Next Level Looks at the Global State of Steel

The Global Steel Industry

Industry Challenges

The steel industry has faced challenging economic environment in the face of global excess capacity and historically low prices, and steelmakers have struggled to keep up profits.

Economic slowdown in China dealt a massive blow to the global steel industry – overcapacity and lower steel prices hurt margins of Chinese steel producers. The steel industry has also been challenged by dwindling investments, turbulence in the financial market and geopolitical conflicts in many developing regions. The slump in oil pulled down prices of steel as well, with steel demand from energy companies being weak due to declining capital expenditure budgets.

Who Benefits When Steel Prices are Low

When there is inexpensive steel on the market, downstream consumers of steel products benefit with higher margins on their product sales. This is a positive outlook for the main economic sectors supplied by the steel, such as construction, automotive, materials. 

What’s in Store for the Industry?

The first half of 2016 has been strong for steel demand, and prices have spiked. Many analysts aren’t optimistic, however, because steel supply still exceeds demand – by about 700 million metric tons (Len Boselovic’s Heard off the Street: Analysts: steel price spike may not last, Pittsburgh Post Gazette, May 2, 2016). The World Steel Association expects global apparent steel use to dip 0.8% in 2016. The U.S. steel industry continues to face the threat of cheaper imports in the wake of a stronger dollar and lower oil prices. According to Zacks (Steel Industry Outlook – May 2016), a further increase in Chinese steel exports is predicted this year, as Chinese steelmakers look outside the country for customers to buy all their extra steel and counter the domestic slowdown. Experts, however, expect a recovery of the industry from 2017, and emerging markets will show the greatest growth over the next 10 years (Overview & Outlook for the Global Steel Industry, Research and Markets, May 2016).

How Anti-dumping and Countervailing Duties are Used to Level the Playing Field

Anti-dumping duties are used to combat “dumping”, which means that an exporter is setting prices at such a low point that they are intentionally losing money to harm the domestic producers of the importing country.

Countervailing duties seek to counteract artificially low prices that are a result of  government subsidies which allow exporters to offer lower prices than domestic producers in the importing country. Countervailing duties negate the advantage that exporters get from subsidies.

In May, the US Commerce Department announced anti-dumping duties on Chinese corrosion-resistant steel products of up to 210%, and duties of up to 522% on cold-rolled steel used in automobiles and other manufacturing. The U.S. steel industry has filed several new anti-dumping/countervailing (AD/CVD) cases. These complaints allege that companies from a number of countries, including Russia, Japan, South Korea, and Brazil are receiving subsidies or are engaged in injurious dumping in the U.S. market, which are illegal under both U.S. and international law.

While anti-dumping duties are designed to protect domestic industries by achieving a level playing field, their effect can be negative for U.S. consumers. Ultimately, these laws can drive up the cost of imported products, eventually resulting in consumers paying higher prices for domestically produced goods.

May 2016 Crude Steel Production

World crude steel production for the 66 countries reporting to the World Steel Association (worldsteel) was 139 million tonnes (Mt) in May 2016, a -0.1% decrease compared to May 2015.

These 66 countries accounted for about 99% of total world crude steel production in 2015. (Go to worldsteel.org for more details). The top five steel producing countries are (as last reported in May 2015) China, Japan, India, United States and Russia, followed by Germany, Brazil, Turkey, and Ukraine to round out the top ten. Here is a table showing the world’s top 20 steel producers:

Top 20 steeel producers

The Short Range Outlook for Steel Demand

The short-range outlook for steel, according to The World Steel Association forecasts another year of contraction in steel demand in China, but slow but steady growth in some other key regions including NAFTA (United States, Canada, and Mexico) and EU is expected.

In the US, steel demand countered by the fall in oil prices and a strong dollar, but an improving job market and a robust housing sector will ultimately support steel demand. A mild recovery in steel demand in the EU continues due to improving economic sentiments and investment conditions, but uncertainties in the political landscape related to the refugee crisis and Brexit raises some risks. Brazil and Russia are struggling with their internal and structural issues, and steel demand in both economies is expected to contract strongly. worldsteel predicts steady recovery momentum particularly in India, the MENA and ASEAN regions. India’s prospects are looking up due to low oil prices, the reform momentum and policies to increase infrastructure and manufacturing output. Steel demand in Turkey is expected to grow, supported by the government’s focus on pro-growth economic policies and low oil prices.

Overall, growth for steel demand in all markets except China is expected in 2017. (worldsteel Short Range Outlook 2016-2017, worldsteel.org)

0utlook for steel demand

Steel Surcharges Explained

The volatility in the worldwide steel market is the reason suppliers add a steel surcharge on raw materials. The purpose of the steel surcharge is to offset the rapid rise and fluctuating costs of the raw materials and energy used to manufacture the products. The surcharge is an additional charge, usually per pound, that is added to the base price.

This surcharge can make it difficult to predict the cost of components at any given time; therefore, it’s wise to question your vendor about the effect of steel surcharges on your final price so that you understand what can happen to your purchase price before the order is made, and what can happen to it upon shipment.

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