Wirtschaftsstudien
Metals

Metals

Metals
Latin America
Northern America
Central & Eastern Europe
Western Europe
Asia-Pacific
Mid-East & Turkey
Change sector

Strengths

  • On-going restructuring of key metal activities (nickel, copper, zinc, rare earths, aluminium)
  • Lower production costs
  • Products used in many industries across the world, notably a growing using of batteries

Weaknesses

  • Low production capacity rates across the world
  • Increased pressure from the Chinese authorities to reorganise the steel and aluminium industries
  • High dependence on Chinese economic policy
  • Globally decreasing vehicle sales rates

Risk assessment

Highlights
 STEEL PRICES INDICES IN CHINA, EUROPE,  AND THE UNITED STATES

STEEL PRICES INDICES IN CHINA, EUROPE,
AND THE UNITED STATES

The metal sector has been at the centre of the unfolding trade war. The United States’ government has imposed import tariffs on steel (25%) and aluminium (10%) from several countries such as China – as well as on its allies (the European Union, Canada, Mexico, Japan). These extra tariffs, in addition to those already imposed, have sustained US steel prices. According to SteelHome, monthly US average steel prices increased by 31% between end-December 2017 and October 2018, while Chinese and European prices sent mixed signals (-5.9% and +2.2% respectively).

Elsewhere, on May 24, 2018, the European Commission (EC) opened an anti-dumping investigation into some Chinese steel products, after a complaint was lodged by EUROFER, the European Steel Association. In addition, European steelmakers fear the rerouting of steel products from the United States after the imposition of additional tariffs. However, the EC imposed safeguard measures, which took effect in July 2018. These measures affect imports above traditional levels by imposing extra customs duties.

Other base metals and alloys prices are experiencing mixed trends as well. Nickel grew by 6.6% over the December 2017-October 2018 period. Zinc, aluminium, cobalt and copper saw their prices shrinking (-16.5%, -2.5%, -16.8% and -9.3% respectively).

As steel is often viewed as a barometer of global activity due to its use in several industrial activities (including the construction sector, automotive and consumer goods such as household appliances), it is examined in further detail below.

Demand

Global steel product consumption is likely to stagnate by 0.2% in 2018, due to less buoyant and less synchronised economies. The metals for which consumption is set to increase in 2019 are aluminium (2.6%), copper (3.2%), nickel (5.7%), and zinc (3.5%). The fact that the US decision to impose tariffs on all steel and aluminium imported products came into force in June 2018 is likely to disadvantage client sectors, notably automotive and construction, the latter of whom has so far benefitted from low steel prices.

China’s steel consumption is expected to decrease (-2.8%) in 2019 due to an anticipated softening of property investment growth this year, given the high level of indebtedness of companies in the sector (USD 55 billion of debt due during the year, according to Dealogic). A slowdown in real estate investment in the country's largest cities has led to deterioration in the corporate financial situation of the parties involved, as previously mentioned in Coface’s March 2018 China Payment Survey. Moreover, car sales in 2019 are set to be sluggish compared to those of 2018. India's consumption of steel products is forecast to grow by 6% in 2018 due to strong public support for infrastructure projects, as well a manufacturing sector that has boosted domestic consumption, which is likely to continue in the medium -term.

Western Europe is set to experience a 1.2% growth in consumption in 2019. The forecast mixed results of the European car market are likely to threaten European steelmakers, despite being better positioned with their high added value steel products. Mixed trends in the European construction sector in 2019 are likely to impact the metal sector as well. Lower economic prospects for the eurozone will adversely impact demand for housing. Moreover, the expected end of the ECB quantitative easing will inevitably lead to an increase in interest rates. These developments will impact both the automotive and construction sectors, notably through the financing channel.

Steel consumption in the United States should grow by 1% in 2019. Players in the construction sector – the primary customer for the steelmaking industry – appear to be rather optimistic, despite being hit by hikes in steel product prices due to antidumping countermeasures and extra tariffs. 38,000 exemption demands were requested by US steel customers at end-August 2018, despite 17,000 objections from steel producers. The automotive sector in the United States is suffering from higher steel prices, which are denting profitability. The expected closures of some assembly plants associated with the tepid trends of the domestic car market are likely to weigh on steelmakers’ bottom lines.

Supply

Global steel production is set to contract marginally by 0.2% in 2019, following the heavy crackdown on polluting plants in China than a year ago. Also expected to grow is production of aluminium (2%), copper (2.6%), nickel (5.5%), and zinc (5%).

Chinese production is likely to shrink in 2019 due to China’s crackdown on pollution from its steel plants, as well as its decelerating economy. Chinese steelmaking mainly focuses on low added value products used in the construction sector, among others. In addition, it is largely decentralised and local provinces have little incentive to reduce this relatively major tax resource. However, decreasing domestic steel prices encourage local producers to produce less.

Steel production in Western Europe is forecast to grow by slightly more than 1% in 2019, compared to nearly 2% in 2018, impacted by lower economic prospects. The current environment of trade spats and tit-for-tat retaliatory measures has adversely affected investor confidence, among other factors. Nevertheless, the European steel sector should continue to benefit to a certain extent from the measures taken by the EC since August 2017, when they imposed customs tariffs on some Chinese products.

Some steelmakers in Central Europe, notably in Austria, will be able to manage the decelerating economy due to their positioning on high-value products, and their efficient production processes.

In the United States, steel production should grow by 4.3% in 2019, boosted by the Trump administration’s measures to support the US steel industry via tariffs, but also by measures taken during former President Barack Obama’s tenure to curb Chinese steel imports. According to the current trend, steel product prices are likely to hold up in 2019 and should encourage steelmakers to produce more. In addition, after their House takeover, the Democratic party seems willing to push for implementing an infrastructure program, which may benefit to domestic steel manufacturers.

 

Last update : February 2019

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