Steel industry’s fortune has shifted to Asia, Africa

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Published: July 30, 2019 1:48:38 AM

As per OECD report on latest development in steel making capacity, July’19, the global crude steel capacity in 2018 has come down to 2,233.7 mt from 2,240.1 mt in 2017.

Based on production data, it is seen that global capacity utilisation – which was 77.2% in 2017 – has gone up to 81% in 2018.

The global crude steel production in H12019 at 925.1 mt shows a reasonably good growth of 4.9%. As has been happening in the past, China, with an output of 492.2 mt – a growth of nearly 10% over the last year – has captured 53.2% share, marginally up from 2018. India comes second with a production of 56.9 mt, clocking a 5% rise over the last year. That Asia, with a total production of 660.2 mt (including Oceania), occupies 71.4% share of global crude steel production firmly establishes the fact that steel industry’s fortunes have now shifted from EU, CIS, NAFTA, South America to the West Asian region, Africa and Asia.

An interesting fact in this story of shifting scenario concerns the production growth being observed in some of the advanced countries. USA occupies fourth position with a production of 44.4 mt, which is 5.4% rise over the last year and even exceeds India’s growth rate. We were seized with the celebrated S-Curve paradigm of per capita GDP with per capita steel consumption to firmly declare a positive correlation between the two up to a certain peak level of GDP (around $30,000/per capita).

At this level, the decline in steel consumption commences its downward journey. The recent experience of US having a per capita income of $59,532 (2017 estimates) consuming more steel is likely to make us review the premises of S-Curve, changing the shape from long stretches in S-curve to short peaks and downs, enlarging the number of outliers. China with $16,807 per capita income and 523 kg per capita steel consumption is already outside the domain. It is likely that steel industries in a few other countries like Germany, Japan, S Korea would also behave in a similar pattern in the coming years.

Stimulus measures to rejuvenate the crumbling infrastructure and build up new construction with innovative and more durable and earth quake-resistant construction would mean that steel industry in all these countries would stage a comeback. In the formulation of S-Curve, it was premised that if steel demand resurfaces in a country that has passed the inflexion point of high per capita income, the demand would be catered to by higher levels of imports, which would be restricted under the latest scenario and, therefore, there would be a scope for higher capacity utilisation and may be for fresh capacity augmentation in these countries. The declining steel intensity in GDP arising out of circular economy concepts and lower share of manufacturing in the early stages of economic growth have also weakened the hypothesis of S-Curve.

Apart from the stimulus measures, which is an economic necessity, US steel industry with higher steel production and capacity utilisation exceeding 80%, higher prices, higher profits, higher wages would continue to get regular government support in terms of ‘Buy American, Hire American’, unilateral imposition of 25% duty on all steel imports and 10% duty on all aluminium imports under Section 232 of US Trade Act. This measure has nullified the efficacy of WTO compliant trade measures like ADD, CVD and Safeguard etc.

One may visualise a similar scenario when EU (excluding CIS), South America, NAFTA may also adopt a few stimulus measures to build up infrastructure with more stringent local content rules and contemplate and actually implement such trade restrictive measures (unilateral) to protect domestic steel industry, reduce unemployment, enhance per capita income and in the process consume more steel. This is a quite plausible scenario by, say, 2025 as learning from US experience reiterates the perception that more protection for the domestic industry is not only the most effective economic measure but also politically expedient.

Meeting the fresh steel demand arising out of the higher government expenditure associated with more private investment to cater to the emerging needs of the economy, each country would opt for fresh capacity additions in steel. It would be the safest option available rather than depending on imports, which would otherwise be restricted and frowned upon.
As per OECD report on latest development in steel making capacity, July’19, the global crude steel capacity in 2018 has come down to 2,233.7 mt from 2,240.1 mt in 2017. Based on production data, it is seen that global capacity utilisation – which was 77.2% in 2017 – has gone up to 81% in 2018. As a result, the global surplus capacity beginning at 702 mt in 2015 has come down by 277 mt in the next 3 years although in G-20 meeting the global excess capacity in steel has been mentioned as an area of concern.

It is assessed that during 2019-21 around 87.8 mt of fresh crude steel making capacity is underway and another 22.4 mt capacity has been planned. However, the data on fresh capacity is rather tentative and partly incorrect. India’s crude steel making capacity in CY2017 has been shown as 124.8 mt and 128.1 mt in CY2018 against the official figures of 138 mt in FY17 and 142 mt in FY18.

Data on India’s capacity build up mention a capacity addition of 1.55 mt by Uttam Steel and Power and 10 mt capacity additions by JSW at Salboni, West Bengal, by 2021. If global steel demand persists as scenario in H2 unfolds, production growth is a natural phenomenon to enable countries cater to the demand.

(The author is DG, Institute for steel development and growth. Views expressed are personal)

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