Nothing lasts forever — not the Roman Empire, not the Ming Dynasty, not even Simon Cowell’s popularity; at some stage they all falter and so too will the growth rate of the global steel industry. An intriguing article in the FT explores the issue for ArcelorMittal, but the challenge is the same for all global steel players in the years ahead. Steel demand has been revolutionized by the emerging markets and in particular by China. As the emerging markets have industrialized, built roads, bridges, schools, hospitals and countless houses, so steel demand has rocketed. Not since the post-WWII rebuilding of Europe and Japan from the mid-1940s to the mid 1970s has the steel industry enjoyed such a period of growth as the last decade. Between the late 1970s and the end of the century, the steel industry went through minimal growth and abysmal profits.
Source: The Financial Times
As this graph from the FT shows, China’s oil growth has risen in line with the country’s gradual growth of a consuming middle class, but steel demand rocketed on the back of massive infrastructure demand. Mature markets such as the US, Europe and Japan achieved GDP growth with lower and lower accompanying steel demand relative to GDP, as investment was channeled into more value-add manufacturing, services and consumer goods. Over the next decade or so, China’s race to become an industrialized country will slow to a more sustainable pace; arguably we are already seeing the start of that forced on the economy by Beijing’s focus on more value-add manufacturing, lower energy consumption per unit of GDP, less reliance on exports and less speculative investment. The consequence could be that left with a massive steel industry (some 45 percent of global capacity) the country could look to exports rather than rationalization. The consequences for domestic steel producers in North America, Europe and elsewhere could be to drive them back into a decade or more of low growth and even lower profit margins.
For the time being, profits are relatively good and are likely to stay so for a number of years through the middle of this decade. What the steel world will look like following a built-out China remains to be seen.