Uncertainty is unwelcome, yet a necessary part of business. Companies spend fortunes on mitigating risks associated with unclear futures. With the COVID-19 crisis, uncertainty is elevated to unseen heights.
One thing is clear - the indiscriminate spread of COVID-19 will lower steel output and lead to weaker raw material prices and demand. The question is - how much and for how long?
the Future of the
Global Steel Industry
- Projections -
Royal Dutch Shell chief executive Ben van Beurden: “We absolutely want to preserve the financial resilience of the company even though we have no idea what could happen,”
Uncertainty is unwelcome, yet a necessary part of business. Companies spend fortunes on mitigating risks associated with unclear futures. With the COVID-19 crisis, uncertainty is elevated to unseen heights. One thing is clear - the indiscriminate spread of COVID-19 will lower steel output and lead to weaker raw material prices and demand. The question is - how much and for how long?
The steel and metal industry is notoriously linked to the general health of the global economy and trade; convoluted and vulnerable supply chains; global trade tensions & tariffs; unexpected swings in energy prices, to name just a few. The global pandemic hit every and all of these aspects and altered the steel and metal industry outlooks literally overnight. Given the volatile nature of the crisis, there is little guidance in terms of relevant forecasts and projections. Royal Dutch Shell chief executive Ben van Beurden was astonishingly open about these conditions when he recently revealed: “We absolutely want to preserve the financial resilience of the company even though we have no idea what could happen,”
Without claiming to have the proverbial “crystal ball”, the Global Arena Research Institute offers its unique “Pro-active Projecting Instrument Services” (PPIS) that provide innovative and sophisticated assistance in making and continuously adjusting business forecasting at exceptionally competitive rates. Our PPIS are based on three years of data-mining and building an interactive digital environment that incorporates complex, in-depth data on three decades of global, regional, and domestic political and socio-economic developments. Utilizing various AI-assisted analytical tools and having a ready-to-use digital environment provides us with several key advantages:
Complexity and depth
Constantly adjusted forecasting = greater accuracy
Taking into account an unprecedentedly complex wealth of factors
Instantaneous ability to adjust our projections as the values of the factors change
Taylor-made and yet very swift responses to the clients’ forecasting needs (depending on the issue, new projections can be made within as little as hours since the assignment)
inquire about your tailor-made analysis:
It has been tough and volatile 18 months for the global steel industry. The multibillion-dollar question is:
what will the next 18 months bring?
The year 2019 did not start all that bad. ArcelorMittal cast an optimistic scenario of rising global steel demand in the range of 1 - 2 %. Helped by the low interest rates and new construction projects, the US steelmakers also believed in a modestly ascending demand. Yet, while the prices of iron ore went up in the first half of 2019, steel demand and prices dropped down, ultimately hitting the lowest level in four years since the 2015 - 2016 global oversupply crisis. The 2019 steel demand was hit by bleak global economic outlooks and by European weak industrial output projections, as well as by dire forecasts and risks associated with the escalating trade wars. In May 2019, ArcelorMittal adjusted its forecast downwards; in June, U.S. steelmakers were hoping to finally reach the “steel-bottom” of dropping markets, yet, by August, NYSE Arca Steel Index was further down by 18 %. By December 2019, the U.S. Steel Corp. lost about a third of its market value and disclosed its plans to shut down much of its Detroit based facilities. Meanwhile, in Asia, Kobe Steel stocks fell to the lowest level in more than 16 years and Nippon Steel Corp. slumped to an 8-year low.
Enter the EU steelmakers: apprehensive of the potential Brexit consequences, wary of the U.S.-induced tariff brawl, cheap imports from Turkey and Russia and the slowing automobile industry, the EU producers saw little blessing in the headwinds of the coming months. By the end of 2019, it became clear that the apparent steel demand in the EU is sinking to its lowest level since 2012 and its combined market value dipped to 2016 levels. In November 2019, Tata Steel announced it's plan of cutting as much as 3 000 jobs across Europe, labelling Europe as a “dumping ground” for global excess supplies. On the other hand, China emerged as a surprise buyer of steel billets in 2019, slightly taming the worst consequences of the feeble demand elsewhere. Surprising spew in profits by ArcelorMittal and expectations of moderate steel restocking encouraged cautious optimism.
Just as the prospect for steel producers in 2020 seemed to imperceptibly brighten at the end of 2019, the COVID19 pandemic started to bite. In early February, when the death toll in China reached roughly 500, the idea was that the virus’ impact on the global steel demand will be contained to China or its immediate neighbourhood and limited to the first quarter of the year. Minding late 2015 and 2016 when a demand slowdown in China led to a global oversupply crisis, this buoyant idea was not to last even if the virus itself was contained to China. But this is not what was to be as things rapidly picked-up pace. By mid-February, it became clear that the downturn in prices, almost zero demand and increase in inventories were here to last. The question was - for how long? Initially, the answers ranged between weeks and months. Even this turned out to be way too optimistic a scenario. By late February, the China Iron and Steel Association urged its members to limit the output. According to Bloomberg, Chinese steelmakers, which account for more than half of the global steel output, kept “churning out steel”, (good news for the Australian and Brazil iron ore producers) helping its inventories climb to a record high in March (bad news for everyone else). Chinese steel production actually rose by 1.2 % year on year in the first quarter of 2020. Given the progressive freezing of demand, steel-making profitability in China was quickly pushed to negative numbers. Throughout March, the immediate negative factors that initially pushed the steel demand down (paralyzed supply chains and lack of workers at construction sites due to quarantine measures and movement restrictions) were joined by world-wide structural negative factors (feeble and further ailing global economic health). The steelmaking malaise forayed around the globe with steel mills being closed or put to idle. By mid-March 2020, U.S. Steel Corp. and Cleveland-Cliffs, Inc. became the two most shorted materials stocks (IHS Markit data). In April, the Japanese steel output was forecasted to collapse by as much as 26 %. In May, JSW Steel Ltd. one of the three largest steel producers in India (the second-largest steel producer in the world), reported a near 60 % dive in April outputs. American and European steelmakers cut their production by roughly 50 - 60 % by the end of April but the global excess inventory remains a crucial concern. Although the U.S. steel sector has been regarded as an “essential industry” during the coronavirus pandemic, demand and prices have both deteriorated during the weeks of March and May. The global demand level has reached the lows of the 2007 - 2009 crisis.
And the question, again - how long? When can they start operating?
The global environment has become one of unprecedented fragility, instability, and unpredictability. Unfortunately, decision-makers too often base their choices on only a fraction of the available data and/or with a narrow focus on a place or topic currently observed. Working in an increasingly complex and interconnected environment, this is not only insufficient, it is outright harmful. And it is not for the lack of data. There is an abundance of data out there, making it progressively difficult to make sense of it. Yet, the ability to utilize the unprecedented amounts of globally available data on socio-economic, security, environmental, political and other developments gives any actor a key strategic advantage. Whoever will gain and continuously improve the capacity to gather, clean, process, store, aggregate this data and make them available for an instant AI-assisted analysis will be a step closer to winning the global “digital” contest.