On June 30, 2017, POSCO Research Institute (POSRI) released the third issue of Asian Steel Watch (ASW). This bi-annual English journal is specialized in the Asian steel industry and market. It deals with current issues in the Asian steel industry and features interviews with industry leaders and market analysis. It is comprised of five sections: On the Cover, Interview, Special Report, Featured Articles, and Market Trend and Analysis.
Asian Steel Watch aims to provide insightful, in-depth analysis of the ever-changing conditions of the Asian steel market. The third issue of Asian Steel Watch focuses on the future megatrends in steel-consuming industries and their impact on the steel industry, autosteel and new materials competition, Sino-Indian economic cooperation and the Indian steel industry, and One Belt, One Road in China. Asian Steel Watch Vol.3 features interview with John J. Ferriola, Chairman, President and CEO of Nucor, Chairman of worldsteel. This journal hopes to grant insight into the Asian steel industry, lay a firm foundation for the collaborative growth of Asia’s steel industry, and further contribute to the stability and prosperity of the global steel market.
Asian Steel Watch Vol.3 addresses the following issues:
In the “On The Cover” section, six articles are covered under the main theme of “The Future Megatrends in Steel-consuming Industries and Their Impact on the Steel Industry.”
- For the full version, please visit POSRI website (https://www.posri.re.kr/eng/
① Future Megatrends and the Steel Industry
The steel industry has been propelled by four main drivers of steel-consuming industries: urbanization, motorization, globalization, and industrialization. Together with these ongoing megatrends, global climate action and the Fourth Industrial Revolution are the emerging trends that will affect the future of the steel industry. As new megatrends develop, there will be a considerable shift in customer needs for steel products. In particular, demand is rising for high strength and toughness, high corrosion resistance, and high performance steels. Under global climate action, the steel industry will continue to develop energy saving and recycling technologies and new eco-friendly steelmaking processes. The Fourth Industrial Revolution will profoundly change the future of the steel industry. Through the smart transformation, the global steel industry will create new values.
② Understanding the New Mobility Paradigm
Automobiles are transforming from the modes of transportation to mobile IT equipment through automation, smartization, and servitization. In response to global warming, the electric vehicle (EV) market is expanding. With technological advances and the spread of charging infrastructure, EVs will become as competitive as internal combustion engine vehicles. As the automobile industry is expected to reach Level 5 autonomy by around 2020, autonomous driving technology will result in the replacement of conventional taxis with robo-taxis, and buses with autonomous mini-buses. The new mobility paradigm will bring profound changes to the automotive parts and materials markets and global demand for new cars as the attitudes toward car ownership changes.
③ Will the Shipbuilding Industry Flourish Again?
The shipbuilding industry will be recovered in the long term backed by global economic growth and highly influenced by environmental issues and technological advances. Under strict environmental regulations, demand for eco-friendly ships will rise. Ships will be required to use low-sulfur fuel oil. A wide range of technologies will bring about differentiated and innovative types of ships. Under the influence of the Fourth Industrial Revolution, remotely controlled or fully autonomous ships will become available in the future. Emerging technology will not only change ships, but also shipyards and the shipping and port industries. The changing steel industry will result in qualitative changes of steel products. As vessels become larger and lighter, the steel intensity of ship’s tonnage will fall continuously, and then decline even further following the rise of electric propulsion, unmanned, and autonomous ships.
④ Eyes on Energy Transition
Responding to global warming, the energy industry is poised to enter the era of transition. Despite the accelerated energy efficiency, global population growth and economic development are expected to drive energy consumption up. Although the share of fossil fuels continues to decline, fossil fuels will still dominate through 2035-2040. Investment in renewable energy capacity, excluding large hydropower, has stood at twice that of fossil fuel generation over the last five years. Renewable energy is no longer “alternative”energy but in fact has entered the energy “mainstream.”Influenced by the shale oil revolution, an era has come that oil prices remain below USD 50/barrel. Investment in the fossil fuel sector will remain the status quo, while investment in the T&D sector, which includes renewable energy grids and energy storage systems, is expected to make up an even more meaningful share in the future.
⑤ Future Cities and Changes in Steel Materials
Within the overall shift toward urbanization, megacities, green cities, and smart cities are emerging as new trends. As the competition paradigm shifts from competition among countries to competition among cities, the number of megacities with populations of more than 10 million is expected to increase in the future. In addition, with a growing sense of obligation to improve the environment, the paradigm is shifting to eco-friendly cities. Through convergence of IT technologies in this sector to create added value, a transition to green cities will provide a wealth of business opportunities. Under ongoing and emerging trends, megacities, green cities, and smart cities will bring changes to steel demand.
⑥ The Steel Industry over the Next Two Decades
Global steel demand will rise by around 1% for the next 20 years, reaching 1.69 billion tonnes by 2025 and 1.86 billion tonnes by 2035. Despite some concerns, global steel demand has not yet peaked and will not do so within the next two decades. Steel-consuming industries’ requirements for steel products will become stricter and more diverse under the influence of evolving megatrends. Their needs will become more sophisticated mainly in three areas: high strength and high toughness, high corrosion resistance, and high performance. The rising megatrend of global climate action will compel steelmaking processes to become more eco-friendly. For the long term, the steel industry is gearing up to develop carbon-free technologies such as the hydrogen reduction process. Under the other emerging megatrend of the Fourth Industrial Revolution, the steel industry will seek a smart transformation using IoT, Big Data and AI.
Interview with John J. Ferriola, Chairman, Chief Executive Officer and President of Nucor Corporation, Chairman of worldsteel on the subject of “Beyond Survival to Success.”
John J. Ferriola, Chairman, Chief Executive Officer and President of Nucor Corporation, Chairman of worldsteel talked to Asian Steel Watch about his company, the U.S. steel industry and global steel industry including : 1) Nucor’s business, core value, and vision, 2) technological prowess that Nucor has achieved so far, 3) the recent status and mid-to-long term forecast of the U.S. steel industry, 4) Nucor’s long-term strategy to overcome challenges in the steel industry, 5) the impact of advanced technologies, such as IoT, big data, and 3D printing, on the steel industry and implementation of Industry 4.0 in Nucor, and 6) the current major issues facing the global steel industry.
1) Nucor’s business, core value, and vision
∙ Nucor Corporation is North America’s largest steel producer and recycler with an annual production capacity of 26 million tons. We operate 25 scrap-based steel production mills in 17 U.S. states.
∙ Our 24,000 teammates are the company’s greatest asset. We are all dedicated to taking care of our customers by being the safest, highest quality, lowest cost, most productive and most profitable steel and steel products company in the world. We give them a great deal of freedom to make decisions about how they should run their mills. This decision making authority, along with our pay-for-performance incentive pay system, helps drive innovation.
2) Technological prowess that Nucor has achieved so far
∙ Nucor’s history is one of those that changed the U.S. steel industry through innovation. In 1969, we began operating our first electric arc furnace (EAF) steel mill. Many people thought we would only be able to make the most basic types of steel by using scrap metal, but throughout our history we have proved the skeptics wrong. Today, we are North America’s most vertically-integrated and diversified steel company.
∙ Our desire to control more of our raw materials supply and cost led us to build our two DRI plants.
∙ The secret of our success in continually innovating is our teammates and our culture. We empower our teammates to make decisions and they drive many of the ideas for improving our operations. Our production incentive bonuses mean that teams are always looking for ways to be more efficient, improve productivity, and develop new products.
3) The recent status and mid-to-long term forecast of the U.S. steel industry
∙ The U.S. steel market has been under tremendous pressure from imports the last few years. In 2016, imports were down by 15% compared to the prior year. Imports captured 26% market share, which was down from a record high of 29% in 2015. However, the average capacity utilization rate in 2016 was 71%, still well below the 87% utilization rate the industry enjoyed in 2007.
∙ We expect the U.S. economy and steel demand will improve in 2017. Non-residential construction, a major market for Nucor products, looks poised to regain momentum. With oil prices rising, we could see energy-related steel demand begin to turn around, While we expect automotive steel demand to level off.
4) Nucor’s long-term strategy to overcome challenges in the steel industry
∙ Our long-term strategy for profitable growth is built around five drivers: ① strengthening our position as the low cost producer; ② achieving the market leadership position in each product area where we compete; ③ expanding our capability to produce higher-margin, value-added products; ④ leveraging our downstream channels to market; and ⑤ achieving commercial excellence.
5) The impact of advanced technologies, such as IoT, big data, and 3D printing, on the steel industry and implementation of Industry 4.0 in Nucor
∙ The history of Nucor, and the North American steel industry, is one of constant innovation and exploration of new, more competitive and cleaner ways to make steel. Innovation and technology have transformed America’s steel industry into one of the world’s most competitive, sustainable, and environmentally progressive industries.
∙ Nucor is also using data to better inform our operations and customer service. We have grown our product offerings and can supply customers with most of their steel needs. To help facilitate that and share information across Nucor facilities, we are in the process of implementing a new information software system.
6) The current major issues facing the global steel industry
∙ Steel production overcapacity, and unfair foreign trade that results from it, is the number one issue facing the global steel industry.
∙ The U.S. steel industry has been aggressive in pursuing trade cases and we have scored a number of important victories. We have been working with our international partners to address overcapacity. We also need a timeline for capacity reductions by China and a mechanism to verify that the reductions have actually occurred.
(Special Report) Dr. Peter Warrian, Distinguished Research Fellow with the Munk School of Global Affairs at the University of Toronto talks about autosteel under the title, “Autosteel and the New Materials Competition.”
∙ The materials composition of the automobile will change relatively little between now and 2030. The dominant material will still be steel, with aluminum, plastic, and composites making marginal gains. The biggest materials shift will be the displacement of mild steels with high strength steel grades.
∙ The United States government’s Corporate Average Fuel Economy (CAFE) standards have become a global reference point for steelmakers. They also constitute a tipping point for a new kind of materials competition for the industry.
∙ The first challenge for steelmakers is the internal challenge of keeping up with the accelerated pace of technical innovation. The second major challenge will be to the autosteel customer base, the auto supply chain. Only a limited number of current customers are able to effectively deploy and apply new high end steels. Most of the auto supply chain is comprised of small and medium-sized enterprises (SMEs) with limited capital, human resources, and technical capacities.
∙ The CAFE standards apply to new passenger cars and light-duty trucks for model years 2012 through 2025. A mid-term review of the 2022–2025 standards is in process and will be finished by 2018 at the latest. The initial determination, supporting the policy, was released in late November 2016. Assuming the fleet mix remains unchanged, the standards require vehicles to meet a combined average fuel economy of 34.1 miles per gallon (mpg) in model year 2016, and 49.1 mpg in model year 2025. The new fuel efficiency targets have turned lightweighting into the overwhelming goal for autosteel.
∙ There are two redesign cycles left before 2025. Given the accelerating pace of software development and improved materials, it is reasonable that each of these redesign cycles should achieve at least a 5% weight reduction. Overall, about a 15% weight reduction should be feasible by 2025.
∙ Traditionally, autosteel design parameters were based on 2G: gauge and grade. The future is 3G: geometry, gauge and grade. Academics talk about a shift from traditional Design for Manufacturing to Manufacturing for Design in the new stage of advanced materials competition.
∙ Most of the auto supply chain is comprised of SMEs. Overcoming the challenges of change for such companies will require new perspectives, new partners, and new public policies. For both steel companies and automotive OEMs, future success will critically depend on raising the game of the SME supplier base. The autosteel issue, however, is more in the nature of a “network failure.”
∙ More explicitly collaborative “network” forms are functionally superior, especially where some combination of unstable demand, rapidly changing knowledge, and/or complex interdependencies between component technologies is present. The industrial economics lesson is that realization of value will be less and less correlated to the original site of production.
○ (Featured Articles) In this section, there are two articles: The Impact of Sino-Indian Economic Cooperation on the Indian Steel Industry; and Chinese Steel Moves along the One Belt, One Road.
① The Impact of Sino-Indian Economic Cooperation on the Indian Steel Industry
In the mid-2000s, Sino-Indian trade and investment began to expand. In light of India’s strategic culture, the economic cooperation between India and China will continue. India exports iron ore to China, while it imports steel products from China. India’s trade deficit with China is surging, dragging India down into chronic steel deficits with China. In early this year, the Indian government released draft National Steel Policy of 2017 (NSP) with an aim to boost its crude steel capacity to 64 Mt by 2030 to satisfy the continuously rising domestic steel demand and to export some steel products.
② Chinese Steel Moves along the One Belt, One Road
After President Xi unveiled the concept of a“New Silk Road”in September, the Chinese government began to actualize the“New Silk Road”and announced One Belt, One Road (OBOR) in March 2015. China has contributed USD 40 billion to a Silk Road Fund to finance OBOR and established the Asian Infrastructure Investment Bank (AIIB). China also held a major OBOR summit in May 2017. The Chinese steel industry has begun to search for a way forward through OBOR for the following reasons: falling steel consumption; prolonged oversupply with declining steel prices; and the spike in financial, environmental, and labor costs. The OBOR project is positive in that it boosts steel demand and address overcapacity; however, it needs adjustment and balance to prevent any dispute and side effect.
(Market Trend and Analysis) This section deals with “Measuring and Forecasting Steel Market Conditions with the POSRI Steel Index”
∙ It is difficult to be certain precisely what the “market conditions” may be since meanings and definitions vary. Over the history of the field of economics, a number of attempts have been made at explaining a particular state or status using indicators. The Steel Industry Index developed by the United States Geological Survey (USGS) is a representative composite index for the steel industry.
∙ As a research institute specializing in steel, POSCO Research Institute(POSRI) has been conducting research into methodology that would be able to accurately and astutely predict steel market conditions: the POSRI Steel Index. The POSRI Steel Index explicitly uses four sectors—the economy, steel-consuming industries, steel demand/supply, and raw materials—to reflect steel market conditions. The POSRI Steel Index uses five indicators each for the four sectors, or twenty in total.
∙ The primary advantage of the POSRI Steel Index is that it requires neither specialized statistical analysis nor econometric techniques. It rather uses a simple calculation of +1, -1, or 0 for a comparison of changes in indicators and scores among sectors. By transforming sector scores into radar charts, the POSRI Steel Index makes it easy to compare economic imbalances and intuitively grasp market conditions.
∙ In the comparison between the POSRI Steel Index and actual steel price fluctuations, the POSRI Steel Index moves closely with steel prices, leading by three to four months. This outcome suggests that the Chinese steel market is highly likely to slow after the third quarter. However, with robust scores in the economy and steel-consuming industry sectors, a sudden fall is unlikely to occur in the second half of 2017. Due to the time differences in the collection of the statistics, indicators used to calculate the index are only publicly released one to two months later. To solve this problem, higher frequency data should be used rather than monthly data as a means to enhance predictability.
Notes to Editors:
• POSCO Research Institute (POSRI) is a leading research institute headquartered in Seoul, Korea. Established in 1994, it offers research and consulting especially focusing on steel. However, its research areas are not confined to steel. POSRI conducts research in various fields, including the economy, steel-consuming industries, business, materials, energy, and the environment. POSRI publishes Asian Steel Watch, a bi-annual English journal specialized in the Asian steel industry and market, and Chindia Plus, a bi-monthly Korean journal specialized in China, India and other Asian countries.