Like most governmental, or worse intergovernmental, bodies the Organisation for Economic Co‑operation and Development is more dedicated to talking shop than legislating, and a report following the recent meeting of the OECD Steel Committee is no exception. Long on talk and short on hard recommendations.
As a snapshot of the current, global steel market it deserves a pause and review even if its recommendations are likely to be largely ignored by those governments that can most have any beneficial impact on the market.
Their first finding, and this will come as no surprise to anyone in the industry, is global apparent steel use has nearly ground to a halt in 2015. According to the OECD’s March 2015 “Interim Economic Assessment,” the effects of lower oil prices and monetary policy easing have led to a slight improvement in economic growth prospects in the major economies, but the near-term outlook is still one of reduced world GDP growth.
Global crude steel production grew by only 1% in 2014, driven by China’s slowdown and modest growth in developed economies. In the first quarter of 2015, global crude steel production decreased by 1.8%, while Chinese crude steel production in the first quarter of 2015 fell by 1.7%, reaching 811.5 million metric tons in annualized terms.
In the rest of the world, crude steel production was 810.8 million mt in the first quarter of 2015, in annualized terms, down 1.9% compared to the previous year. Looking forward, global apparent steel use (of finished steel products) is expected to grow by only 0.5% in 2015 and by 1.4% in 2016, after 2014 when it grew by an equally anaemic 0.6%.
Anyone active in the North American market will not be surprised to hear that OECD expects demand here to decline by 0.9% in 2015 and remain weak in Central and South America. Only the Middle East and Asia, outside of China, are expecting to show decent growth with India probably leading the way.
In light of the poor growth prospects, and discussion went so far as to suggest we may be in a permanently low steel growth environment from here on as population growth slows and populations age, overcapacity and the consequences thereof featured highly in the committee’s attentions.
Too Much Investment
Too much new steel investment continues to be made, often aided and abetted by governments even though overcapacity is chronic globally and severe in markets where normal market forces do not provide counterbalancing controls. As a result, steel-related trade actions are on the rise, with complaints accounting for as much as 25% of the total number of complaints brought to the WTO in recent years.
This isn’t going to get any better in 2015-16 and will create distortions in markets as producers switch their sales focus in response to legislation.
Mandatory Climate Change Comment
No intergovernmental meeting would be complete without reference to climate change or environmental factors and, not to disappoint, the OECD wraps up with the observation that progress on low-carbon industrial innovation over the next decade is crucial. The iron and steel sector accounts for about 22% of total industrial energy use and 31% of industrial, direct CO2 emissions. So, like it or not, changes in environmental legislation are going to have a major impact on the industry in coming years, particularly in those countries where these standards are actually enforced.