[Asian Steel Watch] Vol.2 (2016.10)
Interview Ask the Guru: Roads Ahead for the Steel Industry
Edwin Basson, Director General of worldsteel talked to Asian Steel Watch about major issues and future of the steel industry: 1) Causes of sluggish global steel demand and forecast for 2017, 2) China’s peak steel and long-term forecast for China’s steel demand, 3) solutions to overcapacity, 4) future of the Asian steel industry, and 5) influence of the Fourth Industrial Revolution on the steel industry.
1) Causes of sluggish global steel demand and demand forecast for 2017
The steel industry is affected by structural and cyclical fluctuations of the global economy. The year 2016 will be the turning point and most regions will show improvement in 2017, but growth momentum will continue to be weak, reflecting continued contraction in China and weakness in other parts of the world.
2) China’s peak steel and long-term forecast for China’s steel demand
Steel use grows fast but then reaches a peak at or close to the upper inflection point on the S-curve, before a long term decline in steel use takes place. This happens at a per capita income level of around USD 12,000-15,000. China has reached peak steel at a rather earlier stage of economic development compared with the experiences of developed economies as it has accomplished a very condensed development in a relatively short time period. Recent studies by the worldsteel economics team highlight a number of unique cases where, after the first peak, steel use recovered to the same or even higher levels of use. The future development of Western China, the continued capability of China as a competitive manufacturing base, and the geographical location of China could contribute to a new momentum in steel demand growth in the future.
3) Solutions to overcapacity
Reducing excess capacity is never an easy task, largely because of many hidden barriers to exit. Capacity reduction can have a significant impact on the balance sheets of operating companies, and are never popular with investors. China has publically announced the closure of up to 150 million tonnes over a five year period. With the determination of the current government to tackle the overcapacity problem and environmental protection, we should trust that China will be able to meet this target. Foremost for worldsteel is to insist that industry restructuring should take place on a “level playing field” principle and that restructuring should follow similar principles wherever it is done.
To that effect, worldsteel members have agreed to the following principles on restructuring: ⅰ) Governments should promote a swift and timely restructuring of the steel industry by advancing policies that ensure market forces play a decisive role in determining the future of the industry. ⅱ) Market oriented approaches should ensure survival of the fittest producers. Inefficient producers should not be subsidized to remain in operation. ⅲ) Barriers to exit that delay restructuring should be removed in an orderly and timely way. ⅳ) Develop safety net support that mitigates the consequences of restructuring. ⅴ) Commitments to adjust the steel industry structure should be made known and tracked until finalization.
4) Future of the Asian steel industry
Today, steel use is predominantly in Asia, which accounts for 65 % of global steel use. Asia as a region has a large population. Moreover, in many Asian countries, the economies are progressing rapidly up the economic development path. Given these conditions, it is likely that Asia will remain a driving force in steel use in the foreseeable future. future growth will likely depend more on the development of the ASEAN region, and growth in India strongly supporting developments in the South East Asian markets.
5) Influence of the Fourth Industrial Revolution on the steel industry
The steel industry has a long history of technological adaptation and product innovation.
Today, the industry is already extremely efficient in iron and steel making, as well as processing. Within this environment, the Fourth Industrial Revolution could continue to play an important role, but additional progress will be incremental owing to the already high level of technological achievement. It is rather in the field of the use of steel in applications that the Fourth Industrial Revolution could play an important role. The Fourth Industrial Revolution may influence the design and production of consumer goods to the extent that waste is reduced, and the lifetime of steel in use increases. It is therefore quite possible that the Fourth Industrial Revolution will have little direct influence on the steel industry. The indirect influence through changing the manufacturing process and product design of items requiring steel as an input may have a vastly more influential role in the steel industry.