Indian Steel Exports to EU Grow

Much has been made of the meteoric rise of Chinese steelmaking over the past decade but as we have discussed before this peaked in 2014. There is another major Asian steel producer, believed to be the lowest cost major producer in the region, that has more than doubled crude steel production since 2005 and is continuing to grow, posting a record 95.6 million tonnes last year, a growth of 7% compared to the global growth rate which was just 1%.  After the record tonnage posted last year, in the first five months of 2017, Indian crude steel production grew by another 7%.  At this point in 2018, if the rate of growth stays the same, India will have overtaken Japan to become the second largest producer of steel in the world.

This growth in steel production has coincided with a decline in imports. At just under 10 million tonnes, imports are relatively modest for a country of this size and last year they collapsed by 25%.  This decline has continued into the first quarter of 2017 with Q1 imports declining by another 43% year on year with falls seen across most products.  There have been declines in supplies across most origin countries but Brazil and China seem to have been hardest hit.  Whilst China is still, just about, the largest supplier of steel to India, imports have decreased by 64% so far this year as anti-dumping legislation has taken effect.

Conversely there has been a huge increase in exports. Last year there was a 37% growth in exports and at 10.3 million tonnes, the country became a net steel exporter for the first time. So far this year, export growth has accelerated considerably and Q1 saw a 157% hike in exports to more than 5 million tonnes which, if maintained for the rest of the year, would make the country the 6th largest exporter in the world.  The growth has mostly come from HRC, CRC and semis with the EU accounting for the bulk of this increase.  Indeed, in Q1 alone, India increased exports to the EU by more than 1.2 million tonnes with Italy, Spain and Belgium seeing most of this growth.

According to the union minister of steel, the country is targeting a trebling of last year’s production total by the end of 2031 with the focus being on higher-value finished products. Although projections for internal steel demand are also high, it seems clear that a proportion of this growth will make its way into exports.

We have a situation where India is likely to become the second largest producer of steel in the world next year, where imports are dropping, being discouraged by robust anti-dumping legislation, and exports are set to more than double, with EU markets being the main targets. Having been a net steel consumer in the past, India is now becoming a major supplier to the global market, at least in specific product areas and to certain markets.

Indian Steel Exports to EU Grow

Iranian Steel Industry Strengthens

At just under 18 million tonnes last year, Iran accounted for more than half of all the steel produced in the Middle East and is becoming an important player on the world stage. It is also growing rapidly with production up 90% over the past ten years.  This growth has continued into this year with crude steel production in Q1 increasing by 13% year on year, more than double the global rate of growth.

Iran, as with many rapidly developing steel producing nations, has traditionally imported more than it exported but, partly due to its chequered relationship with the international community, the country is also more self-sufficient than many nations as it is unable to rely on being able to access Western products under sanctions. Imports of around 4.5 million tonnes per year are dwarfed by the domestic production of 18 million tonnes.  Unlike imports, which have remained fairly stable at this level over the past few years, the country has started to export more tonnage as it finds itself less encumbered by international sanctions.

In 2016, for the first time, Iran exported more than it imported with exports of 5.7 million tonnes representing a 49% increase over the prior year. This is a trend that has continued into 2017 with Q1 exports showing a further 20% growth when compared to Q1 2016.  The vast majority of these exports, some 79% of the total so far this year, have been ingots and semis but the country has also exported significant tonnage of rebar and heavy sections.

As would be expected, Iran has traditionally exported these semi-finished products to other countries in the Middle East and North Africa but so far in 2017 it is notable that Iranian producers are becoming bolder in their search for external markets and the main growth areas have been Thailand, Taiwan and Indonesia. The same cannot be said for the growth in exports of rebar and heavy sections with the increase in shipments instead heading to Afghanistan and Iraq, no doubt filling demand resulting in efforts to rebuild in those nations following years of turmoil.

Conversely in Q1 this year, after a few years of stable tonnages, imports nearly halved despite a rise in demand. Traditionally the country is an important market for Russian, Chinese, Indian and Korean flat products but evidence suggests more or both HR and CR products have been sourced internally.

With enviable reserves of natural resources, being favourably situated between Europe and Asia, and having a growing internal steel industry, Iran has the potential to be a significant force on the global market. Incumbent president Hassan Rouhani’s recent re-election suggests there is a desire within Iran to integrate further into the international community, thereby increasing the risk of potential disruption to the international steel market from Iranian steel; but the current US president’s recent comments during his visit to Saudi Arabia suggests that the USA may potentially not be a viable market for Iranian goods should he enact embargos against the country, meaning they would likely have to look east to Asia or west to Europe for markets for their growing exports.

Iranian Steel Industry Strengthens

Spanish and Italian Steel

Global crude steel production in 2016 exceeded expectations with a forecast reduction of 2% being transformed into a growth of almost 1%. Growth rates varied across the main steel producing regions of the world with India at the forefront with a growth of 7.4%.  Ukraine and Turkey followed closely both reporting growth rates of over 5%, followed by China at 1.2%.  In contrast the USA and Russia experienced a marginal decline with South America and Brazil falling by a more substantial 7.4%.  EU crude steel production saw a 2.5% decline.

Looking closer at the EU performance the fall was accompanied by a 12% decline in EU exports and a 10% increase in imports suggesting a relatively healthy domestic demand level. In addition, the overall decline was not distributed equally across the main steel producing member states with the UK registering the most significant decline with a fall of 30% followed by Spain and to a lesser extent France, reporting reductions of 8.2% and 3.8% respectively.  In contrast, Italy, the second largest EU producer generated an impressive 6% growth year on year.

The causes of the decline in the UK have been well documented with the demise of SSI and the restructuring of the Tata owned facilities but the reasons for the differing fortunes in Spain and Italy are less apparent.

Spanish exports declined by 2% during the year compared to imports which grew by 6%, driven by greater activity from Brazil, Iran, India and Turkey. An important driver of the underperformance in Spain was the decision by ArcelorMittal to idle its Setsao HRC plant in January.  With a 1.5 million tonne capacity, the plant was re-opened again in September so this single event is likely to account for the shortfall seen in production in the country as underlying demand remained stable.

The situation was reversed in Italy with a 2% reduction in imports, demonstrating that domestic producers grew share compared with Spanish producers who lost share. The largest fall was the 423 thousand tonne reduction in Chinese shipments into Italy, easing some pressure on local producers.  Italian producers have also fared well in export markets as despite a 9% fall in shipments to their second largest market Algeria, overall exports grew by 9%.   This growth has come from closer to home with shipments to other EU countries increasing by 14%, particularly to Germany and France.

So far this year, EU crude steel production has continued to underperform. In the first two months of the year growth was just 1.6% compared to overall global growth of 5.8%.  The UK has been one of the better performers so far, however, against softer comparisons last year but Spain continues to struggle with a 6.6% decline.  Italy has also found growth hard to come by in contrast to 2016 with an increase of less than 1%.

Going forward it is clear that the EU faces some uncertainty with Brexit now officially underway and questions over whether the local producers can regain market share from overseas suppliers. The recent imposition of anti-dumping duties on Chinese HRC is an important step, although arguably a year too late.  In Spain, a growing GDP suggests demand should be fairly robust this year but the question is whether this will be continued to be taken by imports.  In Italy, much depends on the future of Ilva’s Taranto plant, the largest steel plant in Europe.  A number of different consortia have bid for the plant and as last year it ran at just 53% of its 11 million tonne capacity, the eventual winners plans will have a profound effect on Italian steel production going forward.

Spanish and Italian Steel

Chinese Steel Demand Improves

With around half of the world’s production, China is by far the most influential country in the global steel industry. In recent years, a slow-down in demand in the country has led to an explosion in exports as Chinese producers sought new markets rather than cut production which subsequently had a profound effect on world prices.  In the past few months, however, there is evidence that this trend has reversed.

At the start of 2016, in response to the lower domestic demand, Chinese production was predicted to decline in the year as a whole. In the first two months of the year, this trend was apparent with a fall of nearly 6% year on year.  In March, however, this trend reversed and Chinese production started showing a year on year rise each month which accelerated from August through to November.  The upshot of this is that by the end of the year, Chinese production actually posted a 1% rise in the year as a whole.

In the past, the consequence of this rise in production would have been a subsequent growth in exports but this has not been evident in 2016. In the first half of the year, Chinese exports of total steel did indeed continue on their growth trajectory with a rise of more than 9%.  In the second half of the year, however, just when production growth started to accelerate, Chinese exports actually declined with Q3 showing a 9% reversal and Q4 posting an astonishing decline of nearly 20% year on year with the lowest quarterly total since Q2 2014.

This phenomenon has helped propel global prices for nearly all steel products and raw materials to highs not seen since 2014 and would suggest a big hike in Chinese demand for steel but is this the full story? It seems as though this has not led to a build in stock as Chinese steel inventories as a proportion of production were at a historic low of 8.2 percent in November. It appears that this increase in apparent demand reflected in consumption, prompted by an unexpected round of credit stimulus in 2016 as the government pushed money into infrastructure to maintain GDP growth at around 6.5%.

China’s chief government forecaster has said that a predicted decline in steel demand would not happen in 2017 as a decrease in steel use by the property sector this year would be offset by strong railway, port and highway construction. He said that China’s crude steel production would rise by about 0.3 per cent with a further reduction in exports.

It seems then, with real Chinese domestic demand improving and exports declining, partially as a result of anti-dumping legislation being enacted across the world, that the near term prognosis for the global steel industry is better than it has been for some time. At 23.9MT in Q4, Chinese exports are still highly elevated, by historic levels, at a level above the total annual figure for Italy, however, so any small percentage change to the demand outlook in the country would have a profound effect on the industry as a whole.

Chinese Steel Demand Improves