004 but China still remains a major importer of flat rolled products remains a major importer of flat rolled products

NAPCA 2005 NAPCA 2005

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The China factor The China factor

  • Insufficient domestic steel capacity to satisfy demand

although production is increasing

  • Imports have been diverted from other markets to

China, tightening steel supply in 2003/4 in Europe, USA, SE Asia

  • Emerging over capacity is appearing in the long

products market

  • Commodity grade flat products - China is expected to

be a net exporter in 2005

  • Special grade flat steels - China remains a net

importer

NAPCA 2005 NAPCA 2005

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SLIDE 8

CIS countries are best positioned to supply CIS countries are best positioned to supply Chinese demand Chinese demand

  • 50

50

EU 15 Other Europe CIS NAFTA Central & South America S & E Asia Pacific Western Asia & Africa

Millions of tonnes 1993 2003 2004

Surplus

  • f

finished steel Deficit of finished steel

NAPCA 2005 NAPCA 2005

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SLIDE 9

Chinese demand has driven up global HR Chinese demand has driven up global HR prices... prices...

100 200 300 400 500 600 700 800 Jan 00 Apr 00 Jul 00 Oct 00 Jan 01 Apr 01 Jul 01 Oct 01 Jan 02 Apr 02 Jul 02 Oct 02 Jan 03 Apr 03 Jul 03 Oct 03 Jan 04 Apr 04 Jul 04 Oct 04 Jan 05 Apr 05 US-Midwest ($/ton) Japan domestic ($/ton) Germany domestic ($/ton)

Source: MBR

Prices accelerated

NAPCA 2005 NAPCA 2005

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… …and plate prices and plate prices

100 200 300 400 500 600 700 800 900 1000 Jan 00 Apr 00 Jul 00 Oct 00 Jan 01 Apr 01 Jul 01 Oct 01 Jan 02 Apr 02 Jul 02 Oct 02 Jan 03 Apr 03 Jul 03 Oct 03 Jan 04 Apr 04 Jul 04 Oct 04 Jan 05 Apr 05 US Midwest ($/ton) German domestic ($/ton) Japanese domestic ($/ton)

Source: MBR

Plate prices appeared to accelerate later than with HR coil

NAPCA 2005 NAPCA 2005

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SLIDE 11

What does this mean for the US steel What does this mean for the US steel industry

industry?

?

NAPCA 2005 NAPCA 2005

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Key drivers for US steel prices in early 2004 Key drivers for US steel prices in early 2004

  • Rising raw material costs, on the back of China
  • Improving US economy…
  • …leading to a rising demand for steel products
  • Imports re-directed from the USA to Asia
  • Increasing consolidation and production discipline,

giving fewer steel mills greater power in pricing

NAPCA 2005 NAPCA 2005

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SLIDE 13

Source: AISI, MBR

Mini mills have increased their share of US steel Mini mills have increased their share of US steel production in 2004 (‘000 tons) production in 2004 (‘000 tons)

3,000 3,500 4,000 4,500 5,000 5,500 6,000 Jan 00 Apr 00 Jul 00 Oct 00 Jan 01 Apr 01 Jul 01 Oct 01 Jan 02 Apr 02 Jul 02 Oct 02 Jan 03 Apr 03 Jul 03 Oct 03 Jan 04 Apr 04 Jul 04 Oct 04 Jan 05 EAF steel production BOF steel production

NAPCA 2005 NAPCA 2005

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Steel prices from mini mills have risen with increasing Steel prices from mini mills have risen with increasing raw material costs raw material costs -

  • US scrap prices soared in Q1 2004

US scrap prices soared in Q1 2004

200 400 600 800 1000 1200 Jan 02 Mar 02 May 02 Jul 02 Sep 02 Nov 02 Jan 03 Mar 03 May 03 Jul 03 Sep 03 Nov 03 Jan 04 Mar 04 May 04 Jul 04 Sep 04 Nov 04 50 100 150 200 250 300 (LHS) Total scrap exports ('000 tons) (RHS) US West Coast scrap export price ($/ton) (LHS) Exports to China ('000 tons) (LHS) Exports to South Korea ('000 tons)

China surpassed South Korea as the No 1 export market for US scrap

Source: custom statistics, MBR

NAPCA 2005 NAPCA 2005

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Mini mills look to alternative Mini mills look to alternative metallics metallics as scrap as scrap supply and imports fail to keep pace supply and imports fail to keep pace

10 20 30 40 50 60 70 80 2000 2001 2002 2003 2004 Home scrap Purchased scrap Imports Exports Consumption Source: USGS, MBR

NAPCA 2005 NAPCA 2005

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200 400 600 800 1000 1200 Jan 03 Feb 03 Mar 03 Apr 03 May 03 Jun 03 Jul 03 Aug 03 Sep 03 Oct 03 Nov 03 Dec 03 Jan 04 Feb 04 Mar 04 Apr 04 May 04 Jun 04 Jul 04 Aug 04 Sep 04 Oct 04 Nov 04 Dec 04 50 100 150 200 250 300 350 400 (LHS) Pig iron imports ('000 ton) (RHS) Gulf spot Pig Iron ($/ton)

Source: custom statistics, MBR

Demand for pig iron increases in 2004, compared Demand for pig iron increases in 2004, compared with import prices... with import prices...

NAPCA 2005 NAPCA 2005

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… …as well as HBI out of Venezuela as well as HBI out of Venezuela

50 100 150 200 250 300 350 400 Jan 03 Feb 03 Mar 03 Apr 03 May 03 Jun 03 Jul 03 Aug 03 Sep 03 Oct 03 Nov 03 Dec 03 Jan 04 Feb 04 Mar 04 Apr 04 May 04 Jun 04 Jul 04 Aug 04 Sep 04 Oct 04 Nov 04 Dec 04 50 100 150 200 250 300 350 400 (LHS) HBI imports ('000 tons) (RHS) HBI import prices ($/tons)

Source: custom statistics, MBR

NAPCA 2005 NAPCA 2005

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BOF mills have also incurred rising coke import BOF mills have also incurred rising coke import prices prices

50 100 150 200 250 300 350 May 03 Jun 03 Jul 03 Aug 03 Sep 03 Oct 03 Nov 03 Dec 03 Jan 04 Feb 04 Mar 04 Apr 04 May 04 Jun 04 Jul 04 Aug 04 Sep 04 Oct 04 Nov 04 Dec 04 50 100 150 200 250 300 350 400 450

(LHS) US imports of Chinese coke ('000 tons) (RHS) Chinese coke export prices ($/ton)

Source: custom statistics, MBR

NAPCA 2005 NAPCA 2005

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104 106 108 110 112 114 116 118 120 Jan 02 Mar 02 May 02 Jul 02 Sep 02 Nov 02 Jan 03 Mar 03 May 03 Jul 03 Sep 03 Nov 03 Jan 04 Mar 04 May 04 Jul 04 Sep 04 Nov 04 Jan 05

  • 0.04
  • 0.02

0.02 0.04 0.06 0.08 0.1 0.12 0.14 0.16 (LHS) US IP (1997 = 100) US construction spending index

End End-

  • use demand has picked up in the USA in

use demand has picked up in the USA in 2004 2004

Source: US Census Bureau, MBR

NAPCA 2005 NAPCA 2005

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Falling imports lend support for Q1 04 prices Falling imports lend support for Q1 04 prices (tons) (tons)

200 400 600 800 1000 1200 1400 1600 Jan 03 Feb 03 Mar 03 Apr 03 May 03 Jun 03 Jul 03 Aug 03 Sep 03 Oct 03 Nov 03 Dec 03 Jan 04 Feb 04 Mar 04 Apr 04 May 04 Jun 04 Jul 04 Aug 04 Sep 04 Oct 04 Nov 04 Dec 04 Flat steel imports Long product imports US imports of both flat and long steel remained low through H2 of 2003, and Q1 2004, tightening supply of steel in the domestic market Source: custom statistics, MBR

NAPCA 2005 NAPCA 2005

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The current situation The current situation

NAPCA 2005 NAPCA 2005

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The US market in 2005 The US market in 2005

  • Slowdown in Chinese prices in Q2 04, lead the US to

become the most attractive market for third country exports in H2 2004

  • 2004 - US imported more steel than China
  • Steel production levels have remained high until

now…

  • …leading to high inventories...
  • …and slowing prices
  • However, the weakening US dollar has led to a drop

in imports

NAPCA 2005 NAPCA 2005

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SLIDE 23

US inventories have soared... US inventories have soared...

1000 1500 2000 2500 3000 3500 4000 4500 5000 5500 Jan 03 Mar 03 May 03 Jul 03 Sep 03 Nov 03 Jan 04 Mar 04 May 04 Jul 04 Sep 04 Nov 04 13 14 15 16 17 (LHS) US imports of finished steel ('000 tons) (RHS) US service centre inventories (m tons)

Source: MSCI, custom statistics, MBR

US service centre inventories have fallen in Feb 05, down to 15.794 M tons

NAPCA 2005 NAPCA 2005

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… …but a weakening US dollar is also but a weakening US dollar is also deterring imports deterring imports

0.6 0.7 0.8 0.9 1 1.1 1.2 Jan 02 Mar 02 May 02 Jul 02 Sep 02 Nov 02 Jan 03 Mar 03 May 03 Jul 03 Sep 03 Nov 03 Jan 04 Mar 04 May 04 Jul 04 Sep 04 Nov 04 Jan 05 Mar 05 80 90 100 110 120 130 140

(LHS) € per $ (RHS) JPY per $

NAPCA 2005 NAPCA 2005

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Outlook for US pipe manufacturers Outlook for US pipe manufacturers

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HR coil prices should recover leading into the HR coil prices should recover leading into the summer, with plate prices firm until H2 2005 summer, with plate prices firm until H2 2005

400 450 500 550 600 650 700 750 800 850 Jan 05 Feb 05 Mar 05 Apr 05 May 05 Jun 05 Jul 05 Aug 05 Sep 05 Oct 05 Nov 05 Dec 05 Jan 06 Feb 06 HR coil Midwest ($/ton) Plate Midwest ($/ton) HR coil prices should recover as inventories fall, and demand picks up from the construction sector Although plate prices remain strong, they have not been immune to inventory build up Ispat Inland maintenance work at Indiana Harbour, and ISG's idling

  • f Cleveland Wests basic oxygen

furnace, should help to tighten supply

Forecast Forecast

NAPCA 2005 NAPCA 2005

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SLIDE 27

ERW linepipe manufacturers should continue to ERW linepipe manufacturers should continue to benefit from strong end benefit from strong end-

  • use demand

use demand

600 700 800 900 1000 1100 1200 1300 Jan 02 Mar 02 May 02 Jul 02 Sep 02 Nov 02 Jan 03 Mar 03 May 03 Jul 03 Sep 03 Nov 03 Jan 04 Mar 04 May 04 Jul 04 Sep 04 Nov 04 Jan 05 60 80 100 120 140 160 180 200 (LHS) US rig count (RHS) US linepipe and OCTG shipments ('000 tons) (RHS) Imports of OCTG and linepipe ('000 tons)

Source: Baker Hughes, AISI, MBR

NAPCA 2005 NAPCA 2005

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ERW imports have risen, but not as substantially as ERW imports have risen, but not as substantially as OCTG, China does not appear to be a threat yet OCTG, China does not appear to be a threat yet

5 10 15 20 25 30 35 Jan 03 Feb 03 Mar 03 Apr 03 May 03 Jun 03 Jul 03 Aug 03 Sep 03 Oct 03 Nov 03 Dec 03 Jan 04 Feb 04 Mar 04 Apr 04 May 04 Jun 04 Jul 04 Aug 04 Sep 04 Oct 04 Nov 04 Dec 04 2 4 6 8 10 12 14 16 (LHS) Total imports ('000 tons) (RHS) ERW imports from China ('000 tons) (RHS) ERW imports from South Korea ('000 tons) (RHS) ERW imports from Mexico (000 tons) Source: custom statistics, MBR

NAPCA 2005 NAPCA 2005

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HSS producers have also found increasing HSS producers have also found increasing competition from overseas, particularly from China competition from overseas, particularly from China

Source: custom statistics, MBR 2000 4000 6000 8000 10000 12000 14000 16000 18000 20000 Jan 03 Mar 03 May 03 Jul 03 Sep 03 Nov 03 Jan 04 Mar 04 May 04 Jul 04 Sep 04 Nov 04 Jan 05 Mexican exports to the USA (tons) South Korean exports to the USA (tons) Turkish exports into USA (tons) Chinese exports into the USA (tons)

NAPCA 2005 NAPCA 2005

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Opportunities and threats Opportunities and threats

  • In the short-term, ERW linepipe exports could increase

from South Korea and Taiwan

  • South Korea already sends around 50% of its exports

to the USA. A slowdown in demand in China could see this increase

  • However, currently we believe that South Koreans

can’t manufacture ERW linepipe from API grade X56- 65

  • In the long-term, increasing exports of ERW pipe from

China, could present a threat to US linepipe producers

NAPCA 2005 NAPCA 2005

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SLIDE 31

Opportunities and threats Opportunities and threats

  • So far, it is just commodity pipe material (HSS) from China

that has penetrated US market

  • It will take time before China develops API quality HR coil

and plate to suitable grades to export linepipe

  • Chinese mills have developed API X80 HR coil (Anshan)

and will soon have API X80 plate (Baosteel)- quality remains an issue

  • For the large-diameter DSAW linepipe market, potential

Russian safeguard measures could create problems…

  • …Japanese, German and Ukrainian producers could

become far more competitive in the US/Canadian markets impacting North American producers

NAPCA 2005 NAPCA 2005

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SLIDE 32

Conclusions Conclusions

  • Steel prices in the USA in 2004 were driven to high

levels on the back of surging global demand, and a strong US economy

  • Raw materials remain expensive in 2005, and this will

keep steel prices at a high price to historical levels

  • Inventories are high, but should fall with improving

demand in Q2 2005

  • US linepipe producers have been able to maintain

margins due to strong demand

  • Asia could become an increasing threat to the US

producers market

NAPCA 2005 NAPCA 2005

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Thank you very much for your time Thank you very much for your time if you have further questions please if you have further questions please do not hesitate to contact me do not hesitate to contact me

James James Ley Ley, Metals Analyst , Metals Analyst Metal Bulletin Research Metal Bulletin Research Tel: +44 (0) 20 7827 6474 Tel: +44 (0) 20 7827 6474 jley jley@ @metalbulletinresearch metalbulletinresearch.com .com