Mining On Top: Stockholm 2013 26-27 Nov 2013 Global steel industry and in particular China: future outlook – Dr Nae Hee Han, World Steel Association; Chief Economist

1. Global Steel Industry: Future Outlook
Nae Hee Han/Director, Economic affairs
Presentation to Mining on Top: Stockholm, 26-27, November 2013

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3. Current State of the Steel Industry




Slower growth of demand
Overcapacity
Low profitability
Strengthening environmental regulations
3

4. Steel Capacity Outgrows Demand Growth
 During 2000~2012, global crude steel capacity ∆ 1,013 Mt to reach
2,063 Mt, whereas crude steel production ∆ 683 MT to 1,532 Mt
 Chinese capacity ∆ 771Mt to 921 Mt, production ∆ 602 Mt to 731 Mt
 After the global economic crisis, capacity expansion momentum slows,
but the emerging economies continue to seek expansion
Steed Demand vs Capacity (2000=100)
Apparent steel use, crude steel equivalent
Capacity, crude steel
2000=100
220
200
180
160
140
120
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
100
4

5. Return of Overcapacity
 While world steel demand continues to grow, capacity utilization ratio
trends down
 No easy solutions to overcapacity in sight
100%
World crude steel capacity utilisation
Jun-08
92.7%
90%
Apr-10
84.5%
Apr-11
83.4%
Sep-13
79.3%
80%
Aug-10
74.2%
70%
Dec-12
71.5%
60%
Dec-08
59.9%
Jul-13
Jan-13
Jul-12
Jan-12
Jul-11
Jan-11
Jul-10
Jan-10
Jul-09
Jan-09
Jul-08
Jan-08
50%
5

6. Raw Materials Side Adds to Adversity
 Value chain profits has been shifting away from the steel industry
 Volatility and uncertainty in raw materials prices since departure from
the benchmarking pricing system
value chain profit pool split evolution
100%=
Iron ore
Coking
coal
54
8
11
23
125
156
17
44
7
81
135
15
42
46
22
Steel
making
(HRC)
230
22
28
78
32
61
35
27
26
1995
2000
2005
10
2011
2017
Source: McKinsey & Company
6
6

7. Steel Industry Performances
Steel vs Raw materials prices
Index 2005=100
7
Steel industry stocks vs Dow Jones
Index 2005=100
7

8. Steel Demand Forecasts for 2013-14
Apparent Steel Use, finished steel (SRO October 2013)
Mt
y-o-y % growth
%
Mt
14.0
15
10
1 403
1 219
5
125.0*
1 523
1 400
1 200
1 300
1 219
1 141
7.0
1 430
1 475
1 600
7.9
1 000
3.1
0
3.3
2.0
800
600
0.0
400
-5
200
-6.4
-10
0
2007
2008
2009
2010
2011
2012
2013
2014
*) 2014 as % of 2007
8

9. Demand Forecasts for selected countries
Apparent Steel Use, finished steel (SRO October 2013)
Mt
%
2012
2013
2014
12/11
13/12
14/13
2014 as %
of 2007
World
United States
European Union (27)
Japan
China
India
Brazil
ASEAN (5)
MENA
1,430.3
1,475.1
1,523.2
2.0
3.1
3.3
125.0
96.2
96.9
99.8
7.8
0.7
3.0
92.2
140.2
134.9
137.8
-9.5
-3.8
2.1
69.1
63.9
64.0
63.0
-0.2
0.1
-1.6
77.6
660.1
699.7
720.7
2.9
6.0
3.0
172.2
71.6
74.0
78.2
2.6
3.4
5.6
151.8
25.2
26.0
27.0
0.6
3.2
3.8
122.3
54.8
57.3
60.4
12.8
4.6
5.4
149.7
63.2
64.3
69.0
2.2
1.7
7.3
127.2
Developed Economies
Emerging & Developing
Economies excl China
World excl. China
390.2
384.1
390.5
-1.7
-1.6
1.7
82.4
380.0
391.4
412.1
4.2
3.0
5.3
126.0
770.2
775.4
802.6
1.1
0.7
3.5
100.3
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10. Key Trends in Post-Crisis Period Steel Demand
 Multi-speed recovery continues driven by emerging economies, but
weakening growth in the emerging world
 Eurozone stabilizes and finally positive growth expected in 2014
 China moves into slower growth phase
 Key emerging economies struggling with structural issues
Multi-Speed Recovery of Steel Demand
180
2007=100
World
China
Developed Economies
Em. & Dev. Economies excl. China
160
140
120
100
80
60
2007
2008
2009
2010
2011
2012
2013
2014
10

11. Regional Share in World Steel Demand
Apparent Steel Use, finished steel (SRO October 2013)
Emerging & Developing Economies
2000
2001
2002
2003
2004
Developed Economies
41.5%
16.4%
58.5%
46.1%
20.5%
53.9%
48.5%
23.3%
China
51.5%
52.2%
27.4%
47.8%
53.0%
28.3%
47.0%
2005
33.3%
58.3%
41.7%
2006
33.1%
58.4%
41.6%
2007
2008
2009
61.1%
34.3%
38.9%
63.3%
36.7%
48.3%
36.7%
73.7%
26.3%
2010
45.2%
71.3%
28.7%
2011
45.7%
71.7%
28.3%
2012
46.1%
72.7%
27.3%
2013
47.4%
74.0%
26.0%
2014
47.3%
74.4%
25.6%
11
11

12. China Entering a New Phase of Development
 After soft landing, renewed focus on rebalancing of the economy
 Less steel intensive growth to come, implying steel demand growth will
underperform GDP growth
 Future focus will be on capacity closures, environmental performance
and upgrading
Growth trend of China’s steel use
Steel intensity (ASU/GDP)
12

13. Economic Growth and Steel Demand
S-Curve of different countries
Thailand
China
Indonesia
India
United States
Japan
South Korea
Per Capita Steel Use
finished steel, kg, 2012
ASU per capita, ASU, crude steel equivalent per capita, kg
1 400
South Korea
488 506
1 200
1 000
305
800
279
222
Japan
220
127
600
China
40
57
400
Africa
United States
200
India
Brazil
Middle United EU (27) China
East States
Japan
World
0
0
10
20
30
GDP per capita, 2005 PPP$,
40
50
thousands USD
13

14. How Far Will Chinese Steel Demand Grow?
Positive
Negative
 Further room for urbanization and
 Condensed growth, high share of
Industrialization
investment in GDP
 Low level of development in the West  Environmental regulations, resource
constraints
 Manufacturing relocation out of China
Speed and mode of development in the West
China provincial steel use per capita (2011, kg/per, crude steel equiv )
China (2012) US (1973) Japan (1973)
14

15. End of the China Effect, Next Growth Engine?
Evolution of Steel Demand (1950-2014, crude steel equiv)
Mt
CAGR 2007-2014
3.1%
1 800
1 600
RoW
CAGR 2000-2007
6.6%
1 400
1 200
China
CAGR 1975-2000
1.1%
1 000
former USSR
CAGR 1950-1975
5.0%
800
600
US, EU, Japan
400
200
2010
2005
2000
1995
1990
1985
1980
1975
1970
1965
1960
1955
1950
0
Contribution to Apparent Steel Demand Growth( ∆ Mt)
World
Developed
China
Other Emerging
1992-2000
142.6
84.1
51.1
7.4
2000-2007
480.3
74.2
297.8
108.4
2007-2014
320.2
-85.5
314.8
90.9
15

16. Developing World: Strong Fundamentals
Population
(million)
Urbanisation
(%)
GDP per capita,
(PPP$)
Steel Use/
capita(Kg)
2012
2020
2010
2020
2012
2020
2012
Mexico
116
126
77.8
80.5
14.4
17.3
173
Turkey
75
81
70.5
78.6
14.1
17.9
382
Brazil
198
210
84.3
86.8
11.0
13.8
127
Thailand
70
72
33.7
38.0
9.4
12.9
234
China
1 354
1 388
49.2
61.0
9.0
15.3
488
Indonesia
245
263
49.9
57.2
4.7
6.7
51
India
1 258
1 387
30.9
34.8
3.7
5.7
57
Vietnam
90
96
30.4
36.9
3.4
5.1
122
16

17. Environmental Challenges
 Energy use reduction efforts in developed world already at theoretical limit
and limited progress in Break-Through technologies. Pressure on costs
and also negative impact on steel demand growth
 However. steel has been successful in providing solutions to the
sustainability - lighter vehicles, renewable energy, etc …
Energy Intensity of steel production
(N America+Japan +EU27)
Energy intensity of iron and steel
production (GJ/t of crude steel)
17

18. Steel as Solution to Sustainable Future
 Innovative use of steel saves six times as much CO2 as is caused by
the production of the steel → LCA approach
Case study
Net CO2 reduction potential
1
2
HH, ind.,
CTS1
3
Other renewables2
Efficient transformers
2.1
5
Traffic
Wind power plants
4
Energy
industry
Efficient fossil fuel PPs
Efficient e-motors
1.9
6
Weight reduction cars
7
Weight reduction trucks
Emissions in the
steel production3
8
29.5
~ 400 : 1
<0.1
32 : 1
0.4
14.2
0.03
~ 200 : 1
0.1
5.0
14 : 1
3:1
0.7
1.3 : 1
8.4
11.2
0.9
1.1 : 1
1.0
1.0
9:1
9.2
Combined heat/power
0
Ratio between CO2
reduction/emission4
5
10
30
0
1
10
11
Mt
Mt
∑~ 74 Mt
9
∑~ 12 Mt
6:1
1.HH = households; CTS = commerce, trade, and service 2. Geothermal, biomass, hydro 3. CO 2 expenditure for other materials not examined;
values are rounded 4. Ratio relates exclusively to the emissions
Source: BCG analysis
18

19. Long Term View on Steel Demand
 Global steel demand could reach 2.2~3.0 billion in 2050
Long Term Evolution of World Steel Demand
Years
1 139
2010
1 404
2012
1870 1890 1910 1930 1950 1970 1990 2010 2030 2050
846
2005
0
743
2000
500
773
1995
1 000
719
1990
1 500
713
1985
2 000
640
1980
2 500
589
1975
3 000
Mt
1970
Mt
1 542
*apparent steel use, crude steel equivalent
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20. Conclusion
 Despite current difficulties, future scenarios for the steel industry have
optimistic starting point: Urbanization and population growth will support
industry growth for considerable time
 Surplus capacity in the industry will be difficult to reduce quickly, but can
be absorbed in long term
 Steel industry will continue to provide the basis for sustainability of the
modern society through innovation
 But the industry is facing formidable challenges ahead
 Changing position in value chain through expanding product mix,
development of new applications becomes crucial for steel industry
 Sustainable development and, in particular, Life Cycle Assessment
focus provides interesting challenges to the steel industry
20
20

21. Steel touches every
aspect of our lives. No
other material has the
same unique combination
of strength, formability
and versatility.

22. Steel is a cornerstone
and key driver for the
world’s economy.

23. Thank you for your attention.
For further information contact:
Nae Hee HAN| Director, Economic Affairs/Chief Representative, Beijing Office
World Steel Association
han@worldsteel.org | T: +86 (10)6464 6733| worldsteel.org

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