steel market developments: q2 2019

Organisation for Economic Co-operation and Development

DSTI/SC(2019)1/FINAL

Unclassified English - Or. English

18 July 2019

DIRECTORATE FOR SCIENCE, TECHNOLOGY AND INNOVATION

STEEL COMMITTEE

Steel Market Developments: Q2 2019

This document is only available in PDF format.

Contact: Daichi MABASHI, [email protected], +33 1 45 24 1483;

Fabien MERCIER, [email protected], +33 1 45 24 9384.

JT03449878

OFDE

This document, as well as any data and map included herein, are without prejudice to the status of or sovereignty over any

territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.

2 │ STEEL MARKET DEVELOPMENTS – Q2 2019

This paper was authored by Fabien Mercier, Daichi Mabashi and Filipe Silva from the OECD

Directorate for Science, Technology and Innovation (STI). It was approved and declassified by written

procedure by the OECD Steel Committee on 26 March 2019 and prepared for publication by the OECD

Secretariat.

This document, as well as any data and any map included herein, are without prejudice to the status of or

sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name

of any territory, city or area.

© OECD 2019

You can copy, download or print OECD content for your own use, and you can include excerpts from

OECD publications, databases and multimedia products in your own documents, presentations, blogs,

websites and teaching materials, provided that suitable acknowledgment of OECD as source and copyright

owner is given. All requests for commercial use and translation rights should be submitted to

[email protected].

mailto:[email protected]

STEEL MARKET DEVELOPMENTS – Q2 2019 │ 3

Table of contents

Recent market developments in the global steel industry .................................................................. 5

1. Summary ............................................................................................................................................ 6

2. The economic outlook........................................................................................................................ 7

2.1. OECD economic outlook .............................................................................................................. 7 2.2. Focus on specific risks to the outlook ........................................................................................... 9

2.2.1. Deleveraging and adjustment in the Chinese economy .......................................................... 9 2.2.2. Slowdown in global economy and trade .............................................................................. 14

2.3. Steel consumption ....................................................................................................................... 17 2.3.1. Americas............................................................................................................................... 18 2.3.2. Asia ...................................................................................................................................... 18 2.3.3. CIS ........................................................................................................................................ 19 2.3.4. European Union.................................................................................................................... 19

2.4. Steel production .......................................................................................................................... 20 2.5. World steel trade ......................................................................................................................... 21 2.6. Steel and steelmaking raw material prices .................................................................................. 23

2.6.1. Steel prices ........................................................................................................................... 23 2.6.2. Steel futures prices ............................................................................................................... 26 2.6.3. Steelmaking raw material prices .......................................................................................... 27

2.7. The global capacity situation ...................................................................................................... 30 2.8. Global steel market outlook ........................................................................................................ 31 2.9. Regional steel market outlook .................................................................................................... 31

2.9.1. Europe and CIS economies .................................................................................................. 31 2.9.2. Americas............................................................................................................................... 32 2.9.3. Middle East .......................................................................................................................... 33 2.9.4. Asia and Oceania .................................................................................................................. 33

References ............................................................................................................................................ 38

Endnotes ............................................................................................................................................... 48

Tables

Table 1. OECD Economic Projections, November 2018 ........................................................................ 9 Table 2. World crude steel production developments in 2018 .............................................................. 21 Table 3. Steel trade developments across major steel-producing economies ........................................ 23

Figures

Figure 1. Total credit to non-financial corporations (core debt) ........................................................... 10 Figure 2. World industrial production ................................................................................................... 15 Figure 3. World trade and trade prices .................................................................................................. 16 Figure 4. Steel Purchasing Managers’ indices (PMIs) .......................................................................... 17 Figure 5. Consumption of hot-rolled steel products, major economies ................................................. 18 Figure 6. Aggregate flat and rebar steel prices (latest January 2019) ................................................... 24


Figure 7. Steel price for flat products, by region ................................................................................... 25 Figure 8. Steel price for rebar products, by region ................................................................................ 26 Figure 9. Steel future prices................................................................................................................... 27 Figure 10. Prices for key steel-making raw materials ........................................................................... 28 Figure 11. Chinese scrap prices continues on upward trend ................................................................. 29 Figure 12. Margin between steel and raw materials prices ................................................................... 29 Figure 13. Evolution of crude steelmaking capacity in OECD/EU economies and non OECD/EU

economies ...................................................................................................................................... 30 Figure 14. Global crude steelmaking capacity and crude steel production ........................................... 31 Figure 15. Car passenger vehicle sales in China ................................................................................... 34 Figure 16. Real estate price change and investments ............................................................................ 35

Boxes

Box 1. Debt for equity swaps ................................................................................................................ 11


Recent market developments in the global steel industry

This document is part of a regular monitoring exercise to provide the Steel Committee with

timely information on steel market developments. It provides a brief update on recent

developments in steel markets, based on information available until December 2018.


1. Summary

Steel market fundamentals have weakened markedly over the second half of 2018.

Although steel production growth is still positive in most regions, steel prices have already

started to adjust, reversing their previous upward trend and eliminating most of their earlier

gains. Important headwinds include the weakening global outlook, the increase in trade

frictions, the pickup in new capacity investments, and the persistence of excess capacity

This document provides an overview of recent steel market developments, the latest

developments in global steelmaking capacity, and a brief overview and outlook for regional

markets, based on information available until December 2018. It also includes an overview

of the deleveraging and adjustment process in the Chinese economy and the slowdown of

the global economy and in global trade. To summarise, the following key developments

are discussed in this report.

The economic situation: The November 2018 OECD forecasts pointed to a world

GDP growth rate of 3.5% in 2019, with downside risks to growth including a

potential increase in trade frictions, the phasing out of non-conventional monetary

policies, and the financial risks stemming from high asset valuations and high

private and public indebtedness.

Steel demand: Market data suggest that steel consumption growth stalled in most

economies in 2018, and that the 2017 recovery may be losing momentum.

Downside risks to the outlook include increased trade frictions and a weakening

global economy, which suggests that without further action large structural

imbalances are likely to persist.

Steel exports: Global steel exports continued to decline in the first 10 months of

2018 (y-o-y), including exports from India (-29.3%), the United States (-13.4%),

the People’s Republic of China (-9.3%), the European Union (-6.4%) and Japan (-

3.1%).

Steel and raw material prices: After increasing during the first months of 2018,

steel prices reversed their earlier gains, falling back to their pre-2018 levels. Coking

coal and ferrous scrap prices have both fallen back to their pre-2018 levels, while

iron ore prices have remained roughly the same over the year.

Capacity: The latest available information (as of 31 December 2018) suggests that

global steelmaking capacity, in nominal crude terms, remained nearly unchanged

in 2018, following declines in 2016 and 2017. Global capacity remains well above

production and demand.

Steel demand outlook: Forecasts by the World Steel Association (worldsteel),

released in October 2018, suggest that global steel demand will continue to grow

in 2019, albeit at a slower pace (1.4%) than in 2018. A new worldsteel forecast will

be released in April 2019.


2. The economic outlook

2.1. OECD economic outlook

According to the November 2018 Economic Outlook, the OECD forecasts that world GDP

will grow by 3.7% in 2018 and 3.5% in 2019. Table 1 below indicates the latest available

OECD GDP growth forecasts. In many countries, unemployment is at record lows, and

labour shortages seems to be emerging, despite sluggish real wage growth. Monetary and

fiscal policy has begun to normalise, particularly in the United States (U.S.). Nevertheless,

a number of risks may materialise in the very near future. Trade growth and investment,

which are important contributors to global GDP growth, may continue to be hampered by

tariff hikes, according to the Economic Outlook. Higher US interest rates and an

appreciating US dollar have resulted in an outflow of capital from emerging economies,

which is weakening their currencies. Also, stock market prices and asset valuations in

general are still high by historical standards — if interest rates were to increase rapidly, this

could negatively impact stock market valuations and affect the real economy through

expectations and adverse wealth-effects.

In the euro area, real GDP growth should be about 1.8% in 2019, supported by private

consumption and business investment. GDP growth is projected to decrease slightly in

2020, to a rate of 1.6%, while domestic demand should continue to be supported by

accommodative monetary and fiscal policy. Favourable financing conditions should

support investment, and inflation should continue to rise as wage growth strengthens. The

fiscal stance is expected to continue to be accommodative.

In the U.S., the economy continues to benefit from the fiscal stimulus enacted in 2017 and

2018, and the impact of the accommodative fiscal stance is expected to continue being felt

until the end of 2019. The recent tax reforms and the supportive fiscal conditions should

continue to underpin private investment in 2019, but a weakened global outlook and trade

frictions will weigh on economic activity, according to the Economic Outlook.

Furthermore, risks to financial stability stem both from high asset valuations and from high

levels of non-financial corporate debt.

In Japan, economic growth is projected to be near 1% in 2018 and 2019, supported by

exports, business investment and private consumption. A number of factors might cushion

the negative impact on consumption of the increase of the consumption tax (from 8% to

10%), including the use of half of the generated revenues in new government spending

programmes, and the cut in taxes on cars and housing. There are two main risks to the

economic outlook for Japan: a loss of confidence in Japan's fiscal sustainability and the

escalation of trade actions. The Comprehensive and Progressive Agreement for Trans-

Pacific Partnership (TPP-11), where Japan assumed a leadership role, should help mitigate

the latter.

In the People’s Republic of China (hereafter “China”), economic growth is estimated to

have declined to 6.6% in 2018 and is projected to further decline to 6.3% in 2019. The

weakening of industrial production, corporate profits and revenues, are all signs of a

slowdown. Excess capacity still plagues a number of industrial sectors, and weighs on

business investment. Foreign trade flows, currently mitigated by the front-loading of

purchases from the U.S. to avoid tariffs, should continue to lose momentum in 2019. The

slowdown of activity also reflects reduced infrastructure investment and residential


housing. Monetary and fiscal policies have eased to curtail the slowdown of growth. The

decrease of average import tariffs and tax cuts aimed at boosting consumption could also

help alleviate the impact of the global slowdown and of the reduction in trade activity on

the Chinese economy. A better pricing of risks and the removal of implicit government

guarantees for State-Owned Enterprises (SOE) would contribute to increase capital

efficiency, and thus bolster sustainable growth.

In India, economic growth will slow somewhat but remain robust, at close to 7.5% in 2019

and 2020. Higher oil prices and the rupee depreciation are putting pressure on demand,

inflation, the current account and public finances. However, both business investment and

exports are expected to remain strong, due to past structural reforms – including the new

Insolvency and Bankruptcy Code and the smoother implementation of the Goods and

Services Tax. Nevertheless, India has little room for manoeuvre in terms of fiscal and

monetary policies: its level of debt relative to GDP is elevated, and the rupee depreciation

underpins inflationary pressures. Those inflationary pressures have only been temporarily

contained by a good monsoon (which positively affected the supply of crops and lowered

food prices), lower excise taxes on oil products, and the government’s requirement that

public-sector oil marketing companies lower their margins.

In the Russian Federation (hereafter “Russia”), growth is projected to remain at around

1.6% in 2018, easing slightly to 1.5% in 2019. Private consumption and investment should

benefit from rising wages, household credit and employment, although the increase in the

value-added tax will partially offset these effects. Uncertainty remains about possible future

sanctions and counter-sanctions, which could continue to take their toll on the Russian

economy.

In Brazil, growth should gain momentum during 2019 and 2020 supported by private

consumption. Improvements in the labour market and the increase in business investment

possibly supported by greater policy certainty could contribute to economic activity.

Downside risks are a deteriorating fiscal position, should the newly elected government fail

to reach consensus on pension reform.


Table 1. OECD Economic Projections, November 2018

Real GDP growth (y-o-y).

Note: 1. Moving nominal GDP weights using purchasing power parities.

2. Fiscal years starting in April

Source: OECD Economic Outlook, November 2018, http://www.oecd.org/eco/outlook/economic-outlook/.

2.2. Focus on specific risks to the outlook

2.2.1. Deleveraging and adjustment in the Chinese economy

The non-financial corporate debt to GDP ratio in China has increased from about 100% in

2008 to about 160% in the first quarter of 2018, and is considerably higher than in other

jurisdictions (Figure 1). The debt ratio had started to decrease in 2016, but rebounded in

the first quarter of 2018, as can be shown in Figure 1.

2016 2017 2018 2019 2020

World 1 3.1 3.6 3.7 3.5 3.5

United States 1.6 2.2 2.9 2.7 2.1

Euro area 1.9 2.5 1.9 1.8 1.6

Germany 2.2 2.5 1.6 1.6 1.4

France 1.1 2.3 1.6 1.6 1.5

Italy 1.0 1.6 1.0 0.9 0.9

Spain 3.2 3.0 2.6 2.2 1.9

Japan 1.0 1.7 0.9 1.0 0.7

United Kingdom 1.8 1.7 1.3 1.4 1.1

Mexico 2.6 2.3 2.2 2.5 2.8

Korea 2.9 3.1 2.7 2.8 2.9

Canada 1.4 3.0 2.1 2.2 1.9

Turkey 3.2 7.4 3.3 -0.4 2.7

Australia 2.6 2.2 3.1 2.9 2.6

China 6.7 6.9 6.6 6.3 6.0

India 2 7.1 6.7 7.5 7.3 7.4

Russia -0.1 1.5 1.6 1.5 1.8

Brazil -3.4 1.0 1.2 2.1 2.4

Indonesia 5.0 5.1 5.2 5.2 5.1

South Africa 0.6 1.3 0.7 1.7 1.8

OECD 1 1.8 2.5 2.4 2.1 1.9

Non-OECD 1 4.2 4.6 4.7 4.7 4.7

World real trade growth 3.1 3.6 3.7 3.5 3.5

http://www.oecd.org/eco/outlook/economic-outlook/


Figure 1. Total credit to non-financial corporations (core debt)

As a percentage of GDP

Note: Total credit to non-financial corporations is defined as the sum of loans and debt securities.

Source: BIS, https://stats.bis.org/statx/srs/table/f4.1.

Monetary policy has loosened considerably in China since mid-2018. For example, on 1

June 2008 the People’s Bank of China (PBOC) expanded the scope of the collateral

accepted for its medium-term lending, to include all corporate bonds rated AA+ and AA

(Zhang and Lee, 2018[1]), whereas previously only higher-rated bonds (AAA) were

accepted.1 This certainly creates a greater availability of collateral that allows commercial

banks to refinance and provide more credit to the Chinese corporate sector.2 The PBOC

also uses the Reserve Requirement Ratio (RRR), which determines the regulatory

provisions that commercial banks must make when granting a loan, as a policy tool to adjust

credit flows. The RRR, which stood at 17% in the beginning of 2018, has been

progressively reduced, and reached 14.5% in January 2019. The PBOC will further reduce

the RRR by an additional 0.5 percentage point on January 15 and a further 0.5 percentage

point on January 25.3

Shadow banking is defined here as the non-bank financial institutions that are outside the

scope of banking regulators, as they do not take bank deposits from customers. This

includes insurance companies, asset managers, broker-dealers, money market funds,

private equity funds and hedge funds. Shadow banking has increased considerably in

China, particularly due to the growth of wealth management products (WMPs), which are

Single Purpose Vehicles (SPVs) managed by banks (OECD, 2017[2]). WMPs allow banks

to essentially shift assets and deposits off balance sheets and thus decrease banks’ capital

requirements. WMPs offer little transparency on the quality of their assets for their

investors, who instead rely on the implicit guarantee that comes with management by state-

owned banks (OECD, 2017[2]). Implicit guarantees from state-owned enterprise (SOE)


banks to their WMPs give rise to moral hazard and an ineffective pricing of risk that could

result in capital misallocation (OECD, 2017[2]).

An OECD study found that contagion risk4 in emerging markets between the banking sector

and the shadow banking sector, has increased and became significant after the 2008

financial crisis (OECD, 2017[2]). Chinese regulators have recognised the issue and made

efforts to curb excess shadow banking growth. In July 2018, the China Banking and

Insurance Regulatory Commission issued draft rules for the issuance of WMPs, in an

attempt to curb financial risks and to increase transparency (Liu, 2018[3]). In particular,

banks should limit leverage and strengthen liquidity management of their WMPs.

Moreover, WMPs act as a fund and can now invest directly in equity, rather than through

broker-dealers. The rules are due to take effect at the end of 2020 (Liu, 2018[3]).

Debt for equity swaps in China

The Chinese government has been making some efforts to deleverage the economy.5 Debt

for equity swaps (Box 1) are seen by Chinese regulators and policy makers as an expedient

way to deleverage heavily indebted companies, particularly in the steel sector. China’s

regulators issued a number of guidelines to provide a framework for debt for equity swaps

(Wan, 2018[4]). This framework has been evolving over the years: Chinese debt for equity

swaps have moved away from government direct intervention to help banks and SOEs (e.g.

Sinosteel6) towards a more complicated scheme that diffuses risks inside and outside the

financial system (Pang and Herrero, 2016[5]).

According to Natixis, only RMB 165 billion out of the RMB 884 billion (15.7%) of

announced debt for equity swaps have been implemented as of February 2018 (Herrero and

Gary, 2018[6]). Nevertheless, the rhythm is likely to have accelerated and continue going

forward. Indeed, the People’s Bank of China announced in end of June 2018 that RMB 500

billion of the RMB 700 billion in liquidity obtained by cutting banks’ reserve requirement

ratio (RRR) would be used by the five state-owned banks and 12 national joint-stock

commercial lenders to support debt for equity swaps (Wan, 2018[4]).

Box 1. Debt for equity swaps

A debt for equity swap is a transaction in which the obligations of a company, usually loans

it was granted or bonds it issued, are exchanged by the obligors of the company against

equity. Debt for equity swaps can be voluntary or mandatary (or somewhere in-between),

and they may be explicitly or implicitly promoted by the government.

A mandatory exchange of debt against equity does not necessarily imply a government

intervention: mandatory exchanges can happen, for example, when bankruptcy laws clearly

define the conditions for debt for equity swaps to take place. Bankruptcy laws vary across

jurisdictions. For example, in the U.S. Bankruptcy Article 11 entails that the company does

not liquidate all its assets to repay bondholders (in contrast with Bankruptcy Article 7).

Instead, the company continues operating and focuses on reorganising and restructuring its

debt. Previous equity shares are cancelled, and replaced by new ones distributed to

bondholders and, potentially, to previous shareholders, ensuring that equity holders take

the first loss. The amount of new shares provided for each bond’s nominal amount will in


that case be determined by the appropriate bankruptcy court, taking into account the value

of the bond at the time of bankruptcy, and the assets of the company.

Debt for equity swaps can also be proposed by the company to its obligors. Companies

in need of being relieved from a heavy debt burden may engage in negotiations with their

main lenders, trying to incentivise them to agree to exchange their debt for equity. This

will result in a dilution of the company previous ownership, thus current equity holders

have an incentive to ensure good management and to avoid over-indebtedness. To entice

bondholders to agree to the swap, the estimated value of shares will typically be higher

than the money due, which means that investors agreeing to the swap will be provided with

more shares in value that what the amounts they had lent to the company. Obligors are free

to refuse such a scheme.

Debt for equity swaps can also be triggered by conditions described in the bond

indenture (the legal and binding contract between the bond issuer and the bondholders):

this is the case of convertible bonds. It could be that a “financing event” identified in the

indenture automatically decides when the bond is converted to equity. Other convertible

bonds can be converted on the decision of their holder only. Convertible bonds typically

have a lower yield than non-convertible bonds, since they essentially give bondholders a

“call option” on the company stock: each bond can be converted for a fixed amount of

company shares. Bondholders would convert their bond to equity whenever the value of

the equity they can obtain becomes higher than the (current) price of their bond.

Convertible bonds thus enable debt investors to become equity investors, which might be

particularly appealing in an upturn.

The State Council issued a guideline on 22 September 2016 that forbids Chinese banks to

hold equity stakes of corporates facing financial difficulties (Pang and Herrero, 2016[5]).

To carry out a debt for equity swap, the bank sets up a Single Purpose Vehicle (SPV)

structure, called a “fund”, to which the bank sells its distressed debt. The debt thus leaves

the balance sheet of the bank, as the SPV balance sheet does not consolidate at the bank

level. Future transactions between the fund and its final investors are also off-balance sheet

from the point of view of the bank. This entails significant capital relief for the bank since

it does not have to provision its distressed debt. Furthermore, there is evidence that the fund

buys the debt at par value, rather than at a discount (Pang and Herrero, 2016[5]), which

means that the bank is not taking any loss. Future losses and financial risks are passed to

end-investors further down the scheme.

End-investors in the new Chinese debt for equity swaps are those who buy shares of the

fund. In practice, they are:

1. The originating bank itself, through its participation in its own fund. This

participation is accounted for in the trading book of the bank through its Asset

Management Company (AMC), rather than in its lending book. Moreover, based

on a number of individual deals, Natixis estimated that banks retained a mere 4%

of the total amount of debt for equity swaps through their own AMCs (Herrero and

Gary, 2018[6]). Hence, the scheme entails important capital reserve savings for

banks, which do not need to provision risky loans and can off-load them to the fund

and clean their balance sheet.


2. Other AMCs than the one of the banks (34%). Those are mainly the three large

AMCs created by China in the 1990s to clean up bad loans in its banking sector,

namely, China Huarong, Cinda, and Orient and Great Wall.

3. Insurance companies (30%); and

4. State-owned funds (27%), in particular:

a. The China Structural Reform Fund; it is the formed by 10 SOEs. The fund’s

aim is to allocate 80% of their assets to structural restructuring of SOEs directly

with equity or through investment in funds, as well as involvement in SOEs as

a creditor.

b. The China State-owned Capital Venture Investment Fund, which has the largest

involvement in debt for equity swaps. The key purpose of the fund is to support

innovation-driven and industrial upgrading.

c. The Guohua Military and Civilian Integration of Industrial Development Fund,

whose aim is to support the strategic military industry and central SOEs, as part

of the 13th Five-Year Plan.

5. Other potential investors, including private investors, the National Security

fund, and the targeted SOE itself (Pang and Herrero, 2016[5]).

Although under Regulation 82 of the China Banking Regulation Commission (CBRC),

non-performing loans are not allowed to be sold directly or indirectly to households (Pang

and Herrero, 2016[5]), the regulation is circumvented by the scheme as it is the fund (the

SPV), and not the bank, which will transfer the risk to its end-investors (Pang and Herrero,

2016[5]). Hence, the risk and potential future losses are diluted through the financial system

and beyond it, with depositors and households bearing the ultimate risk. For example, the

Postal Saving Bank of China has few non-performing loans (twice less than the sector

average in Q3 2017) and a solid deposit base, but is the owner of 35% of the China

Structural Reform Fund and the China State-owned Capital Venture Investment Fund, and

hence an important end-investor in the debt for equity schemes (Herrero and Gary, 2018[6]).

The main beneficiaries of the scheme are i) the borrower (the indebted company, usually

an SOE), which avoids the difficulty of having to repay its debt while reducing its

indebtedness at a very low cost and ii) the lender (the bank, usually an SOE), which does

not have to set aside capital for provisioning its distressed loans nor does it have to take

any significant loss on the value of its loans. The scheme does not incentivise the borrower

towards a more prudent approach with respect to debt, nor does it incentivise the obligor

towards a more prudent management of credit. Hence, it fails to instil market discipline

that would enforce long-term structural change and capital efficiency. On the contrary, it is

the rest of the financial system, including the cash-rich banks, and ultimately, the

households, which will bear the debt market and default risks (Pang and Herrero, 2016[5]).

Within the company management, little change or re-organisation can be expected from

the new diluted and non-expert shareholders. The reduced debt-level of the company would

enable it to obtain new loans from its main lenders, thus falling short of the deleveraging

goal and perpetuating an over-reliance on debt.

Debt for equity swaps, by allowing the diffusion of steel firms’ financial risks and debt

burden to the rest of the Chinese economy, and ultimately, households, represent a

downside risk for the global economic outlook and thus also for the steel sector. Long-term

incentives for firms to reduce borrowing, curtail capacity expansion projects and adopt

more conservative management practices are absent, as debt for equity swaps allow


borrowers to avoid disruptive and forced restructuring. Similarly, banks that lend to steel

firms are not incentivised to provide credit more carefully, as they can avoid taking losses

for bad loans to steel firms by simply passing them to a debt for equity scheme.

2.2.2. Slowdown in global economy and trade

The OECD’s Economic Outlook, released in November 2018, explains that import tariffs

have led to increases in prices in some countries, and that global trade had started to ease

due to the adverse effects of trade restrictions on confidence and investment planning

(OECD, 2018[7]). According to the OECD, global trade growth will remain below 4% per

annum on average during the period 2018-20.

A recent WTO leading Trade Outlook Indicator (WTOI), released on 19 February,

exhibited the weakest value since March 2010, indicating a rate of trade growth below the

currently estimated trend. The WTO forecasts trade growth to slow to 3.7% in 2019 from

an expected 3.9% in 2018, downgrading its previous forecast due to trade frictions and

tighter credit market conditions (Miles, 2019[8]) (WTO, 2019[9]).

In January 2019 the International Monetary Fund (IMF) reported that rising trade frictions,

as well as financial vulnerabilities due to the building up of private and public debt, are key

downside risks to the world economy (IMF, 2019[10]) and warned that the slowdown in

economic growth could be sharper than predicted. The lack of a deal concerning “Brexit”,

and a larger-than-anticipated slowdown in China were also pointed as risks that could

contribute to a steeper slowdown in the world economy. A Pricewaterhouse Coopers (PwC)

survey also found that only 5% of executive managers are expecting the situation to

improve, compared to a third a year earlier (Giles, 2019[11]).

World industrial production growth, which had been picking up from its 2015 lows and

reached 4.1% in January 2018, has been falling ever since. Growth stood at 1.8% in

November 2018, down from 3.7% one year earlier (Figure 2). The weakening growth of

industrial production has been more pronounced in advanced economies. Annual growth

in advanced economies fell from 4.2% in November 2017 to a meagre 0.6% in November

2018. In emerging economies, industrial production growth decelerated from 3.2% to 2.8%

during the same period. Hence, the industrial production gap between emerging economies

and advanced countries, which had narrowed during previous years, appears to be widening

again.


Figure 2. World industrial production

% change, year-on-year

Source: Netherlands Bureau for Economic Policy Analysis (CPB).

After a rapid increase in 2016 and 2017, the growth in global trade and export prices nearly

came to a halt in November 2018. Annual growth in export volumes fell from 10% at the

end of 2017 to 1.7% in November 2018.


Figure 3. World trade and trade prices

% change, year-on-year

Source: Netherlands Bureau for Economic Policy Analysis (CPB).

From January 2018 to November 2018, steel market sentiment, as measured by the new

orders Steel Purchasing Managers’ Index (PMI) compiled monthly by Markit, has been

very volatile for the U.S. and decreased steadily for both Asia and the E.U. (Figure 4, upper

panel). The sentiment index has worsened for all three regions, and, as of February 2019,

purchasing managers of all three regions expect a decrease in new orders (index below 50).

New export orders are also expected to decline, despite a notable improvement of the

sentiment in Asia compared to the previous months (Figure 4, lower panel).


Figure 4. Steel Purchasing Managers’ indices (PMIs)

Note: An index less than 50 indicates that more purchasing managers expect a decrease over the next month

than an increase.

Source: Markit economics, via Datastream

2.3. Steel consumption

Figure 5 below presents the y-o-y percentage change in the combined consumption of hot-

rolled products for 10 of the world’s largest steel-consuming economies in Asia, the CIS

region, Europe, North America and South America, which together account for

approximately 75% of global steel demand. The y-o-y growth figure for the first three

months of 2018 was a robust 7.5%, compared to the same period in 2017.


Figure 5. Consumption of hot-rolled steel products, major economies

Y-o-y % changes.

Note: Total (incl. China) represents the combined consumption of hot-rolled steel products of the following

economies: Brazil, China, Germany, India, Italy, Japan, Korea, Mexico, Russia and the U.S. Total (excl. China)

represents the combined consumption of all those economies except China. Consumption of hot-rolled products

is defined as the sum of production and net imports. According to the latest publication of ISSB, consumption

data on China is not available since April 2018 due to the lack of Chinese data on exports and imports of hot-

rolled steel products (ISSB, 2019[12]).

Source: OECD calculations based on data from ISSB (International Steel Statistics Bureau).

2.3.1. Americas

In the North American Free Trade Agreement (hereafter “NAFTA”) region, the U.S.

monthly steel consumption indicator increased by 3.7% during January to August 2018,

year-on-year. Housing and non-residential construction is contributing to the growth of

steel demand. Light vehicle production in the U.S. has also stabilized and is expected to

increase modestly (Metal Expert, 2018[13]). In Mexico, the monthly steel consumption

indicator remained flat (0.0%) during the first eight months of 2018, y-o-y. Mexican

manufacturing sectors continue showing steady demand, while construction activity

remains weak (Ternium, 2018[14]).

According to the Latin American Steel Association (Alacero), consumption of finished

steel products in Latin America remained flat in January-November 2018 (0.0%), when

compared to the same period in 2017 in January-November 2018. Steel consumption also

increased in Argentina (1%) and Ecuador (4%) during January-November 2018. In

contrast, Peru and the Bolivarian Republic of Venezuela (hereafter “Venezuela”) saw their

domestic steel consumption decrease by 17% and 66%, respectively, in the first 11 months

of 2018 (Alacero, 2019[15]).

2.3.2. Asia

The monthly consumption indicator for China, which accounts for around 46% of global

steel demand, registered a y-o-y growth rate of 7.7% in the first three months of 2018.

According to China Metallurgical Industry Planning and Research Institute (hereafter

“MPI”), the demand growth in 2018 benefited from the expansion of investments in

manufacturing and real estate, as well as an increase in exports of electrical machinery. The


one-off statistical effect from the closure of induction furnaces in 2017 is also reflected in

the demand growth in 2018 — note that demand for steel supplied by these induction

furnaces was not previously captured by the official statistics (MPI, 2018[16]) (People.cn,

2018[17]).

Steel demand in India, the third largest steel consuming economy, remained strong. India

became the second largest steel producer in 2018, registering 106.5 million metric tonnes

of production (World Steel Association, 2019[18]). The monthly consumption of hot-rolled

products in India increased by 30.7% during January-March 2018 compared to the

corresponding time period one year earlier. The implementation of government-driven

large-scale infrastructure projects, such as housing, power transmission and railways, is

contributing to the growth of domestic demand (Business Standard, 2018[19]).

According to the South East Asia Iron and Steel Institute (SEAISI), apparent steel

consumption in the Association of Southeast Asian Nations region (ASEAN-6, i.e.

Indonesia, Malaysia, Philippines, Singapore, Thailand and Viet Nam), slightly increased

by 0.2% y-o-y during January-June 2018 (SEAISI, 2018[20]). Malaysia’s steel consumption

increased by 6.6% y-o-y supported by growth in the demand for flat steel products used

mainly in the manufacturing sector. Steel demand in Indonesia and the Philippines recorded

moderate growth, of 1.2% and 3.8% y-o-y, respectively. Steel demand in Thailand has

slightly recovered by 1.5% during the first half of 2018, after a significant decline in 2017

(-14%) due to destocking that followed a strong build-up of inventories in 2016 (SEAISI,

2018[21]). Steel demand in Viet Nam expanded by more than 20% per annum on average

from 2014 to 2016, but started to decline in 2017 (by 5.8%) and continued to decline in the

first half of 2018 (by 5.3%, y-o-y). This decline has been attributed to the slowdown in the

market for long steel products, which are used primarily in construction. Singapore’s steel

demand also declined by 4.9% y-o-y during the first half of 2018.

In Japan, the monthly consumption indicator registered a moderate y-o-y growth rate of

1.3% in the first eight months of 2018. Steel demand from the construction, industrial

machinery and automobile sectors has been firm, while demand from the shipbuilding

sector remains stagnant (JISF, 2018[22]). The steel consumption indicator for Korea

decreased by 5.3% in January-August 2018 compared to the corresponding time period one

year earlier, explained by a slowdown in the auto and shipbuilding industries (KOSA,

2018[23]).

2.3.3. CIS

In the Commonwealth of Independent States (CIS) region, the steel monthly consumption

indicator for Russia recorded y-o-y growth of 0.9% during the first eight months of 2018.

According to the Russian Steel Association (Russian Steel), steel demand in Russia is

expected to increase in 2018, mainly supported by new infrastructure projects and

investments in modernisation of downstream industries, i.e. digitalisation and investments

for environmental and energy efficiency purposes (Russian Steel, 2018[24]). In Ukraine,

apparent steel consumption during January-June 2018 in Ukraine has increased by 6.4%,

y-o-y, supported by stable demand in key steel consuming industries, such as construction,

machine-building and hardware production industries, according to Ukrainian steel

company Metinvest (Metinvest, 2018[25]).

2.3.4. European Union

A recent report by the European Steel Association (EUROFER) indicates that steel demand

in the E.U. benefited from moderate growth in steel-using sectors in Q3 2018 (Eurofer,


2019[26]). This was evidenced by the 2.3% increase in the Steel Weighted Industrial

Production Index (SWIP).7 Apparent steel consumption in the third quarter of 2018 grew

by 2.6% y-o-y and is estimated to have increased by 0.3% y-o-y in Q4 2018 (EUROFER,

2019[27]). The key drivers of steel demand in Europe included the construction industry

(+5% year-on-year during the first three quarters of 2018) and, to a lesser degree,

mechanical engineering (+4%). Construction activity was stimulated both by residential

and non-residential demand. In western European countries, residential demand for

affordable housing increased due to the need for the authorities to accommodate the

migrant flows of recent years (Eurofer, 2019[26]). In particular, German construction

activities continued to be strong throughout 2018 (Kallanish, 2018[28]) and the momentum

does not seem to have abated in 2019 (Kallanish, 2019[29]). Private non-residential

investment was supported by low costs for finance, while public non-residential investment

was supported by improvements in the budgetary situation of some European countries. In

central European countries, the key drivers of construction activity were infrastructure

projects and healthy domestic conditions. EU investment in machinery and equipment

should grow at a more moderate rate going forward, due the slowdown in economic activity

and the redirection of business investment increasingly towards the service sector.

Eurofer estimates mechanical engineering growth to decrease to about 1.5% in 2019 and

2020 (Eurofer, 2019[26]). Weaker demand from the automotive, steel tube production and

the domestic electrical appliance industries explains the sluggish growth. Eurofer estimates

that automotive industry production increased by only a meagre 1.3% in 2018, due to a

sharp fall in the second half of 2018. Production declined in most European automotive

markets (Kallanish, 2018[30]), and the decline was particularly felt in German car production

(Kallanish, 2018[31]).

Factors affecting the outlook include high vehicle ownership in the Western European

market and the expectation that lease companies may delay purchases of cars until the

uncertainty surrounding governments stance towards diesel cars is resolved. The transition

to new emission testing procedures, i.e. the Worldwide Light Vehicle Test Procedure

(WLTP)8 may also worsen the drop in demand for automobiles (Flak, 2019[32]).

2.4. Steel production

World crude steel production increased by 4.7% in 2018 compared to the previous year,

but with marked differences across regions. The strongest regional growth by large was

observed in the Middle East (12.6%), followed by Africa (6.9%), China (6.9%) and

Oceania (5.9%). North America also experienced a relatively strong y-o-y growth (4.1%).

Steel production growth was sluggish in the Other Europe (0.5%) and CIS (0.1%) regions,

while the European Union registered a decline in steel production in 2018 (-0.2%).

Total crude steel production in the North America region was up by 4.1% overall during

2018, with the U.S. registering the strongest pace of production growth (6.2%), Mexico

growing at a slower pace (1.0%) and Canada showing a decline in steel production (-4.0%).

In the E.U., steel production declined slightly (-0.2%) in 2018 as a whole, reversing gains

earlier in the year. Steel output increased in the United Kingdom (U.K.) (+3.5%) and in

Italy (+1.7%). The largest decreases in steel production were experienced in Poland (-

2.3%), Germany (-2.0%), and Spain (-1%).

In the “Other Europe” region, steel output growth was anaemic, increasing by a mere 0.5%

in 2018, with Turkish steel output contracting by 0.6%. In the CIS region, steel output


stagnated in 2018 (+0.1%). Russian output was flat during the period (+0.3%) and

Ukrainian production decreased (-1%).

Asian crude steel production accelerated during the second half of 2018, resulting in an

overall 5.9% growth rate over the year. China's steel production supported the increase with

a 6.9% growth rate in 2018, followed by India (4.9%), which became the second largest

steel producer in the world, Chinese Taipei (+3.5%) and Korea (2.0%). Japanese steel

production stagnated in 2018 (-0.3%).

In South America, steel production decelerated during the second half of 2018, resulting in

a mere 1.5% growth in 2018. The largest increase remained in Argentina, with production

growth accelerating to 11.6%, while Brazil grew at a more subdued pace of 1.1% in 2018.

In the Middle East, steel production increased by a strong 12.6% in 2018, y-o-y, mainly led

by Iran (17.7%), which produced 25.0 million metric tons of steel in 2018 (Worldsteel,

2018[33]). Saudi Arabia’s steel production also saw a robust increase (8.4%). African steel

production increased by 6.9% in 2018, still driven by very strong production growth in

Egypt (13.6%), while steel production remained flat in South Africa (0.4%).

Table 2. World crude steel production developments in 2018

Source: World Steel Association, as of June 2018. Data are based on monthly production data and can differ

slightly from annual data published after December of each year.

2.5. World steel trade

Table 3 presents recent data on trade developments in the 10 largest steel-producing

economies. Exports from China declined by 9.3%, in the first 10 months of 2018 compared

to the same period in the previous year. Exports from the E.U. (external trade) and Japan

have also declined, by 6.4% and 3.1% y-o-y, respectively, during January-October 2018.

Exports from India, which had recorded a significant increase in 2017 (60.7%), declined

by 29.3% y-o-y in January-October 2018. Steel exports from the U.S., Korea and Brazil

have also decreased, doing so by 13.4%, 3.1% and 9.7%, respectively, during the first 10

months of 2018. Exports from Russia and Turkey increased by 8.7% and 18.3%, y-o-y, in

the first 10 months of 2018, respectively. Iran has showed a significant increase in exports

(37.2%) during the same period.

Dec 2018 2017 2018 Dec 2018 2017 2018

EU 14 527 168 549 168 192 10.1 8.6 -0.2

Other Europe 3 474 40 633 40 821 -3.1 6.3 0.5

CIS 8 034 100 932 101 062 -9.5 7.6 0.1

North America 10 108 115 761 120 511 5.9 7.6 4.1

South America 3 679 43 686 44 275 2.1 7.5 1.3

Africa 1 250 13 593 14 526 2.9 5.1 6.9

Middle East 3 096 32 020 36 066 9.5 1.8 12.6

Asia, of which: 105 033 1 186 889 1 257 216 7.4 6.7 5.9

China 77 621 867 544 927 523 10.3 6.6 6.9

Oceania 474 5 985 6 341 -10.9 3.2 5.9

World 149 676 1 708 048 1 789 009 6.0 6.9 4.7

Level, thousand mmt % change, year-on-year


Turning to steel imports, the E.U., the largest steel-importing economy, saw steel imports

increase by 9.6% in January-October 2018, compared to the corresponding period one year

earlier. The U.S., which had recorded a significant increase in steel imports in 2017

(14.7%), posted an import decline of 10.6%, y-o-y, during the first ten months of 2018. The

volume of imported steel products in Korea and Iran decreased significantly in the first 10

months of 2018, falling by 26.4% and 38.3%, respectively. Steel imports in Japan, Russia

and Turkey also declined by 4.2%, 2.9% and 17.7%, respectively,-during the same time

period. China and Brazil recorded increases in steel imports of 1.3% and 2.3%,

respectively.


Table 3. Steel trade developments across major steel-producing economies

Thousands of metric tonnes 2014 2015 2016 2017 2018

Jan-Oct 2017

Jan-Oct % change, y-o-y

Jan-Oct 2018

China (People’s Republic of)* Exports 93 780 112 400 108 490 75 410 58 410 64 490 -9.3% Imports 14 430 12 780 13 210 13 300 11 100 10 960 1.3%

EU-28 (external trade) Exports 36 451 32 998 29 193 30 508 23 635 25 254 -6.4% Imports 31 931 37 385 41 150 41 702 38 761 35 354 9.6%

India Exports 9 828 7 117 9 933 15 964 9 241 13 072 -29.3% Imports 9 310 13 249 9 857 8 818 7 503 7 451 0.7%

Japan Exports 41 247 40 720 40 452 37 408 30 058 31 025 -3.1% Imports 6 657 5 850 5 965 6 186 4 956 5 175 -4.2%

United States Exports 11 581 9 620 8 920 10 081 7 378 8 519 -13.4% Imports 40 285 35 564 29 918 34 327 26 525 29 661 -10.6%

Korea Exports 31 803 31 077 30 504 31 254 25 421 26 241 -3.1% Imports 22 268 21 546 23 168 19 208 12 255 16 655 -26.4%

Russian Federation Exports 26 939 29 605 31 104 31 087 27 600 25 394 8.7% Imports 5 644 4 309 4 389 6 407 5 216 5 370 -2.9%

Turkey Exports 15 965 14 687 15 117 16 083 15 503 13 107 18.3% Imports 13 326 18 415 15 344 13 352 9 192 11 167 -17.7%

Brazil Exports 9 730 13 624 13 378 15 301 11 306 12 527 -9.7% Imports 3 894 3 141 1 827 2 275 2 018 1 973 2.3%

Iran Exports 2 838 3 764 5 623 7 336 7 989 5 824 37.2% Imports 4 140 4 396 4 652 3 065 1 589 2 575 -38.3%

Definition: HS 7206 to 7302, 7304-7306, and 7307.21-7307.99 excluding some forgings (7326.19), points and

switches/crossings (7302.30 and 7302.90), some forged cold finished sections (7216.69 and 7216.99), some

cold formed sections (7216.61 and 7216.91), welded shapes and sections (7301.20) and steel castings

(7325.99).

Note: The economies listed in this table are the major crude steel producing economies by production volume

in 2018 (World Steel Association, 2019[18]). This is the first time Iran is shown in this table because in 2018

Iran became the 10th largest steel producer in the world. Data for China are sourced from the General

Administration of Customs of China (GACC, 2018[34]). Therefore, the definition of steel products for data of

China are slightly different from the OECD's definition, which is used for other economies.

Source: OECD calculations based on data from ISSB (International Steel Statistics Bureau) and General

Administration of Customs of China (GACC)

2.6. Steel and steelmaking raw material prices

2.6.1. Steel prices

The uptick in steel demand from 2016 onwards supported a rebound in steel prices from

their 2015 lows, but this trend was short-lived and the price dynamics have since reversed,

with both world hot-rolled coil (HRC) and rebar prices steadily declining from their May

2018 heights (Figure 6). In the beginning of 2019, the flat and the rebar price indexes stood

at USD 590.6 per tonne and USD 554.6 per tonne respectively, close to the levels in the

beginning of 2014. Differences in prices are reflected in the price dispersion indicator

shown in Figure 6. Regional price dispersion, for both rebar and flat prices, has increased

sharply since mid-2017, reversing its earlier decline. Increases in regional price dispersion

have previously been associated with significant price declines— e.g. during 2015, price


dispersion was very high and the price index at its lowest level during the whole 2008-2018

period.

Figure 6. Aggregate flat and rebar steel prices (latest January 2019)

Notes: The flat price and rebar price indices are defined as the arithmetic average of the individual regional

Platts price series for the U.S., North Europe, China, Japan, India and Russia, when available. This simple

arithmetic average had the closest fit to the two global Platts price indices used in Market reports prior to the

two global price indices being discontinued by Platts from September 2017 onwards. The coefficients of

variation (CV) are defined as the ratio of the standard deviation of the regional Platts price series making up

the indices to their (arithmetic) mean, and thus captures price dispersion across regions.

Source: Platts Steel Business Briefing.

Flat Steel prices increased more rapidly in the U.S. than in other jurisdictions during the

first half of 2018, but reversed course during the second half of the year (Figure 7) and

moved closer to the levels in the beginning of the year. U.S. rebar steel prices remained flat

during the period because, according to Platt’s, market players were adopting a “wait and

see” attitude (Figure 8).

Chinese and South East Asian flat and rebar prices, which had moderately increased during

the second half of 2017 and stalled in the first half of 2018, have decreased in the second

half of 2018 and are now back at their mid-2017 levels (Figure 7, Figure 8). In absolute

terms, flat and rebar prices in those regions are significantly below comparable prices in

other regions.


Figure 7. Steel price for flat products, by region



Figure 8. Steel price for rebar products, by region

Note: The stabilisation of U.S. rebar price during the last months is explained by a market attitude of “wait and

see” since the new, higher price level has been reached, according to the explanation provided by Platt’s

analysts to the OECD Secretariat on June 2018.


2.6.2. Steel futures prices

As shown in the previous report on steel market developments (OECD, 2018[35]), steel

future prices tend to move quicker than steel prices, suggesting that they are better able to

predict steel price dynamics by incorporating new market information more rapidly.

For the purpose of analysis, this paper uses continuous steel price indices, constructed from

a number of steel future contracts by rolling them over. More precisely, each month the

price data are extracted from a different steel contract price series of the same maturity than

the contract used one month prior. Figure 9 below shows three steel future continuous

contracts, as provided by Thomson Reuters Datastream. There has been a steady decrease

from 2018 onwards, suggesting that the downward trend observed for spot steel prices is

expected by traders to continue in the short term.


Figure 9. Steel future prices

Indices of three continuously rolled steel futures contract prices, USD per tonne

Note: NYMEX US Midwest futures prices were converted to correspond to metric tonnes rather than tons.

SHFE Steel rebar futures prices were converted from RMB to USD using daily exchange rates at closing. For

more information on contract specifications, please refer to https://www.lme.com/en-GB/Metals/Ferrous/Steel-

Rebar#tabIndex=0 for LME steel rebar contracts; to

http://www.shfe.com.cn/en/products/SteelRebar/contract/9220216.html for SHFE steel rebar continuous

contracts, and to https://www.cmegroup.com/education/files/hot-rolled-coil-steel-index-futures-options.pdf for

NYMEX US Midwest HRC contracts. For a throughout description of futures contracts and steel futures

markets, see (OECD, 2018[35]).

Source: Thomson Reuters, Datastream.

2.6.3. Steelmaking raw material prices

Prices of key steelmaking raw materials declined between early 2011 and the beginning of

2016, contributing significantly to lower steel production costs during that period.

Nevertheless, this trend reversed in 2016, when raw material prices slowly climbed back

towards their 2011 levels. Prices of steelmaking raw materials continued to increase in

2017, albeit at a slower pace. In 2018, iron ore prices stayed relatively flat, while scrap

prices and coking coal prices declined (Figure 10).

Iron ore prices stabilised at around USD 72 per tonne as of 31 December 2018, up from

USD 64 in June 2018 but well below their high of USD 83 per tonne in March 2017. Coking

coal prices have stabilised at USD 196 per tonne as of 31 December 2018, after a volatile

2016-2017 period. Scrap prices decreased steadily during the course of 2018, reversing

most of their 2017 gains, falling to USD 264 per tonne (FOB Rotterdam) as of 31 December

2018.

https://www.lme.com/en-GB/Metals/Ferrous/Steel-Rebar#tabIndex=0

https://www.lme.com/en-GB/Metals/Ferrous/Steel-Rebar#tabIndex=0

http://www.shfe.com.cn/en/products/SteelRebar/contract/9220216.html

https://www.cmegroup.com/education/files/hot-rolled-coil-steel-index-futures-options.pdf


As of 31 December 2018, the difference between scrap and iron ore price stood at USD

192 per tonne. This differential is below the average during the 2008-2018 period (USD

220 per tonne), and has declined considerably since March 2018, when it stood at USD 278

per tonne. It will be interesting to continue following the evolution of iron ore and scrap

prices as one of the different factors determining the choice of steelmaking technologies in

steel production. There are particularly large differences in scrap prices across regions, both

in terms of price levels and price dynamics. For example, regarding the latter, the Chinese

steel scrap price has continued to increase (Figure 11), contrary to the price of European

scrap exports (Figure 10). In terms of levels, Chinese scrap prices are also higher : on 10

January 2019, the Chinese Home Steel Index for scrap stood at about USD 397 per tonne

(using the prevailing USD/RMB exchange rate), compared to a price of USD 284 per tonne

for European exports of scrap. According to Platt’s, high Chinese scrap prices could reflect

a move towards the Electric Arc Furnace (EAF) technology in the context of environment-

related policy objectives (Lu and Zhang, 2018[36]). The announcement, in June 2018,

regarding the banning of all steel scrap imports to China by 2020 (Ault, 2018[37]), might

have also contributed to higher Chinese scrap prices and lower European prices.

Figure 10. Prices for key steel-making raw materials

Source: Platts Steel Business Briefing (SBB), Datastream.


Figure 11. Chinese scrap prices continues on upward trend

Steel Scrap Price, RMB per tonne.

Source: Home Steel.

The declining steel price trajectory, coupled with relatively stable iron ore and coking coal

prices, help explain the decreasing margin between steel and raw material prices, as shown

in Figure 12.

Figure 12. Margin between steel and raw materials prices

Note: The raw materials basket for steel production includes 70% of the usual quantities of iron ore (1.6 tonne)

and coking coal (0.77 tonne) needed to produce steel in the integrated process and 30% of the quantity of ferrous

scrap (1.07 tonne) needed to produce steel in the electric arc furnace process (see OECD, 2016). Prices used

are as follows: Iron ore Fines, 62% Fe, SPOT, CFR China; Hard coking coal spot, FOB Australia; Scrap, #1

HMS, FOB Rotterdam. The basket is compared against HRC world prices. The margin is defined as the per

cent difference between the steel flat price and the raw materials basket price.

Source: OECD calculations based on Platts Steel Business Briefing.


2.7. The global capacity situation

The latest available information (as of 31 December 2018) suggests that global steelmaking

capacity (in nominal crude terms) remained nearly unchanged in 2018, following declines

in 2016 and 2017 (Figure 13.A). The OECD has revised (slightly downwards) its 2017

figures for global steelmaking capacity to 2 240.1 million metric tonnes (mmt) to

incorporate new information on closures that was not previously available as well as

updated information on the status of certain investment projects. The net capacity change

in 2018, taking into account new capacity additions and closures, brings current global

steelmaking capacity to 2 233.7 mmt, representing a slight decline of slightly more than 6

mmt, i.e. 0.3%, from the level of 2017. The decline in global steelmaking capacity in 2018

follows a deceleration in capacity growth since 2013, and results from both capacity

reductions and slower capacity growth in some parts of the world (Figure 13.B).

Figure 13. Evolution of crude steelmaking capacity in OECD/EU economies and non

OECD/EU economies

A. Level (mmt) B. Annual % change.

Note: Capacity data reflect information available to December 2018. Please see the document DSTI/SC(2019)3

for further information about updates of new steelmaking capacity investments and closures, as well as capacity

projects that are underway and planned over the next few years (OECD, 2019[38]).

Source: OECD.

The gap between global capacity and production is likely to have narrowed in 2018,

reflecting the relatively strong growth in global steel production. The gap between capacity

and production is expected to have declined to 425.1 mmt in 2018 (Figure 14. A). As a

result, global production of steel as a per cent of capacity may have increased from 77.2%

in 2017 to 81.0% in 2018 (Figure 14.B).

0

500

1 000

1 500

2 000

2 500Non OECD/EU economies Total OECD/EU economies Total World Total

mmt

-5%

0%

5%

10%

15%

20%

OECD/EU economies Total Non OECD/EU economies Total World Total

https://one.oecd.org/document/DSTI/SC(2019)3/en/pdf


Figure 14. Global crude steelmaking capacity and crude steel production

A. Capacity-Production gap (mmt) B. Crude steel production as a % of capacity

Note: Capacity data reflect information up to December 2018. Annual production data for 2017 and 2018 are

based on the press release of 25 January 2019 by the World Steel Association (World Steel Association,

2019[18]). Annual production data from 2008 to 2016 are from the “Steel Statistical Yearbook 2018” published

by the World Steel Association (World Steel Association, 2018[39]). Please see the document

[ DSTI/SC(2019)3 ] for further information about updates of new steelmaking capacity investments and

closures, as well as capacity projects that are underway and planned over the next few years (OECD, 2019[38]).

Source: OECD for capacity and World Steel Association for production.

2.8. Global steel market outlook

In its October 2018 Short Range Outlook (SRO), the World Steel Association (worldsteel)

predicts that global finished steel demand will increase by 1.4% in 2019 to reach 1 681.2

million metric tonnes (Worldsteel, 2018[40]). The World Steel Association highlighted that

although the positive momentum of 2017 was carried over to 2018, global steel demand

faces uncertainty from tensions in the global economic environment, in particular trade

tensions, rising currency volatility, and monetary policy tightening.

2.9. Regional steel market outlook

2.9.1. Europe and CIS economies

The World Steel Association expects finished steel demand in 2019 to increase by 1.7% in

the European Union and 1.5% in the Other Europe region, according to its October 2018

SRO (Worldsteel, 2018[40]). Eurofer forecasts the growth of steel consumption to be a

meagre 0.8% in 2019 and 0.9% in 2020, on the back of sluggish demand (Eurofer, 2019[26]).

Steel tube production is estimated to have decreased by 1.4% in 2018 (Eurofer, 2019[26])

and is expected to remain weak, while domestic electric appliance production is expected

to have decreased by 0.5% (Eurofer, 2019[26]). Eurofer further warns that weakening

economic growth worldwide and the possible escalation of trade frictions have tilted the

balance of risks to the downside (Eurofer, 2019[26]).

The World Steel Association expects steel demand growth in the CIS region to ease back

to 0.9% in 2019, according to its October 2018 SRO (Worldsteel, 2018[40]). Severstal, a

major Russian steelmaker, expects that steel demand will be flat in the country’s domestic

market in 2019 because of the construction sector, which is the main steel consuming

industry in Russia (Shulga, 2019[41]). The World Steel Association expects Turkish steel

demand to have contracted in 2018 due to the currency crisis, but the government’s

200

400

600

800

1 000

1 200

0

500

1 000

1 500

2 000

2 500

Capacity-Production Gap (RHS) Capacity (LHS) Production (LHS)mmt mmt

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Crude steel production as a % of capacity

https://one.oecd.org/document/DSTI/SC(2019)3/en/pdf


stabilisation measures and a consequent return to the competitiveness of the manufacturing

sector should help recovery in 2019 (Worldsteel, 2018[40]).

2.9.2. Americas

According to the World Steel Association October 2018 SRO, Central and South American

steel consumption is expected to grow by 4.3% in 2019 to reach 45.1 million metric tonnes

(Worldsteel, 2018[40]). Alacero indicated that robust domestic household consumption has

helped to prevent a contraction in Latin American’s steel consumption in 2018 (Alacero,

2019[15]), but warned that Chinese exports, which increased 28% year-over-year during the

period June to November 2018, could hamper domestic steel production. Latin America

became China’s main steel export market in January 2019 (Kallanish, 2019[42]). The Brazil

Steel Institute estimates that growth of steel domestic sales was 8.9% in 2018 compared to

the previous year, and has optimistic expectations about the measures being announced by

the new Brazilian government (Steel News, 2018[43]). Brazil’s President-elect has been

prioritizing the construction and infrastructure sectors, which should have positive effects

on steel demand (Baida, 2019[44]). The Brazil Steel Institute forecasts an increase of

domestic steel consumption by 6.2% in 2019. However, the World Steel Association notes

that Brazil’s construction sector has yet to recover from its crisis (Worldsteel, 2018[40]).

Some Latin-American economies Bolivia, Paraguay, Peru) are launching new steel mills

in 2019 (OECD, 2019[38]), and others have planned large investments in infrastructure for

the coming years (Honduras, Chile, Colombia) (Baida, 2019[44]). Argentina still has to

recover from the uncertainty and lack of investors’ confidence caused by the strong

devaluation of its currency in August 2018, which affected the country’s steel market

fundamentals (Baida, 2019[44]). Venezuela’s steel market has shrunk, with only two

producers still in operation and at a reduced rate. Most of the country’s steel workers have

been on strike since August 2018 and hyperinflation has limited the purchase of inputs such

as electrodes, refractories, ferroalloys and scrap necessary for steel production (Baida,

2019[44]).

Regarding the NAFTA region, the World Steel Association expected steel demand growth

to moderate to 1% in 2019 (Worldsteel, 2018[40]). US construction material costs have been

rising sharply (Kallanish, 2018[45]), and are expected to stay at elevated levels (Zevin,

2018[46]), which could hamper construction growth by reducing the sector’s profit margins.

The US National Association of Home Builders (NAHB) predicts the number of new

housing starting to be constructed in 2019 to be roughly equal to 2018 (+0.7%), and to slow

down in 2020 (+0.3%).9 Other forecasters, such as Dodge Data & Analytics, have a more

negative outlook on the housing market, and predicts that the housing sector slowdown will

erase the gains in non-housing construction sectors, resulting in an overall flat (+0.2%)

construction activity in the US in 2019 (Zevin, 2018[46]). The 2017 Tax Cuts and Jobs Act

reduced the tax advantages of home ownership (by increasing standard deductions and

limiting other deductions), thus reducing the attractiveness of buying new homes (Zevin,

2018[46]). Mexican steel demand growth is expected to ease as well, from a projected 3.5%

in 2018 to 1.5% in 2019, partly because of a moderation of the U.S. car market. Alacero

expects Mexican steel consumption in 2018 to increase by 3% (Metal Expert, 2018[47]). The

World Steel Association noted that in 2018 Mexican steel demand was affected by

uncertainties related to the NAFTA negotiation and the presidential election. The recent

signing of the United States-Mexico-Canada Agreement (USMCA) will enable the

economy to slowly recover in 2019 (Worldsteel, 2018[40]). Mexico’s public investment in

civil construction and infrastructure projects is expected to increase in 2019, due to higher


level of public spending, and could account for more than 50% of the nation's steel

consumption in 2019.

2.9.3. Middle East

According to the World Steel Association’s October 2018 forecasts, steel demand in the

Middle East is expected to grow by 1.2% in 2019 to reach 55.1 million metric tonnes

(Worldsteel, 2018[40]). In the Gulf countries, reforms and a stronger oil market have led to

an upward momentum in steel demand, albeit demand is likely to grow at a slower pace

going forward (Worldsteel, 2018[40]). Steel demand in the gulf region is likely to continue

to benefit from investments made in preparation for mega events such as the World Expo

2020 in Dubai and the FIFA World Cup 2022 in Qatar.

The outlook for Iran has turned less favourable recently due to the reinstatement of some

sanctions: the increased difficulty for steel firms to finance deals may force them to reduce

output or downscale projects, as the domestic market would not be able to absorb a higher

level of production (Fastmarkets, 2018[48]). The Iranian government had set an ambitious

target for steel production of 55 million tonnes per year by 2025 as part of its “2025 Vision

Plan” production (Fastmarkets, 2018[48]). The OECD estimates that, should all steel plants

projects already underway be completed as scheduled, Iranian nominal crude steelmaking

capacity would reach 57.7 million metric tons by 2021, a 71% increase compared to the

33.6 million metric tons of capacity at the end of 2018 (OECD, 2019[38]).

The demand for steel products across the U.A.E and the GCC region is set to continue

increasing, driven by a number of construction projects as the U.A.E prepares for the Expo

2020 Dubai event (Khaleej Times, 2019[49]). It is anticipated that steel consumption in the

UAE could grow at a compound annual gross rate of 8% between 2016 and 2020 (Khaleej

Times, 2019[49]). The National Committee for the Steel Industry of Saudi Arabia reports

that the Saudi market requires more than 20 million metric tonnes of steel products today

to meet current domestic demand. This number is likely to increase as more projects that

are part of the Saudi Vision 2030 come on stream10.

Steel demand in the northern region of Iraq could increase due to rebuilding efforts. Iraq’s

demand for concrete reinforcing steel is projected to hit 2.4 million tonnes in 2020 as part

of post-war reconstruction efforts and local factories are projected to produce one million

metric tonnes of steel for that year (Abdullah, 2019[50]).

2.9.4. Asia and Oceania

The October 2018 forecast by the World Steel Association estimates that steel demand in

the Asia and Pacific region should grow by 1.3% in 2019 (Worldsteel, 2018[40]). India and

ASEAN are likely to drive the projected increase in steel use in the region, while steel

demand in China is expected to stagnate in 2019.

According to the latest Short Range Outlook by World Steel Association, Chinese steel

demand is expected to stagnate in 2019 (0.0%) due to the Chinese government’s continued

effort to shift to a more consumption-driven growth path and toughening environmental

regulations. The World Steel Association noted that Chinese steel demand in 2019 could

be boosted if stimulus measures to improve deteriorating economic environment are

introduced, while the ongoing trade dispute with U.S. and a decelerating global economy

could be downside risks for steel demand in China (Worldsteel, 2018[40]). At the same time,

MPI forecasts that Chinese steel demand will decrease by 2.4% in 2019 compared to 2018.

Steel demand in the construction, energy and automotive sectors would decrease in 2019,


while demand in the machinery, shipbuilding, domestic appliances and railway sectors

would continue to register growth (MPI, 2018[16]) (People.cn, 2018[17]).

According to the China Association of Automobile Manufacturers (hereafter “CAAM”),

total automobiles sales (including passenger and commercial vehicles) in China fell by

2.8% in 2018, to a level of 28.1 million vehicles (Figure 15). CAAM indicates that the

weakness of vehicle sales would continue and forecasts that sales would remain flat around

28 million vehicles for 2019 (CAAM, 2019[51]) (Reuters, 2019[52]). On January 2019, China

unveiled a number of measures to boost domestic consumption, particularly of cars and

home appliances, which should increase demand for flat production (Jing, 2019[53]).

Figure 15. Car passenger vehicle sales in China

Year-over-year growth

Source: Datastream.

In China, total current investment by real estate development companies and commercial

building construction companies during the year 2018 increased by about 10% year-over-

year (Figure 16). Chinese investment in real estate in 2018 was underpinned by housing

demand from households, in spite of the already high price level of properties in China.

Nevertheless, the momentum appears to be fading. There has been anecdotal evidence of

large price rebates being offered by Chinese real estate developers (Dunkley and Liu,

2018[54]) (Zuo, 2018[55]). Furthermore, new home prices in first tier cities are estimated to

have risen by only 0.3% year-over-year over the period from January to November 2018

(Hao, 2018[56]). Going forward, China plans to introduce a new property tax law that could

go into effect as soon as 2019, and could decrease the attractiveness of real estate as an

investment, depending on its concrete formulation (Dunkley and Liu, 2018[54]). Real estate

accounted for 63% of Chinese total steel consumption in 2017, according to China's

Metallurgical Planning Institute (Bartholomew, 2018[57]), hence any slowdown in the

demand for housing would greatly affect overall steel demand in China. S&P estimates that

the Chinese property market has already peaked in terms of prices, and forecasts a decline

in prices of 5% in 2019 (Bartholomew, 2018[57]).


Figure 16. Real estate price change and investments

Note: The house price index (y-o-y change) is computed by Reuters based on the price index for newly built

residential properties of 70 large and medium sized Chinese cities produced by the National Bureau of Statistics

of China.

Investment in real estate (y-o-y change) indicates the change in the current amount of investment by the real

estate development companies, commercial buildings construction companies and other real estate

development units of various types of ownership in the construction of house buildings, such as residential

buildings, factory buildings, warehouses, hotels, guesthouses, holiday villages, office buildings, and the

complementary service facilities and land development projects, such as roads, water supply, water drainage,

power supply, heating, telecommunications, land levelling and other projects of infrastructure. It excludes the

activities in simple land transactions.

Source: Datastream, National Bureau of Statistics of China.

Chinese steel demand has also been supported by infrastructure investment projects, such

as construction of roads, bridges and subways. However, the growth rate of investment in

infrastructure (excluding electric power, heat power, gas and water) decelerated in 2018,

and registered a 3.8% increase y-o-y during January-December 2018. This is 15.2

percentage points lower than that in 2017, according to the National Bureau of Statistics of

China (hereafter “NBS”) (NBS, 2019[58]). On the other hand, the China Iron and Steel

Association (hereafter “CISA”) expects that central and local governments would

accelerate the investment in infrastructure, and the growth rate would continue to increase

in 2019 (CISA, 2019[59]). China’s National Development and Reform Commission has

approved urban rail projects in eight cities and regions, with a total investment of RMB

860 billion in December 2018 (Financial Times, 2019[60]). At the same time, there are some

concerns that whether a growth rate in infrastructure could be sustainable because of

continued efforts by the Chinese governments to deleverage the economy (Platts, 2019[61]).

Steel demand in Japan is expected to remain stable. The continuation of an easing of

monetary policy and solid demand associated with the investments related to the Tokyo

Olympics and Paralympic Games should support this development. Japanese steel demand

is forecast to continue to grow by 0.5% in 2019 (Worldsteel, 2018[40]). According to the

Japan Iron and Steel Federation (here after “JISF”), steel demand from the construction

sector in the financial year of 2019-2020 (April 2019-March 2020) is expected to be slightly

higher than the previous financial year because of strong civil engineering activity. The

latter will be supported by an increase in public investments. On the other hand, the


consumption tax increase in Japan (from 8% to 10% in October 2019) would have an

impact on steel demand from the manufacturing sector (JISF, 2018[62]).

While the Japanese economy is expected to continue recovering due to the effects of

monetary policy easing and public investment, increasing industrial production and capital

investment by Japanese companies could support short-term prospects for Japanese steel

demand. However, any further trade frictions and a slowdown of the global economy might

put downward pressure on Japanese economy (Cabinet Office of Japan, 2019[63]).

In Korea, steel demand in 2019 is expected to rebound by 1.1%, after contracting by 4.1%

in 2018 with all its major steel using sectors struggling, according to the latest forecast by

World Steel Association (Worldsteel, 2018[40]).

According to the World Steel Association, India could soon become the world’s second

largest steel-consuming economy, with demand expected to grow by 7.3% in 2019.11

Infrastructure, as well as residential property construction, coupled with favourable

demographics and improving macroeconomic fundamentals, should sustain increases in

steel consumption in India over the longer term (Worldsteel, 2019[64]). Thanks to an

increased focus on the infrastructure sector, particularly towards housing, power

transmission and the railways in the Union Budget 2018-19, domestic steel consumption

growth is likely to continue in the medium term. According to the Investment Information

and Credit Rating Agency of India Limited (ICRA), an Indian ratings agency, steel

consumption is expected to grow by around 7% during 2019 and 2020 (Moirangthem,

2019[65]).

The port and shipping sector has been developing rapidly as a consequence of the ‘Make

in India’ initiative (e.g. the Sagarmala programme12). The construction and upgrade of ports

and other maritime infrastructure will continue to require large quantities of steel ("Hellenic

Shipping News Worldwide", 2019[66]). As urbanisation rates increase in India, the

construction sector is likely to continue to support steel demand going forward. Some of

the government initiatives in this area that could continue to contribute to steel include for

example: the Pradhan Mantri Awas Yojna – Housing for All initiative13, the Sardar Patel

Urban Housing Mission14, the 100 Smart Cities Mission15, or the Urban Infrastructure

Development Scheme for Small & Medium Towns (UIDSSMT).16 The Government of

India is also formulating a draft National Scrap Policy to help increase domestic ferrous

scrap processing ability and reduce scrap imports (Sathish, 2019[67]). The policy is at the

nascent stage and will take some time to be finalised. The Insolvency and Bankruptcy code

introduced in 2016 is expected to help steel firms and banks tackle stressed assets.

(Bruhadeeswaran, 2019[68])

Steel demand in the ASEAN region is expected to resume a solid growth momentum driven

mainly by numerous government-led infrastructure projects in 2019, as steel consumption

in the ASEAN-5 region (Indonesia, Malaysia, Philippines, Thailand and Viet Nam) is

expected to grow by 6.2% in 2019, according to the latest Short Range Outlook by the

World Steel Association (Worldsteel, 2018[40]). The Philippine government has planned

new infrastructure projects to implement in 2019 that would boost steel consumption.17

Viet Nam is also expected to continue posting positive growth in the short term due to solid

demand from the construction industry (VN Steel, 2018[69]). On the other hand,

postponements of infrastructure projects would have an impact on growth of steel demand

in the region. In September 2018, the governments of Malaysia and Singapore agreed to

postpone the construction of the Kuala Lumpur-Singapore high-speed rail project for a

period up to the end of May 2020 as an effort to reduce Malaysia’s debt (MyHSR, 2018[70])

(Reuters, 2018[71]). According to some press reports, the Indonesian government also might


postpone some infrastructure projects due to the government’s efforts to reduce the current

account deficit (The Jakarta Post, 2018[72]).


References

(n.a.) (2018), “German construction activity continues to gain momentum”, Kallanish,

https://kallanish.com/en/steel-news/market-reports/article-details/german-construction-keeps-

momentum-record-levels-1018/ (accessed on 18 February 2019).

[104]

(n.a.) (2017), “China property tax based on ‘appraisal value’, with legal process to be in place by

2019 | South China Morning Post”, South China Morning Post,

https://www.scmp.com/business/china-business/article/2125092/china-property-tax-based-

appraisal-value-legal-process-be (accessed on 10 January 2019).

[108]

(n.a.) (n.d.), Saudi Vision 2030, https://vision2030.gov.sa/en (accessed on 22 February 2019). [113]

"Hellenic Shipping News Worldwide" (2019), India: Port-building and shipping can catalyse

steel demand, https://www.hellenicshippingnews.com/india-port-building-and-shipping-can-

catalyse-steel-demand/ (accessed on 22 February 2019).

[66]

Abdullah, R. (2019), Demand for Kurdish steel tempered by cheap imports,

http://www.rudaw.net/english/business/17122018 (accessed on 22 February 2019).

[50]

Aço Brasil (2017), Aço Brasil Informa,

http://acobrasil.org.br/siderurgiaemfoco/Aco_Brasil_Informa_Dez_17--web.pdf (accessed on

2 July 2018).

[87]

Alacero (2019), Production of finished steel grows 2% in Latin,

https://www.alacero.org/sites/default/files/noticias/docs/press_release_estadisticas_-_en.pdf

(accessed on 15 February 2019).

[15]

Alacero (2018), Latin America: Finished steel exports fall 5% between January-November 2018,

https://www.alacero.org/en/page/prensa/noticias/latin-america-finished-steel-exports-fall-5-

between-january-november-2018 (accessed on 4 February 2019).

[101]

AMM (2018), Turkey must act fast on steel trade, TÇÜD warns,

http://www.amm.com/Article/3820148/Turkey-must-act-fast-on-steel-trade-TD-warns.html

(accessed on 12 July 2018).

[79]

Ault, N. (2018), “China’s scrap ban demands new game plans for steel companies | Supply Chain

Dive”, Supply Chain Dive, https://www.supplychaindive.com/news/china-scrap-ban-

steel/526806/ (accessed on 11 January 2019).

[37]

Baida, G. (2019), “LatAm steel: The good, the bad and the ugly (Part 1)”,

https://www.steelbb.com/?PageID=157&article_id=176859 (accessed on 20 February 2019).

[44]

Bartholomew, P. (2018), “China’s property market heading for 2019 downturn: report”,


[57]


Bloomberg (2018), China to Unleash $108 Billion in Reserve Cut for Some Banks,

https://www.bloomberg.com/news/articles/2018-06-24/china-s-central-bank-cuts-reserve-

ratio-for-some-banks (accessed on 26 June 2018).

[91]

Bruhadeeswaran, R. (2019), “Bankruptcy law a success but execution snags remain: Panellists at

VCCircle summit”, VCCircle, https://www.vccircle.com/bankruptcy-law-a-success-but-

execution-snags-remain-panellists-at-vccircle-summit/ (accessed on 22 February 2019).

[68]

Business Standard (2018), Domestic steel consumption to grow by 7 pc this fiscal, FY20: ICRA,

https://www.business-standard.com/article/pti-stories/domestic-steel-consumption-to-grow-

by-7-pc-this-fiscal-fy20-icra-118123100562_1.html (accessed on 30 January 2019).

[19]

CAAM (2019), 2018年12月汽车工业产销情况简析(Analysis of the production and sales of the

automobile industry in December 2018),

http://www.caam.org.cn/zhengche/20190114/1505221206.html (accessed on

12 February 2019).

[51]

Cabinet Office of Japan (2019), Monthly Economic Report February 2019,

https://www5.cao.go.jp/keizai3/getsurei-e/2019feb.html (accessed on 22 February 2019).

[63]

Chatterjee, S. and A. Blake (2015), Modelling credit risk, Bank of England, Centre for Central

Banking Studies, http://www.bankofengland.co.uk/education/ccbs/handbooks_lectures.htm

(accessed on 9 January 2019).

[83]

CISA (2019), 深入推进供给侧结构性改革努力提高钢铁行业运行的质量和效益(Deepening

the supply-side structural reform, efforts to improve the quality and efficiency of the

operation of the steel industry),

https://translate.google.com/?hl=ja#view=home&op=translate&sl=zh-

CN&tl=en&text=%E5%8A%AA%E5%8A%9B%E6%8F%90%E9%AB%98%E9%92%A2%

E9%93%81%E8%A1%8C%E4%B8%9A%E8%BF%90%E8%A1%8C%E7%9A%84%E8%

B4%A8%E9%87%8F%E5%92%8C%E6%95%88%E7%9B%8A (accessed on

12 February 2019).

[59]

Djoudi, K. (2017), “The Iron and Steel Industry in the Arab World” (in French), OECD 83rd

Session of the Steel Committee, 28-29 September 2017,,

http://www.oecd.org/industry/ind/Item_9_1_AISU_Algeria.pdf.

[97]

Dunkley, E. and N. Liu (2018), “China and HK housing developers forced to offload at a

discount | Financial Times”, Financial Times, https://www.ft.com/content/9808f7b6-eef0-

11e8-89c8-d36339d835c0 (accessed on 10 January 2019).

[54]

ERAI (2017), 10 Ongoing Mega Projects Of Turkey In 2017,

http://eraiturkey.com/2017/03/17/10-ongoing-mega-projects-of-turkey-in-2017/.

[78]

ET Auto (2018), FY 2018-19 to improve auto sales graph; PVs expect to grow at 8-10%,

https://auto.economictimes.indiatimes.com/news/industry/fy-2018-19-to-improve-auto-sales-

graph-pvs-expected-to-grow-at-8-10/62462206 (accessed on 6 July 2018).

[93]


EUROFER (2019), Economic Report, ECONOMIC AND STEEL MARKET OUTLOOK 2019-

2020,

http://www.eurofer.org/Issues%26Positions/Economic%20Development%20%26%20Steel%

20Market/REPORT%20-%20Economic%20and%20Steel%20Market%20Outlook%20-

%20Quarter%201,%202019.pdf (accessed on 31 January 2019).

[27]

Eurofer (2019), Economic and Steel Market Outlook 2019-2020. [26]

Eurofer (2018), Economic and Steel Market Outlook 2018-2019, Second Quarter, 2018,

http://www.eurofer.org/Issues%26Positions/Economic%20Development%20%26%20Steel%

20Market/REPORT%20-%20Economic%20and%20Steel%20Market%20Outlook%20-

%20Quarter%202,%202018.pdf (accessed on 25 June 2018).

[74]

European Commission (2018), Mergers: Commission clears ArcelorMittal’s acquisition of Ilva,

subject to conditions, http://europa.eu/rapid/press-release_IP-18-3721_en.htm (accessed on

25 June 2018).

[75]

Fastmarkets (2018), Top steel makers 2018: Middle East steel production grows to meet rising

regional demand, Metal Bulletin, https://www.metalbulletin.com/Article/3811907/TOP-

STEELMAKERS-2018-Middle-East-steel-production-grows-to-meet-rising-regional-

demand.html (accessed on 22 February 2019).

[48]

Financial Times (2019), China steps up fiscal spending as it approves $125bn of rail projects,

https://www.ft.com/content/c272c1fc-0fee-11e9-a3aa-118c761d2745 (accessed on

12 February 2019).

[60]

Financial Times (2018), Iran feels sting of US sanctions once more. [98]

Flak, A. (2019), “Europe sales drop 9% in December following WLTP introduction”, Automotive

News Europe, https://europe.autonews.com/sales-market/europe-sales-drop-9-december-

following-wltp-introduction (accessed on 28 February 2019).

[32]

GACC (2018), GACC - Monthly Bulletin,

http://english.customs.gov.cn/statics/report/monthly.html (accessed on 29 January 2019).

[34]

Giles, C. (2019), “IMF flags trade war threat and warns of global economic slowdown | Financial

Times”, https://www.ft.com/content/d0413d18-1d72-11e9-b126-46fc3ad87c65 (accessed on

23 January 2019).

[11]

Hao, C. (2019), “China’s 2018 FAI growth up 5.9%, infrastructure up 3.8%”,


[109]

Hao, C. (2018), “New home prices in China see slight increase”,


[56]

Herrero, A. and N. Gary (2018), Debt-to-equity swaps: China’s ’matryoshka“ strategy to clean

up banks, http://www.research.natixis.com.

[6]

Herrero, A., G. Ng and L. Soe (2017), China Corporates: debt-to-equity swaps and financial

health, http://www.research.natixis.com.

[73]


Hömann, R. (2019), The steel industry as an energy-intensive sector, https://en.stahl-

online.de/index.php/topics/energy-and-environment/energy/ (accessed on 18 February 2019).

[107]

Hume, N. (2018), “Coking coal in focus on lower production forecasts”, Financial Times. [81]

IMF (2019), World Economic Outlook Update, January 2019: A Weakening Global Expansion,

https://www.imf.org/en/Publications/WEO/Issues/2019/01/11/weo-update-january-2019


[10]

ISSB (2019), World Steel Statistics December 2018. [12]

Jing, Z. (2019), “China unveils measures to boost car and white goods sales”,


[53]

JISF (2018), 2019 年度の鉄鋼需要見通し(Outlook for Japanese steel demand in FY2019),

http://www.jisf.or.jp/news/topics/documents/FY2019tekko-juyo.pdf (accessed on

13 February 2019).

[62]

JISF (2018), Recent Market Developments,

http://www.oecd.org/industry/ind/84th_OECD_Steel_Committee_Item_10-5_JISF.pdf.

[92]

JISF (2018), Recent Market Developments in the Japanese Steel Industry,

http://www.oecd.org/industry/ind/Item_4_JISF_Japan.pdf (accessed on 30 January 2019).

[22]

Kallanish (2019), “German construction to grow again in 2019: HDB”,


pace-2019-0119/ (accessed on 18 February 2019).

[29]

Kallanish (2019), “German fabricators welcome initiative for energy transition costs”,

https://kallanish.com/en/steel-news/market-reports/article-details/german-fabricators-

welcome-initiative-energy-transition-costs-0219/ (accessed on 21 February 2019).

[111]

Kallanish (2019), LatAm becomes China`s main destination for steel exports,

https://kallanish.com/en/steel-news/market-reports/article-details/latin-america-becomes-

chinas-steel-exports-main-destination-0119/ (accessed on 18 February 2019).

[42]

Kallanish (2019), Thyssenkrupp-Tata merger: union warns of potential issues ahead,

https://kallanish.com/en/steel-news/market-reports/article-details/thyssenkrupp-tata-merger-

union-warns-concessions-0219/ (accessed on 18 February 2019).

[105]

Kallanish (2019), “Ukraine’s adjusted 2018 ferrous output data confirms increases”,

https://kallanish.com/en/steel-news/market-reports/article-details/ukraines-adjusted-2018-

output-data-confirms-increases-0119/ (accessed on 21 February 2019).

[112]

Kallanish (2018), “German car production dips in 2018”, https://kallanish.com/en/steel-

news/market-reports/article-details/german-car-production-2018-dips-9-yy-0119/ (accessed

on 18 February 2019).

[31]


Kallanish (2018), “German construction activity continues to gain momentum”,


momentum-record-levels-1018/ (accessed on 18 February 2019).

[28]

Kallanish (2018), “Reduced EU demand affects Spanish automotive production”,

https://kallanish.com/en/steel-news/market-reports/article-details/spanish-automotive-

production-keeps-suffering-reduced-eu-demand-1218/ (accessed on 18 February 2019).

[30]

Kallanish (2018), “US construction materials costs see double-digit increase”,

https://kallanish.com/en/steel-news/market-reports/article-details/double-digit-increase-

reported-construction-materials-costs-1018/ (accessed on 18 February 2019).

[45]

Kallanish Energy (2019), “Germany’s exit from coal-fired power concerns steel industry”,

http://www.kallanishenergy.com/2019/01/27/germanys-exit-from-coal-fired-power-concerns-

steel-industry/ (accessed on 18 February 2019).

[106]

Khaleej Times (2019), “Construction industry drives demand for steel”,

https://www.khaleejtimes.com/construction-industry-drives-demand-for-steel (accessed on

22 February 2019).

[49]

KOSA (2018), Korean Steel Market in 2018,

http://www.oecd.org/industry/ind/Item_4_KOSA_Korea.pdf (accessed on 30 January 2019).

[23]

Liu, L. (2018), “China Paves Way for Wealth Management Products to Buy Stocks -

Bloomberg”, Bloomberg, https://www.bloomberg.com/news/articles/2018-09-20/china-

allows-wealth-management-products-to-buy-stocks-directly (accessed on 14 January 2019).

[3]

Lu, J. and J. Zhang (2018), Beijing’s visible hand: China’s demand for iron ore and scrap

through 2020, S&P Global,

https://www.spglobal.com/platts/plattscontent/_assets/_files/en/specialreports/metals/sr-

metals-insight-china-iron-ore-scrap-demand.pdf (accessed on 11 January 2019).

[36]

Mercier, F. (2016), The modelling of defaults in the finance industry: A succinct overview of

types of default models commonly used in the finance industry and the links between them.

[84]

Metal Bulletin (2018), TURKEY FLAT STEEL OUTLOOK: Strong demand set to drive

production, https://www.metalbulletin.com/Article/3816784/TURKEY-FLAT-STEEL-

OUTLOOK-Strong-demand-set-to-drive-production.html (accessed on 12 July 2018).

[80]

Metal Expert (2018), AISI: “The US will be attractive investment place for any steel company”,

https://metalexpert.com/en/news/HTMLInetNewsBus&head=AISI-The-US-will-be-

attractive-investment-place-for-any-steel-

company&unid=67D33729B6AFFCC7C2258330004A0A59Q (accessed on

29 January 2019).

[13]

Metal Expert (2018), Alacero: “Stronger world economy and trade are going to drive Latin

America’s development”, https://metalexpert.com/en/news/HTMLInetNews&head=Alacero-

Stronger-world-economy-and-trade-are&unid=289A4D31FF4CAB68C22582410041DB41Q

(accessed on 29 June 2018).

[47]


Metal Expert (2018), Southeast Asia expects growth of steel consumption at 5-6% this year,

https://metalexpert.com/en/news/HTMLInetNews&head=Southeast-Asia-expects-growth-of-

steel-consumption&unid=05EE98B8A8D459F3C22582B8002C78B2Q (accessed on

6 July 2018).

[95]

Metinvest (2018), Metinvest 1H 2018 Results,

https://metinvestholding.com/Content/Entities/Presentation/18/en/Metinvest%20corporate%2

0presentation%201H%202018.pdf (accessed on 21 February 2019).

[25]

Miles, T. (2019), “WTO warns of global trade slowdown as indicator hits nine-year low”,

Reuters, https://www.reuters.com/article/us-trade-wto/wto-warns-of-global-trade-slowdown-

as-indicator-hits-nine-year-low-idUSKCN1Q812U (accessed on 19 February 2019).

[8]

Moirangthem, S. (2019), India’s steel consumption to grow by 7pct in 2018-19 - ICRA,

https://steelguru.com/steel/india-s-steel-consumption-to-grow-by-7pct-in-2018-19-

icra/530325 (accessed on 22 February 2019).

[65]

MPI (2018), 冶金规划院研究发布“2019年我国钢铁需求预测成果、全球钢材需求预测成果”(MPI released the “2019 Chinese Steel Demand Forecast, and Global Steel Demand

Forecast”), http://www.mpi1972.com/xwzx/tzgg/201812/t20181221_80982.html (accessed

on 30 January 2019).

[16]

MyHSR (2018), JOINT STATEMENT BY SINGAPORE AND MALAYSIA ON KUALA

LUMPUR-SINGAPORE HIGH SPEED RAIL PROJECT,

http://www.myhsr.com.my/clients/MyHSR_C9A9D510-C802-4FEA-8DC3-

05EA13351D53/contentms/img/press_releases/20180905_Joint_Statement%20by%20Spore

%20and%20Malaysia%20on%20KL-SG%20HSR%20Project.pdf (accessed on

14 February 2019).

[70]

National Bureau of Statistics of China (2018), Investment in Fixed Assets for the First Five

Months of 2018,

http://www.stats.gov.cn/english/PressRelease/201806/t20180615_1604839.html (accessed on

6 July 2018).

[90]

NBS (2019), Investment in Fixed Assets for the First Twelve Months of 2018,

http://www.stats.gov.cn/english/PressRelease/201901/t20190122_1646132.html (accessed on

12 February 2019).

[58]

OECD (2019), Latest developments in steelmaking capacity[DSTI/SC(2019)3],

https://one.oecd.org/document/DSTI/SC(2019)3/en/pdf (accessed on 21 February 2019).

[38]

OECD (2018), OECD 2018 Economic Outlook, http://dx.doi.org/10.1787/888933880014. [7]

OECD (2018), OECD Business and Finance Outlook 2018, OECD Publishing, Paris,

https://dx.doi.org/10.1787/9789264298828-en.

[85]

OECD (2018), Steel Market Developments Q2 2018,

http://www.oecd.org/industry/ind/SteelMarketDevelopments_Q2_2018_FINAL.pdf (accessed

on 14 January 2019).

[35]


OECD (2017), OECD Business and Finance Outlook 2017, OECD Publishing, Paris,

https://dx.doi.org/10.1787/9789264274891-en.

[2]

OECD (2016), Steel Market Developments, Q2 2016, OECD Publishing,

http://www.oecd.org/sti/ind/steel-market-developments-2016Q4.pdf.

[82]

Pakistan & Gulf Economist (2018), Likely steel demand of 10m tons in 2 to 3 years will push

expansion and investment in near future,

http://www.pakistaneconomist.com/2018/04/16/likely-steel-demand-10m-tons-2-3-years-

will-push-expansion-investment-near-future/ (accessed on 12 July 2018).

[99]

Pang, I. and A. Herrero (2016), “Who pays for the free lunch? The ultimate risk bearer of

China’s debt-to-equity swaps”.

[5]

People.cn (2018), 今年钢材需求量增幅远超行业预期明年产需可能双降(The demand for

steel in this year has increased far more than the industry expects),

http://energy.people.com.cn/n1/2018/1211/c71661-30457389.html (accessed on

30 January 2019).

[17]

PHILSTAR Global (2018), TRAIN to finance 5 infrastructure projects in 2019,

https://www.philstar.com/business/2018/08/08/1840509/train-finance-5-infrastructure-

projects-2019 (accessed on 13 February 2019).

[102]

Platts (2019), China puts foot down on infrastructure investment pedal,


[61]

Platts (2018), China steel consumption to rise at much slower pace: CISA,

https://www.steelbb.com/?PageID=157&article_id=170211.

[89]

Reuters (2019), China car sales hit reverse for first time since 1990s,

https://www.reuters.com/article/us-china-autos/china-car-sales-hit-reverse-for-first-time-

since-1990s-idUSKCN1P805Z (accessed on 12 February 2019).

[52]

Reuters (2018), Malaysia, Singapore agree to defer high speed rail link,

https://www.reuters.com/article/us-malaysia-singapore-railway/malaysia-singapore-agree-to-

defer-high-speed-rail-link-idUSKCN1LL0B4 (accessed on 14 February 2019).

[71]

Reuters (2017), Thyssenkrupp, workers strike deal to pave way for Tata Steel merger,

https://www.reuters.com/article/us-thyssenkrupp-tata-steel-unions/thyssenkrupp-workers-

strike-deal-to-pave-way-for-tata-steel-merger-idUSKBN1EG0W9.

[76]

Russian Steel (2018), Russian Steel Markets Developments,

http://www.oecd.org/industry/ind/Item_4_Russian%20Steel%20Association.pdf (accessed on

31 January 2019).

[24]

Sathish, P. (2019), “Steel industry: The real steel frame of India”, The Economic Times,

https://economictimes.indiatimes.com/blogs/et-commentary/steel-industry-the-real-steel-

frame-of-india/ (accessed on 22 February 2019).

[67]


SEAISI (2018), Asean steel consumption to rebound in 2018: Seaisi,

http://www.seaisi.org/News/7589/Asean+steel+consumption+to+rebound+in+2018:+Seaisi+

(accessed on 6 July 2018).

[94]

SEAISI (2018), Thailand’s apparent steel demand in the first half of 2018,

http://www.seaisi.org/News/7983/Thailand%E2%80%99s+apparent+steel+demand+in+the+f

irst+half+of+2018 (accessed on 30 January 2019).

[21]

SEAISI (2018), Update of ASEAN-6 steel industry situation in the first half of 2018,

http://www.seaisi.org/news_details.php?nid=8106 (accessed on 30 January 2019).

[20]

Shulga, M. (2019), “Severstal sees steel demand softening in Russia on weak construction”,

Fastmarkets, https://www.metalbulletin.com/Article/3857544/Severstal-sees-steel-demand-

softening-in-Russia-on-weak-construction.html (accessed on 15 February 2019).

[41]

Singhal, R. (2019), “India set to get a steel boost - Here’s why”, The Financial Express,

https://www.financialexpress.com/opinion/india-set-to-get-a-steel-boost-heres-why/1451865/


[114]

Steel News, B. (2018), Brazil Steel News: Brazilian steel industry confirms 2018 recovery

trajectory, http://www.cbca-acobrasil.org.br. (accessed on 15 February 2019).

[43]

Sun, Y. and B. Goh (2019), “China car sales drop at steepest pace in almost seven years”,

Reuters.

[96]

Ternium (2018), Ternium Anuncia Resultados para el Tercer Trimestre del 2018,

https://terniumcomprod.blob.core.windows.net/wp-content/2018/10/Comunicado-de-Prensa-

TX-3T18.pdf (accessed on 21 February 2019).

[14]

The Jakarta Post (2018), Government may postpone infrastructure projects for up to six years,

https://www.thejakartapost.com/news/2018/09/14/government-may-postpone-infrastructure-

projects-for-up-to-six-years.html (accessed on 13 February 2019).

[103]

The Jakarta Post (2018), Infrastructure group says govt facing development budget shortfall,

https://www.thejakartapost.com/news/2018/12/18/infrastructure-group-says-govt-facing-

development-budget-shortfall.html (accessed on 13 February 2019).

[72]

Tillichn, S., M. Platzeck and B. Praetorius (2019), Kommission, Wachstum, Strukturwandel und

Beschäftigung, http://www.bmwi.de (accessed on 20 February 2019).

[110]

VN Steel (2018), OUTLOOK FOR VIETNAM STEEL INDUSTRY IN 2018 – THE ROLE OF

THE CONSTRUCTION INDUSTRY IN STEEL CONSUMPTION GROWTH OF VIETNAM

IN 2019, http://seaisi.org/file/S1-P2_Speech%20SEAISI%202018%20-%20VNSTEEL.pdf


[69]

Wan, F. (2018), New Rules Aim to Boost Debt-to-Equity Swaps,

https://www.caixinglobal.com/2018-07-02/new-rules-aim-to-boost-debt-to-equity-swaps-

101289969.html.

[4]


World Steel Association (2019), Global crude steel output increases by 4.6% in 2018,

https://www.worldsteel.org/media-centre/press-releases/2019/Global-crude-steel-output-

increases-by-4.6--in-2018.html (accessed on 25 January 2019).

[18]

World Steel Association (2018), Short Range Outlook April 2018,

https://www.worldsteel.org/media-centre/press-releases/2018/worldsteel-short-range-outlook-

april-2018.html (accessed on 26 June 2018).

[77]

World Steel Association (2018), Short Range Outlook October 2018,

https://www.worldsteel.org/en/dam/jcr:e41c7f63-43f0-4430-9af0-

229a945c16dd/worldsteel%2520Short%2520Range%2520Outlook%2520October%2520201

8.pdf (accessed on 29 January 2019).

[100]

World Steel Association (2018), STEEL STATISTICAL YEARBOOK 2018,

https://www.worldsteel.org/en/dam/jcr:e5a8eda5-4b46-4892-856b-

00908b5ab492/SSY_2018.pdf (accessed on 25 January 2019).

[39]

World Steel Association (2017), worldsteel Short Range Outlook 2017/2018,

https://www.worldsteel.org/media-centre/press-releases/2017/worldsteel-Short-Range-

Outlook-2017-2018.html.

[88]

World Steel Association (2016), worldsteel Short Range Outlook 2016/2017,

https://www.worldsteel.org/en/dam/jcr:9e146c50-1d1d-4585-a595-

62d9a21d39cd/SRO_Table.pdf.

[86]

Worldsteel (2019), Blog: India to significantly boost demand for steel,

https://www.worldsteel.org/media-centre/blog/2019/india-boost-demand-for-steel.html


[64]

Worldsteel (2018), Global crude steel output increases by 4.6% in 2018,

https://www.worldsteel.org/media-centre/press-releases/2019/Global-crude-steel-output-

increases-by-4.6--in-2018.html (accessed on 18 February 2019).

[33]

Worldsteel (2018), Worldsteel Short Range Outlook, https://www.worldsteel.org/media-

centre/press-releases/2018/worldsteel-Short-Range-Outlook-2018-2019.html (accessed on

20 February 2019).

[40]

WTO (2019), WTO trade indicator points to slower trade growth into first quarter of 2019,

https://www.wto.org/english/news_e/news19_e/wtoi_19feb19_e.htm (accessed on

19 February 2019).

[9]

Zevin, A. (2018), “Surveys: Markets slows in 2019”, Construction Forecast,

https://www.enr.com/ext/resources/Issues/National_Issues/2018/11-November/26-

Nov/1126_Forecast_combined.pdf (accessed on 18 February 2019).

[46]

Zhang, M. and C. Lee (2018), “China central bank to expand types of guarantees for medium-

term lending facility | Reuters”, Reuters, https://www.reuters.com/article/us-china-cenbank-

mlf/china-central-bank-to-expand-types-of-guarantees-for-medium-term-lending-facility-

idUSKCN1IX4WK (accessed on 8 January 2019).

[1]


Zuo, M. (2018), “Public anger in China spreading as property prices drop”, South China

Morning Post, https://www.scmp.com/news/china/society/article/2168025/public-anger-

china-spreading-property-prices-drop (accessed on 19 February 2019).

[55]


Endnotes

1 See http://www.pbc.gov.cn/goutongjiaoliu/113456/113469/3549916/index.html for the

official statement by PBOC.

2 Notice that, since the PBOC is not providing full allotment for its main refinancing

operations, the increase of new potential credit that commercial bank can obtain is not

proportional to the increase of their available collateral.

3 See the history of reserve requirement rates in China at:

https://tradingeconomics.com/china/cash-reserve-ratio

4 In this study, contagion risks between the banking and the shadow-banking sector was

estimated using Granger-causality tests on institutions’ “Distance-to-Default”. Distance-To-

Default is a commonly used concept in financial modelling, used to estimate risks in Basel

II (Chatterjee and Blake, 2015[83]), although it has some limitations due to the commonly

used assumption of a Gaussian process, which can nevertheless be replaced by processes

with jumps or fatter tail distributions (Mercier, 2016[84]).

5 The “Made in China 2025” strategy includes redirecting investments away from sectors

experiencing large excess capacity, such as Steel, towards key sectors set as priorities in the

plan. These sectors are deemed more sophisticated, with higher margins and include for

example the next generation of information technologies, high-end digital control machine

tools and robots, communication technologies or aerospace (OECD, 2018[85]).

6 According to Natixis (Herrero, Ng and Soe, 2017[73]), the government has directly intervened

to allow Sinosteel to convert RMB 27 billion of bank loans into convertible bonds. Swapping

loans for convertible bonds instead of equity allowed obligor banks to avoid having to set

aside the regulatory capital required for holding equity. The Chinese government also,

through its welfare fund SASAC, took a direct participation of RMB 10 billion in the capital

of Sinosteel, which represents a sixth of its total debt.

7 The Steel Weighted Industrial Production Index (SWIP) is the average output of steel using

sectors, weighted by their share in total consumption — see the latest economic and steel

market outlook by EUROFER for its definitions, page 23 (Eurofer, 2019[26]).

8 Demand for EU passenger cars has been declining due to the introduction of WLTP since 1

September 2018. Sales of passenger cars in July and August had been boosted by car

manufacturers cleaning stocks of pre-WLTP vehicles.

9 https://www.nahb.org/en/research/housing-economics/economic-and-housing-

forecasts.aspx

10 https://vision2030.gov.sa/en

11 Note that India became the largest steel producing economy in 2018 as indicated in Section

2.4 above.

12 https://www.hridayindia.in/; https://www.ibef.org/industry/ports-india-shipping.aspx

13 https://pmaymis.gov.in/

14 http://pib.nic.in/newsite/PrintRelease.aspx?relid=110393

15 http://smartcities.gov.in/content/

http://www.pbc.gov.cn/goutongjiaoliu/113456/113469/3549916/index.html

https://tradingeconomics.com/china/cash-reserve-ratio

https://www.hridayindia.in/

http://pib.nic.in/newsite/PrintRelease.aspx?relid=110393

http://smartcities.gov.in/content/


16 https://www.india.gov.in/urban-infrastructure-development-scheme-small-and-medium-

towns

17 In August 2018, the Department of Budget and Management of the Philippines announced

several flagship infrastructure projects which the government plans to implement in 2019,

including construction of sports facilities, railway project, rivers flood control projects and

construction of new container ports and bridges (PHILSTAR Global, 2018[102]).

STEEL MARKET DEVELOPMENTS

June

Stay informed by subscribing to our newsletter

OECD News and Innovation, Science Technology and Industry: http://oe.cd/stinews

http://www.oecd.org/sti/ind/steel.htm @ Front cover image courtesy of JFE Steel Corporation

2015

@OECDInnovation

Steel Market Developments provide up-to-date information on global and regional steel markets. Reviewed and approved by the OECD Steel Committee, they are disseminated approximately twice a year to allow policymakers, industry, media and academia to keep abreast of the main trends and recent developments taking place in steel markets.

The reports provide an overview of recent supply and demand developments and, when available, forecasts from publicly available sources. Topics of special interest are occasionally covered, such as developments in steel-related raw material markets, steelmaking capacity trends or updates on specific regions that are important for the global steel market.

steel market developments: q2 2019

Documents