Asian Steel Watch Vol. 6 Press Release (December 2018)
AuthorCheol-Ho Chung,Sojin Yoon
View : 7883
Like : 0
POSCO Research Institute (POSRI) released the 6th issue of Asian Steel Watch (ASW) in December 2018. This bi-annual English journal is specialized in the Asian steel industry and market.
Asian Steel Watch provides insightful, in-depth analysis of the Asian steel market. In this issue, Asian Steel Watch sheds light on global value chains under the On the Cover section titled, “The Steel Industry in the Context of Global Value Chains.” It features interview with OECD Steel Committee Chair Lieven Top and Special Report on Ten Years after the Financial Crisis, Where is the Global Economy Headed? by POSRI. The Featured Article section deals with the closed-loop system for the steel industry and steel industry policies under the Xi Jinping Administration. Finally, the Market Trend and Analysis section covers The China Shock Revisited: Shifts in the Scrap Market Dynamics and Their Ramifications.
For the full version, please visit POSRI website (https://www.posri.re.kr/eng/)
Asian Steel Watch Vol.6 covers the following issues in detail:
Interview with OECD Steel Committee Chair Lieven Top, “Challenges Facing the Global Steel Industry and the Way Forward”
Mr. Lieven Top, Chair of the OECD Steel Committee talked to Asian Steel Watch about the steel committee and global steel industry. 1) History, organization, role, and major outcomes of the OECD Steel Committee
The OECD Steel Committee celebrates this year its 40th anniversary! The objective of the Steel Committee is supporting the viability of the steel industry. Means to realize this are policies that reduce market distortions and promote competitive and open markets for steel. The Steel Committee has become over the decades the central platform for multilateral steel problems to be discussed.
The Committee mandate calls on governments to work together in order to: 1) reduce trade barriers; 2) deal with crisis situations in close consultation with trading partners; 3) facilitate necessary structural adaptations that reduce pressures for trade; 4) actions and promote rational allocation of productive resources; 5) avoid encouraging economically unjustified investments; 6) ensure that state-owned enterprises act in accordance with market principles; and 7) facilitate multilateral co-operation consistent with the need to maintain competition.
2) Steel overcapacity as its key agenda item
Excess capacity remains certainly the key challenge for the global steel industry. Considering limited expectations of demand growth, overcapacity persists at near-record levels of 540 Mt. This is further fuelled by increases in capacity in 2018, whose 2% growth brings current global steelmaking capacity up to 2291 Mt. OECD data show that global steelmaking capacity could increase by 1.6% between 2019 and 2021 in the absence of closures.
On the medium and longer term (2035), very slow growth is further expected for steel consumption. This means that unavoidably important further capacity closureswill be needed to approach a market balance.
3) The spread of protectionism
Steel trade continues to decline amidst increasing trade actions in the global steel market. Global steel exports decreased by 7.9% in the first quarter of 2018 compared to the same period in 2017. Global imports continued to decrease in 2018, falling by 6.6% in the first quarter of the year compared to the same period in 2017. Aside of close monitoring, steps are needed in the right international fora like the WTO, to evolve towards a sustainable internationaltrade, which is in the long term interest of the whole of the steel sector.
4) Challenge of climate change for steel companies
Steel companies are confronted with different aspects of mitigation and of adaptation. Agreement of Paris and consecutive policy on different levels causes or stimulates further decisions focused on increasing energy efficiency, adapting used energy mix, and other emission reduction measures.
There is also the more recent phenomenon of growing direct impact on the operation of companies and their employees by several climate change effects. If appropriately designed, there can be potential double dividends, supported by policy making.
5)Prospect for the global steel industry
Demand growth next year decelerates further under 1%, and will remain slow on the longer term. It is the sum of a number of underlying, interrelated effects of economical growth and other interrelated factors influencing demand in very different ways, like the evolution of consumption patterns, aging population, the rise of the circular economy concept, and competing products. This illustrates the permanent challenge for forecasters integrating these elements to improve their models.
6) Development of the steel industry
Working together in international institutions like the OECD or the WTO remains a fundamental pillar. These are the fora where governments can work together in a multilateral way based on rules. The steel industry will certainly benefit from authorities learning from each other’s experiences how to address challenges as reductions of capacity, climate objectives or digitalization.
[On The Cover] “The Steel Industry in the Context of Global Value Chains.”
Global Value Chains: A Framework for Analyzing the Steel Industry
GVC develops when the influence of a value chain transcends the borders of a country and spreads into cross-country activities. GVC refers to the fragmentation and decentralization of production processes into networks of vertically and horizontally intertwined countries, industries, and enterprises, as well as the subsequent value-added activities. Global steelmakers are targeting emerging markets and focusing on an expansion of value-added products. Given the international fragmented production structure, it is hard to trace value-added contributions because of this double counting issue. To address this issue, exports are divided into domestic value added absorbed abroad (DVA), domestic value added returned home (RDV), and foreign value added (FVA).
Steel Global Value Chains and Sub-sectorial Comparative Advantage
This note examines the role of Global Value Chains (GVCs) in the context of the steel sector. GVCs, a prevailing phenomenon in the globalised modern world, are characterised by the interaction of domestic value chains across different economies for the production of a certain good. Input-Output (I-O) analysis represents a novel methodological framework that provides a better understanding of the role played by different types of inputs in the generation of comparative advantages. Indicators constructed through I-O data have the potential to shed new light on the intricacies of modern steel global value chains and on the generation of comparative advantage at sub-sectorial level compared to standard measures.
Industrialization, GVC, and Steel Demand
This article examines the industrialization prospects of developing countries and their implication for steel demand in light of the GVC evolution. There are some reasons to doubt that the traditional idea about industrialization and its impact on steel demand might have been altered due to a global value chain (GVC) in the manufacturing sector. Being incorporated into a global supply chain paves the way for a fast-track industrialization for developing economies with lower domestic capital requirements. However, in the case of industrialization through GVC, industrial development might be limited to a narrow range of sectors that are integrated into GVC and spillover into other industries is likely to be limited. Premature deindustrialization is a phenomenon, in which developing countries have experienced a decreasing share of manufacturing in terms of either employment or GDP much before reaching the living standards of developed countries. It seems that only rather scarce opportunities are left for developing countries to achieve a full-scale industrialization with own supply chains. Therefore steel demand potential for late-developing countries will be limited compared to early industrializers.
Export Competitiveness and the Global Value Chains for the Korean Steel Industry
This articles study Korean steel trade by applying the decomposition of value-added exports suggested by Wang, Wei, and Zhu (WWZ, 2013). The Korean steel industry’s GVC participation is higher than construction and services as it has high forward and backward effects and highly depends on raw materials imports. Korea rapidly participated in GVCs during 2000-2012 by producing offshore and importing low-priced Chinese steel for consumption at home or re-export. However, since 2012, GVCs have weakened due to rising global protectionism, the shift to domestic demand-driven structures in some Asian economies, and the narrowing production cost gap between developed and developing countries.
(Special Report) Dr. Jun H. Goh, Executive Vice President of POSCO Research Institute and other two experts conduct in-depth analysis on “Ten Years after the Financial Crisis, Where is the Global Economy Headed?”
Ten years after the financial crisis, the global economy will face four major changes: excess debt, sluggish real sectors, the G2 imbalance, and low productivity, and demographic onus, triggering shifts in global finance, the real economy, industry, and trade. The four changes are:
1) Excess debt and financial distress: Debt-dependent growth will face limitations with the end of the low interest rate era. Global interest rates will inevitably rise and the related risk will grow for heavily-indebted countries;
2) New normal of structural low growth: Chronic demand shortfalls and productivity decline will diminish growth. Structural low growth in the global economy will become a new normal;
3) Manufacturing margin squeeze and evolving industrial ecosystem: With the deepening margin squeeze, the ecosystem is rapidly evolving to a digital-based version and smart technology-based big business is anticipated to rise; 4) Neo-protectionism: The era of neo-protectionism has come with the rise of nationalism and higher trade barriers. The ongoing US-China trade war is a hegemonic struggle that is highly likely to persist.
- The changes in the global economy are not basically assumed in a crisis scenario. However, given the current global economic conditions, another crisis cannot be ruled out. One plausible scenario would be a G2-led economic crisis in the next couple of years.
- Three economic variables—interest rates, foreign exchange rates, and oil prices—will have high volatility and stabilize over the medium-to long-term.
Enterprises should pursue strengthened risk management and a prudential approach to new business and major investment. However, as conventional business opportunities are integrated with ICT, the smart infrastructure market in emerging economies will continue to grow. Using joint research with global enterprises, it will be necessary to create new business opportunities.
(Featured Articles) 1) Towards a Closed-loop System for the Steel Industry,
2) Steel Industry Policies under the Xi Jinping Administration and Their Implications
Towards a Closed-loop System for the Steel Industry
The Fourth Industrial Revolution is expected to trigger fundamental changes in the way we produce and consume goods and resources, accelerating the transition to a circular economy. Steel companies need to understand their strong and weak points and seek ways to address challenges for improving circularity. Recently, steel companies have begun to recognize the impact of value chains and implement various business practices and models. When responding to challenges and opportunities in the circular economy, there are three key areas of focus: process innovation; product innovation; and creating a ‘closed-loop platform.’ In the due course to reach the circular economy era, steelmakers will naturally become more innovative in green technology that will generate unimagined circular business opportunities as well.
Steel Industry Policies under the Xi Jinping Administration and Their Implications
With the advent of the first term of the Xi Jinping Administration in May’13, the Chinese steel industry faced challenges with the rising number of steel company declaring bankruptcy amid plummeting demand, supply glut, and cost increase. Fully recognizing the severity of the situation, the Chinese government prioritized the closure of plants producing low-quality steel from scrap (ditiaogang) and initiated a sweeping restructuring. Steel policy direction during Xi’s second term (Mar. 2018 – Feb. 2023) includes the scaling-up of steelmakers, higher quality products, and smart & green manufacturing, and globalization under continuous capacity control. As the Chinese steel industry will be upgraded in terms of quality and greatly impact the global steel industry, the global steel industry must prepare for such changes.
(Market Trend and Analysis) The China Shock Revisited: Shifts in the Scrap Market Dynamics and Their Ramifications
China’s steel scrap consumption totaled 100.1 Mt in 2016 and China exported 2.2 Mt of steel scrap in 2017. Despite China’s power in the global steel market, its standing in the steel scrap market is minimal.
EAF represented only 5.2% of Chinese crude steel production, far lower than the global average of 26%.
With the closure of ditiaogang facilities in 2017, the Chinese steel scrap market is tumbling, as evidenced by the surge of China’s scrap exports from 1,000 tonnes in 2016 to 2.2 Mt in 2017.
With the closure of 140 Mt capacity of ditaiogang, low-quality steel made from scrap metal, approximately 70 Mt of unrecorded scrap transactions have revealed, lead to price decline and export increase.
An analysis of possible long-term and structural changes to the Chinese steel scrap market shows that steel scrap generation is expected to surge and overflow after 2025.
Chinese steel scrap supply will swell from 170 Mt in 2017 to 310 Mt in 2030, and Chinese scrap consumption is expected to mark 165 Mt in 2017 and 260 Mt by 2030. In this case, the scrap supply glut could reach 17 Mt in 2020 and 50 Mt of excess scrap supply will be added after 2025.
With the rise of scrap supply, there will be an increasing number of small EAFs across China, even in inland China. China will raise its self-sufficiency rate in raw materials supply and could mirror the US structure.
By 2025, the shock from Chinese steel in the 2000s will be revisited with the impact of Chinese steel scrap.
Notes to Editors:
POSCO Research Institute (POSRI) is aleading research instituteheadquartered 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.