Global Metal Report

Global Metal Report

What to Watch?

  • Management of overcapacities in China (50% of world steel demand and production) has a critical impact on steel and iron ore prices
  • Increasing demand trend in two major end-sectors for steel: construction and automotive
  • Increasing competition between steel and aluminum in the automotive industry (for efficiency purposes)

Metal Sector Value:
1466bn USD

Metal Sector Risk Rating

Sector-Risk-sensitive
Last reviewed: 02/02/16

Metal id card

Fragmentation
Fragmentation-2 
Internationalization
Internationalisation-2 
Capital Intensity
Capital-intensity-4 
Profitability
Profitability-2 

Sector risk map: Metal

Steel Production Remains Flat and Prices Continue to Fall 

2015 has been particularly challenging with a -2% decline in both demand and production for steel. We do not foresee an improvement in the metal sector in 2016. This negative outlook stems from: (i) global steel demand will remain sluggish, weighed by a -2% decline in China (after -3.5% in 2015) (ii) overcapacities and low prices to persist in the absence of consolidation within the sector.   
Market surplus is currently worsened by Brazil and Russia’s situation. Both countries are dramatically increasing exports in order to sell off surpluses while internal demand has collapsed in 2015: -12.8% in Brazil and -10.4% in Russia.
The yawning gap between oversupply and demand leads to: (i) a decrease in the utilization rate of production capacities to only 67% at the end of 2015; and (ii) a sharp decline in iron ore and steel prices -43% and -32% (respectively) in 2015. 
Companies thus face a double whammy as volumes and value of sales decline. This is all the more challenging owing to hefty operational fixed costs. 
It calls the need for a broad restructuring to reduce production capacities and enable prices to go up again. However, for the time being, consolidation remains far from sight.

Key Players

Country

Role

Sector Risk

China #1 Producer
#2 Consumer
Dot-Risk-sensitive
Japan #2 Producer
#2 Exporter
Dot-Risk-medium
Germany #1 Importer

Dot-Risk-sensitive

Strengths

  • Recovery of the European automotive sector 
  • Restructuring in the US successfully completed

Weaknesses

  • Decrease in demand exacerbating structural overcapacities
  • Steel price halved over the past four years 
  • High fixed costs require capital expenditures and funding

Metal Subsectors insights

Iron Ore: The fall of price during the last 12 months, after expansion of capacity and low demand, the profitability for small companies is a huge problem.
Steel companies: The overcapacity around the world and continued price decline put the sector at risk. 
Non ferrous: Prices have slid to low levels, pushing for closing high-cost operations and/or local measures (Indonesia’s ore export ban).

GLOBAL SECTOR REPORTS

picto-aeronautics
Aeronautics
picto-agrifood
Agrifood
picto-automotive
Automotive
picto-chemicals
Chemicals
picto-construction
Construction
picto-energy
Energy
picto-household-equipment
Household Equipment
picto-information-communication-technologies
Information & Communication Technologies
picto-machinery
Machinery & Equipment
picto-metal
Metal
picto-paper
Paper
picto-pharmaceuticals
Pharmaceuticals
picto-retail
Retail
picto-textile
Textile
picto-transportation
Transportation
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