Metal: Global Sector Report 2017

2/7/2017 - Report
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Metal

  • Management of overcapacity in China (50% of global steel demand and production) highly impacting steel and iron ore prices
  • Upward demand trend in two major end sectors for steel: construction and automotive
  • Levels of anti-dumping measures by countries to block the import of subsidized Chinese steel 


The recovery has begun but overcapacity has not yet been reduced 


Global production of steel ended 2016 with a limited rebound (+0.9% after a fall of -3.4% in 2015). For 2017, we anticipate a low increase in volume. China, the first producer and consumer of steel in the world – around 50% market share– posted its 3rd year of declining demand (-4% in 2016 after -5.4% in 2015 and -3.3% in 2014), similar to Russia and Brazil, which contrary to China, were in a severe recession during the period. The rise in demand from advanced countries and India offset the decline of these 3 emerging countries in 2016.


With this low level of demand, overcapacities remain high –production in China has not yet been cut despite the rhetoric of Chinese authorities– and the capacity utilization rate remains insufficient, at less than 70%.


Yet through a finer management of iron ore production, a reduction in the number of hours worked and thus of volume produced, and an adjustment of high import tariffs against subsidized Chinese steel, steel prices have begun their recovery during the second half of 2016. After reaching a low point, of around 300 $/T at the end of 2015, the price rose to over 500$/T at the end of 2016 (420$/T yearly average). We anticipate a stabilization around 500 $/T in 2017 (+20% in yearly average) but it remains far below the 700 $/T in 2011.


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