Global steel industry experts look ahead to 2008

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Global steel industry experts look ahead to 2008: Increased uncertainty, cautious optimism ahead The steel industry must shift focus from quantity to value Ian Christmas, Secretary-General of the International Steel Association The international conference on climate change held in Bali, Indonesia, established the topics and timeline for negotiations on global warming by the end of 2009. “The “Bali Roadmap” outlines the responsibilities that various parties in the international community need to assume, which helps to promote the development of the steel industry. **The Interim Climate Change Research Group has also submitted 4 assessment reports. The international community generally believes that to prevent further climate deterioration, global greenhouse gas emissions must peak within the next 10 years and then be reduced by 50% by the middle of this century. For the steel industry, this is also a fundamental principle of development. If the per capita steel consumption in developing countries reaches OECD levels, greenhouse gas emissions from the steel industry will double further. The scientists’ warnings have received support from countries around the world, and fundamental changes are needed in the development of the steel industry. 　　First, we must increase funding for the development of new steelmaking technologies ； Secondly, we must shift our focus from increasing steel consumption to providing lightweight, high-performance steel products for the manufacturing of buildings and transportation equipment to the greatest extent possible. The long-term development strategy for the steel industry in the future will shift from quantitative growth to increasing the added value of steel products. 　　Rapid growth of the stainless steel market in 2008 Chairman of the International Stainless Steel Forum Jean-Yves Gillet Stainless steel is one of the basic raw materials with the fastest-growing demand worldwide. The International Stainless Steel Forum predicts that demand for stainless steel will increase by 6.6% in 2007, with a growth rate of 6.3% expected in 2008 as well. 　　In terms of stainless steel production, there are significant differences across the world. In 2007, the global production of stainless steel increased by between 0.5% and 1%, whereas in 2006 the increase in production was as high as 16.9%. In the first half of 2007, global stainless steel production reached 28.4 million tons, a 9% increase on a year-on-year basis ； However, in the second half of the year, as inventory levels accumulated in 2006 and early 2007 remained high, demand in the market cooled down, leading to significant cuts in stainless steel production worldwide. In the first nine months of 2007, global stainless steel production grew by only 0.4% on a year-on-year basis. Furthermore, the severe fluctuations in international nickel prices, with swings of up to 50% within a year, have also affected the normal production of stainless steel. The reduced production in stainless steel plants has also significantly alleviated the tight supply of nickel internationally, leading to rising inventory levels. In 2007, stainless steel production in Asia (mainly in China) continued to grow rapidly, with the production volume increasing by over 12% in the first nine months of that year. 　　The International Stainless Steel Forum supports the use of ferritic stainless steels, nickel-free stainless steels, and low-nickel stainless steels (such as duplex steels). The promotion of these as alternatives to austenitic stainless steel helps to maintain stable purchase prices for consumers and curb competition from other stainless steel alternatives. As nickel prices fell, stainless steel inventories returned to reasonable levels, and actual consumption continued to rise; 2008 will once again be a prosperous year for the stainless steel industry. 　　Demand in North America remains stable while exports continue to rise. Andrew Sharkey, President and CEO of the Steel Association of America: Looking at the actual demand for steel in North America’s steel industry in 2008, it is expected to remain relatively stable compared to 2007, with apparent steel consumption increasing by 4%. This is primarily driven by suppliers rebuilding their inventory supply chains, stable imports, steady demand from the manufacturing sector, and increasing exports. Therefore, according to research by the Business Research Committee of the American Iron and Steel Institute, despite the slowdown in macroeconomic growth in 2008, steel shipments in North America are expected to increase slightly. However, the extent of the macroeconomic slowdown will be one of the key factors affecting steel demand in 2008. 　　In 2008, the North American steel industry is set to continue developing healthily, as evidenced by the use of advanced technologies, further consolidation and restructuring, improvements in energy efficiency, and research and development in high-strength materials. 　　U.S. steel shipments are expected to reach 106 million short tons in 2007, and could increase to 110 million short tons in 2008. In 2007, energy demand, exports, non-residential construction, and other market demands compensated for the downturn in the automobile manufacturing and real estate sectors. One major challenge faced by steel producers in 2008 was the rise in raw material prices, which increased production costs. 　　The total steel imports in 2007 are expected to be 34 million short tons, **lower than the record 45 million short tons in 2006, but higher than the 32 million short tons in 2005. Steel imports are likely to increase slightly in 2008, reaching 35 million short tons. In 2007, U.S. steel exports amounted to nearly 11 million short tons, showing a slight increase compared to the previous year; this was mainly due to the depreciation of the dollar. This upward trend is set to continue in 2008 as well. 　　Japan’s economy saw a steady slow recovery in 2008 Japan Iron and Steel Federation With the strong growth of the world economy centered on emerging economies, Japan’s export trade continued to grow strongly in 2007, and domestic demand also remained robust. However, in terms of exports in the future, uncertainties are increasing due to the global decline in consumer confidence caused by the U.S. subprime mortgage crisis, as well as high crude oil prices. Furthermore, Japan’s amendment to the Building Standards Act in June led to a significant decline in domestic construction activity, which has already begun to affect related industries, and a recovery in the construction sector is still some time away. In 2007, Japan’s GDP growth rate was around 1.3%, and crude steel production increased by about 300,000 tons compared to 2006, reaching 118 million tons. 　　In 2008, economic turmoil occurred in developed countries led by the United States; high crude oil prices and foreign exchange issues continued to hinder global economic growth. However, driven by the economic growth in emerging economies, Japan’s export trade is expected to maintain a strong growth trend. 　　In terms of domestic demand for ordinary steel, the prosperity in sectors such as automobiles, shipbuilding, machinery, and electromechanical manufacturing in Japan is set to continue in 2008. Despite signs of recovery in the sluggish construction sector in 2008, there will be no significant increase in steel used for construction. 　　In terms of steel exports, despite strong demand from Asian countries, they were lower in 2007 compared to the previous year due to factors such as increased production in China, high crude oil prices, and a weakening U.S. economy. It is expected that in 2008, domestic demand for steel in Japan will increase while exports will decline; as a result, crude steel production will rise by about 800,000 tons compared to 2007. 　　Concerns over steel supply in 2008 Head of the European Steel Industry Association Gordon Moffat 2007 was a year of growth in European steel consumption. Driven by strong growth in investment and trade, Europe’s manufacturing and construction sectors performed well in 2007, with final steel consumption expected to increase by 5%. However, the prosperity of Europe’s steel industry has not prevented an oversupply in the market caused by rising steel imports. Until 2007, steel inventories in the European market rose significantly, and the inventory adjustments that began in the third quarter have not yet been fully completed. Imports of steel remain high, severely affecting the order volume of steel mills in the EU; as a result, they continue to lose market share, and local production capacity cannot be fully utilized. 　　In October and November 2007, the European Iron and Steel Industry Federation submitted applications to the European Commission for anti-dumping investigations into hot-dip galvanized sheets from China, cold-rolled stainless steel coils from China, South Korea, and Taiwan, China, as well as bars and wires from China and Turkey. 　　Looking ahead to 2008, uncertainties in the global economy cast a shadow over the steel market. Consumers’ concerns over an economic recession in the United States, an appreciation of the euro against the dollar, rising oil prices, and increasing global debt are on the rise, and these concerns have already led to a decline in business confidence. In fact, by the second half of 2007, the EU had gradually lost its momentum for economic growth. 　　Nevertheless, the EU economy remained stable in early 2008, with the major steel industries continuing to grow (at a slower pace). High industrial confidence will be supported by increases in orders and production volumes. Actual steel consumption in Europe in 2008 is expected to increase by 2% to 3% on a year-on-year basis. The main concern relates to the supply of steel, particularly what changes will occur in imports. The European Steel Industry Association believes that the slowdown in demand for steel within the EU, rising shipping costs, and the narrowing price gap between steel in Europe and Asia will all help to curb the increase in steel imports into Europe, preventing another rise in inventory levels. The European Iron and Steel Industry Association expects that steel inventories in Europe will remain at a level consistent with downstream demand in 2008, resulting in a basically stable supply-demand balance. EU steel mills are also able to pass on the pressures of raw material and energy costs to end-users. 　　Opportunities and Challenges for the Steel Industry in Latin America Secretary-General of the Latin American Steel Association Guillermo Moreno 2008 will be a year of significant development for the steel industry in Latin America. The international economic situation is favorable for economic growth in Latin America, which in turn drives a rapid increase in local steel consumption. In 2008, Latin America’s economic growth rate is expected to be 4.9%, with the apparent consumption of steel reaching 64 million tons, an increase of 8% compared to the previous year. 　　Rising prices of key steelmaking raw materials will continue to drive growth in steel investment in Latin America. Latin America possesses abundant raw materials for steel production, energy resources, and a sufficient labor force; therefore, it has comparative advantages in developing the steel industry compared to other regions of the world. In recent years, the steel industry in Latin America has developed rapidly, becoming one of the regions with the most active M&A activities in the global steel industry. In the future, Latin American steel producers will continue to strengthen their position in the regional steel market by producing competitive steel products. In 2015, Latin America’s crude steel production capacity will reach 125 million tons. 　　The challenges facing the steel industry in Latin America in 2008 will be environmental protection issues and the reduction of greenhouse gas emissions, as well as a significant increase in imported steel supplies. Current imported products have already severely affected the stability of the Latin American steel market. 　　Steel companies forced to relocate due to rising cost pressures. Aditya Mittal, Chief Financial Officer of ArcelorMittal Group. The development of the world’s steel industry in 2007 was driven by global economic growth, particularly the continuous prosperity of markets in emerging economies. Recently, there have been several mergers in the steel industry in North America and Europe, bringing the development of steel companies closer to the market and helping to reduce market volatility. We are pleased to see that steel companies’ position in the financial investment market is steadily improving, their operational performance is gradually getting better, and they are being reassessed by investors. 　　Looking ahead to 2008, the steel markets in developing regions such as East Asia, Southeast Asia, the Middle East, and the CIS will continue to experience stable growth, serving as a driving force for the development of the world’s steel industry. The European economy faces the risk of a significant appreciation of the euro, which will increase pressure on steel imports. The North American economy is suffering from the subprime mortgage crisis, making it difficult for steel consumption to experience significant growth. However, lower inventory levels in North America’s steel supply chain, coupled with the depreciation of the dollar and limited import supplies, all contribute to improving the operating conditions for steel companies in North America. 　　Challenges that global steel producers will inevitably face in the future include rising costs of raw materials and maritime shipping, as well as transportation bottlenecks. Fortunately, ArcelorMittal Group is able to achieve self-sufficiency in 45% of its iron ore needs. These adverse factors, coupled with the slowdown in global economic growth, will lead to a decline in global steel trade volume in 2008, resulting in shortages both in the supply of finished steel products and in the raw materials used for steel production. However, global demand for steel will remain strong, and in order to maintain a reasonable profit margin, steel companies need to pass on the cost pressures to downstream consumers by raising prices. In 2008, the international steel market showed an overall upward trend. 　　Russia’s contribution to the global steel industry is increasing By Alexei Mordashov, CEO of Severstal The global steel industry experienced rapid growth in 2006 and 2007. Russia’s steel industry has become a key driver of global growth, and its role will become even more significant in the foreseeable future. In recent years, the Russian economy has experienced substantial growth, and in 2007 it ranked third in terms of its contribution to global GDP growth. In 2007, foreign direct investment in Russia increased by 56%, and this is only the beginning. 　　The recovery of the Russian economy has enabled its steel industry to become one of the fastest-growing in the world. Driven by the prosperity in Russia’s construction, machinery, and oil and gas industries, Russia’s apparent consumption of steel increased by over 20% on a year-on-year basis in 2007, making it the region with the fastest growth rate in the world. Of the global increase in steel consumption in 2007, Russia accounted for 10%, ranking second after China. 　　We believe that, driven by the rapid growth of the automotive industry in the future, Russia’s steel industry will continue to grow as well. Undoubtedly, the Russian automotive industry is the most crucial driver of domestic steel consumption. In 2007, automobile consumption in Russia increased by more than 20%. Many foreign automobile manufacturers are planning to establish or build new automobile assembly plants in Russia. Russia has become Europe’s second-largest automobile market and is likely to become the largest market in the coming years. 　　Looking to the future, Russia will continue to remain at the forefront of the world’s steel industry. Xiewei Steel’s development strategy focuses on diversifying into international markets, adopting vertical integration management, and building a global business platform while increasing profits. In the future, Xiewei will become a key player on the world steel market stage. 　　2008 will be a good start for the EU CEO of Marcegaglia Company Antonio Marcegaglia Although 2007 was a prosperous year for the global steel industry, European manufacturers felt uncertainty and anxiety. In the first half of 2007, the world steel market was generally robust, including in Europe, but in the second half of the year the market began to cool down, especially when compared with the same period in 2006. If we look closely, it is easy to see that the weakening of the European steel market is mainly due to inventory adjustments and rapid growth in imports. 　　For 2008, the European steel market should have a good start, as most inventory clearance tasks have been completed and import supplies have significantly decreased. Regional factors in the steel market and rising ocean freight costs will continue to suppress steel imports. Even if European steel demand does not reach new highs in 2008, it can at least remain at the 2007 level. As imports decline and the production costs of steel (iron ore, coal, and shipping fees) rise, European steel companies are able to increase their shipment volumes and raise prices, especially those of iron ore spot prices. 　　Factors affecting the agreement price mechanism  CEO of Rio Tinto Iron Ore  Sam Walsh  In 2007, spot prices for iron ore rose significantly; by the end of the year, the price of iron ore supplied by India to China had risen to $190 per ton, doubling compared to the previous year. The price increase reflects, on the one hand, rising freight costs, and on the other hand, a tight supply situation in the iron ore market. China has become a key factor driving the iron ore industry, with its imports accounting for nearly half of the total global seaborne trade volume of iron ore. Even so, this might not be sufficient to meet China’s domestic demand; as a result, in the second half of 2007, China significantly reduced its steel exports. In 2007, China’s iron ore imports increased by 60 million tons, with the additional supply coming mainly from the three major international iron ore suppliers. However, in order to meet their production needs, Chinese steel companies are forced to import high-cost iron ore from India, and are increasingly increasing their purchases of low-grade domestic ore. The production costs of iron ore are driving up spot market prices. 　　There are signs that the tight supply situation in the iron ore market is likely to remain unresolved in 2008 as well. Importantly, analysts believe that the slowdown in economic growth in other parts of the world has a very limited impact on China’s overall economy. Moreover, the growth in China’s steel consumption is driven primarily by domestic demand, especially in the construction sector, rather than by a significant increase in steel exports. At the end of 2007, the growth in China’s steel production slowed down, largely due to shortages in the supply of raw materials for steel production, rather than a decline in demand for steel from end-users. China’s purchases from major iron ore suppliers such as Rio Tinto Group will also increase to meet its growing demand for iron ore. Before the decline in iron ore prices, steel companies also intended to reduce their consumption of costly Indian iron ore and domestically produced Chinese iron ore. 　　The international iron ore agreement price for 2007 rose by 9.5%, reaching a new historical high, but it remained below the prices in the spot market. Thanks to its geographical advantages, Australia has a greater advantage in shipping iron ore to Asian markets compared to other **iron ore suppliers. In 2007, the annual agreement price for Australian iron ore was $100/ton lower than the spot price of Indian ore, resulting in a distortion in the pricing system for the annual benchmark price of iron ore. Many analysts expect a substantial and significant increase in the agreed price of iron ore in 2008. 　　Growth continues, but at a slower pace Chairman of the Executive Board of ThyssenKrupp Steel Company Karl-Ulrich K. Hler ThyssenKrupp Steel Company expects continued global economic growth in 2008, but at a significantly reduced pace; the GDP growth rate will not exceed 5%. Further increases in energy and raw material prices will have a negative impact on the global economy. 　　In the future, the global steel market is expected to have a positive outlook. The growth rate of steel demand in China, India, and the CIS will remain at average levels seen in recent years, with demand in other parts of the world also expected to increase. According to the latest forecasts by the International Steel Association, world steel consumption is set to increase by 7% in 2008, with crude steel production rising to 1.4 billion tons. Steelmaking raw materials and energy consumption will also continue to rise, driving up the production costs of steel. 　　In recent years, the European steel market has been operating at high prices. In the short term, high inventory levels will suppress market demand and may subsequently affect steel production. The main steel industries in Europe are performing well, and steel consumption is expected to continue growing in 2008. The main source of uncertainty in the future is the change in EU steel imports. 　　ThyssenKrupp expects the European steel market to recover in 2008. The active production in the steel industry has enabled ThyssenKrupp to achieve high shipment volumes. Sales growth was driven by high steel prices, but rising costs of raw materials, freight, and energy forced ThyssenKrupp to deal with increased expenses. 　　ThyssenKrupp will continue to advance its strategic investment projects in Brazil as planned, investing 3 billion euros to build a new steel plant with an annual production capacity of 5 million tons of slabs. In addition, $3.1 billion was invested to build a new hot-rolling plant in North America, with an annual production capacity of over 5 million tons of hot-rolled coils. 　　The outlook for Russia’s steel industry in 2008 is positive Alexey Lapshin, CEO of NLMK Russia’s steel industry is likely to face a more favorable market environment in 2008, with prices being slightly higher than in 2007. The main reasons include an upward trend in commodity price cycles, rising prices for iron ore and coal, a slowdown in China’s steel exports, and ongoing increasing demand for steel from the \"BRICs\" countries, including Russia. 　　We expect infrastructure development and everyday demand to provide a strong driving force for the rise in Russia’s steel market. The continued prosperity of the construction industry and the recovery of heavy industry, along with the demand in the steel sector driven by economic growth, can drive rapid growth in Russia’s steel demand in the medium to long term. 　　Mergers and reorganizations in the steel industry will continue, leading to an increasing level of concentration; acquisition environments filled with more opportunities will emerge in the EU, the United States, and other key markets. 　　Steel futures reduce price risk CEO of the London Metal Exchange, Martin Abbot: After the introduction of risk mitigation mechanisms for non-ferrous metals, I am pleased to predict that in 2008 the London Metal Exchange (LME) will not be exclusive to non-ferrous metals but will also become a marketplace for steel futures. 　　The preparations for introducing futures for ordinary carbon square billets are progressing smoothly in two stages: LME will initially launch these futures in February, with full rollout to take place by the end of April. Therefore, the new generation of steel traders will be able to set steel prices for a future period with customers in a very confident and risk-free manner, using the exchange’s warehouses as the ultimate logistics system, and they can also leverage warehouse receipts to secure financial resources. 　　At some point, perhaps not in 2008, the international banking system will use the LME futures prices for small billets to determine the capital returns on investments in the steel industry, and fierce competition will arise among those wishing to become investors in this sector. These changes are revolutionary for the steel industry and will create tremendous opportunities for its development. 　　Steel prices will see a pullback after rising at the beginning of 2008. Ralph Oppenheimer, CEO of Stanko Holdings. 2007 was a year of accelerated consolidation in the steel industry. We believe that this trend will continue in 2008, and we will also see suppliers and processing centers entering a period of mergers and reorganizations. 　　What about steel prices? Over the past 3 years, steel suppliers have had to compete fiercely in a market where their share is continuously shrinking. 　　There is no doubt that China currently wishes to reduce steel exports, and this shift is good news for steel producers outside of China. As a substitute for blast furnace steel in China, electric arc furnace steel has driven up scrap steel prices, exceeding the normal seasonal increase during winter. Economic tightening has so far not affected steel sales. Investment in infrastructure construction in developing countries is accelerating; at the same time, investment in capital goods, minerals, shipping, and oil pipelines is also increasing, and steel inventories are relatively low. These are all the factors driving up steel prices in the short term. As consumers start making purchases, another strong market and high prices will emerge in 2008. 　　However, in developed **, the real estate market remains sluggish. As consumer spending continues to decline, there is an oversupply of commercial properties, retail space is shrinking, and the construction industry is in a downturn; as a result, investment enthusiasm falls, and demand for steel will drop again. Meanwhile, steel production capacity outside of China is slowly increasing. Under such circumstances, the question is not whether steel prices will fall, but when they will fall. 　　They are semi-finished steel products and general-purpose steel. 　　In 2008, there was a significant gap between the agreed prices for finished steel products (cold-rolled coils and galvanized sheets) in the European market and the spot market prices for semi-finished steel products and hot-rolled coils. The prices of other steel products sold in the spot market, such as welded pipes and CNC machine products, will start to rise from their lower levels beginning this year. In today’s steel market, price fluctuations and speculative trading are normal phenomena, and they will contribute to further price increases in the short term. Source: World Metal News