Transcript Changes of the Steel Industry in 2009 and Korea`s Raw Materials

Changes of the Steel Industry in 2009 and
Korea’s Raw Materials Demand
April 16, 2009
Jin-Seok Huh
Senior Researcher, POSCO Research Institute
1
Ⅰ
Change in the Global Economy and
Steel Industry
Ⅱ
Prospects for the Korean Economy, Steel
Market, and Demand for Raw Materials
Ⅲ
Conclusion
2
Global Economy Enters Period of Negative Growth in 2009
 U.S., Japan, and EU will contract simultaneously for first time World War Ⅱ
○ Sense of economic crisis is rising in countries with excessive dependencies on :
- exports (Korea), foreign debt (E.Europe), financing (GB and Dubai), and resources (Russia)
World
EU
U.S.
13.0
Japan
9.2
3.9
2.4
2.7
2.0
‘07 ‘08 ’09
1.2
6∼8
9.0
6.3
2.4
4.3
China
1.0
India
-0.1
(Global Insight, Feb. ’09)
-1.2
-2.7
-2.4
-3.3
※ All participants in the 2009 Davos Forum voiced negative projections
- Stephen Roach (MS): “Despite the unprecedented economic slowdown, we do not see a solution,”
- Peter Sands (SC): “Uncertainties continue, and no one knows where we are now.”
Spreading Pessimism over Timing of Economic Recovery
 Worries increasing about possibility of recession becoming long-term
- Possibility of 2nd financial crisis and slowdown of China → Restoration of international
cooperation is the key
Global
economic
growth rate
Strengthen
G20
cooperation
Early recovery of
emerging countries
Additional
economic
stimulation
measures
Previous prospects
Recovery of
consumption and
investment
sentiments
Possibility of long-term
recession
Russia’s moratorium,
China’s hard landing
Worsening of
housing market
continues
Emerging
countries’ crisis
Insolvent
CDSs rapidly
increase
2nd financial
crisis
2Q
3Q
Protectionism
strengthens
Chain of bankruptcies
of global companies
U.S. and European
commercial banks go
bankrupt
1st Q, ’09
30%(Oct. ’08)≒ 50%
U.S. unemployment rate exceeds
10% Dow plummets below 6000
4Q
’10
20% decrease in global trade
’11
3
4
Global Steel Industry Faces New Crisis Due to Economic Slowdown
 Global economic slump spreads rapidly to steel-consuming industries
and to steel business
Rapid decline of global economy
and real economy
ㆍSimultaneous recession in U.S., EU, and Japan
ㆍContraction of emerging economies
Real wages and
asset income
decrease
Steel-consuming Industries
suffer major blow
Sharp contraction of
steel business
ㆍGreat contraction in construction industry,
ㆍPlummeting car sales and shipbuilding orders
ㆍSharp cuts in steel price in very short time
and their worldwide spread
Weakness in Steel Industry Induces Cut-Backs in Production
5
 With major steel companies curtailing production, global steel production
continues to decline sharply
○ Global crude steel production (y-o-y): -12.4% (Oct. ’08)  -27% (Dec. ’08)  -22% (Feb. ’09)
- Decreases accelerate in advanced countries
- Rebound in China thanks to increased output by major steel companies
○ The utilization rate at U.S. steelmakers plummeted : 30% (Dec. ’08∼Jan.’09) → 40%(Feb.)
Rate of change in Global crude steel production
20
(Compared to same month of previous year, %)
China
4.9
10
0
-10.5
-10
World
-20
▲
-22.0
-30
Advanced countries
(U.S., EU, Japan)
-40
-50
Jan. '08
Mar.
May
Jul.
Sept.
Nov.
■
-45.2
Jan. '09
Feb.
6
Projections for 2009 Steel Market by Steel Analysts
 Increasingly gloomy projections are the norm as time passes.
•Despite decreases in advanced countries,
1.8% increase thanks to China’s steady demand
• Demand decreases until 1H and
slightly increases 2H
Optimistic
① ABARE
② MEPS
③ CRU
⑤ WSD
④ GFMS
• Lowest prices in first quarter, weak recovery even 2H
Pessimistic
• Prices will rise temporarily in second quarter
and go back down again
• Demand to decrease 14.2% (In worst-case, -18.2%)
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Projections for 2009 Crude Steel Production
 Due to continued slackness in demand, two consecutive years of
negative growth is expected
- Advanced countries such as the U.S., EU, and Japan lead decreases
Latest Report
2009 (MT)
year-on-year(%)
MEPS
Jan. 2009
1,285
-3.2
HSBC
Jan. 2009
1,243
-7.2
1,203
-9.3
1,149
-13.4
1,095
-17.5
1,168
-12.0
Optimistic
WSD
Neutral
Feb. 2009
Pessimistic
Macquarie
Mar. 2009
→ Decreases in demand for steelmaking raw materials such as iron ore
and coking coal are inevitable
Major Steel Companies’ Strategic Directions for 2009
 Year to ‘focus on survival and prepare for next takeoff’
- Capable companies look beyond just survival and prepare for next boom
- A-Mittal, Tata-Corus, and others mired in liquidity crunch only struggle to survive
Response for survival
Market
situation
response
Cost reduction
Restructuring
Same strategy
- All of the world’s global companies respond
by cutting production
- Focus on management efficiency
Prepare for next boom
Investment
for growth
Differentiated strategy
- Aggressive investment: China’s large mills
and Japan’s steelmakers etc.
- Investment cuts: A-Mittal, Tata, USS, etc.
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9
Reorganization of Global Steel Industry
○ New competitive landscape forming during economic crisis :
Advance of Asian companies including those in China and decline of Western companies
Europe
U.S.
Decline of large mills and advance of mid-sized
- Decline of A-Mittal and Tata-Corus and
advance of TKS
- Limited growth for Russian mills due to
economic slowdown
Major mills face crisis of survival
- Serious liquidity shortage at A-Mittal, USS, etc.
- Inevitable decline of manufacturing industries
including automobiles
Japan
China
Large mills emerging as leading force
- Baosteel, Hebei Steel, Ansteel, WISCO, etc.
expand in size
- Integration by zone, increase in size, weeding out of
obsolete facilities, etc.
NSC and JFE enhancing their leadership
in global market
- Pursue ‘growth strategy’ and ‘strengthening of
competition’
- More actively look for global M&A opportunities
India
Aggressive facility expansion
- SAIL : Expansion and modernization of ISM
- Essar : Government approval for ISM (6 million tons)
in Karnataka
Reorganization of Global Steel Industry
○ Shift of leadership will accelerate: Weakening of West and shift to Asia,
including China and India
○ Companies that delay making efficiency improvements or pay excessive
acquisition prices will experience considerable difficulties
○ Protectionism will intensify as ‘market capitalism’ is shifting to ‘national
capitalism’
⇒ The ‘competition for survival’ during the recession should give way to
‘competition among winners’ once it passes
10
11
Ⅰ
Change in the Global Economy and
Steel Industry
Ⅱ
Prospects for the Korean Economy, Steel
Market, and Demand for Raw Materials
Ⅲ
Conclusion
12
Korean Economy Expected to Be More Severely Hit than 10 Years Ago
 Ripple effects of external shocks will be deeper due to higher dependency on exports
- Domestic demand will not offset sluggish exports (Excessive household debt, conservative
posture toward investment)
Share of exports in GDP (%)
(Unit: Volume)
70
60
50
20
63.5
Global
recession
47.7
Protectionism
Korea
Foreign exchange
crisis
40
30
Channels of global shocks to Korean
economy
China
Japan
16.4
10
0
90 92 94 96 98 00 02 04 06 08
Financial
volatility
Decreased import
demand
Sharp
export
decrease
Trade frictions
Exit of
investment capital
Banks conservative
about making loans
Weak stock and real
estate markets
Lower
Decreased
company investment
performance demand
Sluggish
domestic
demand
Household debt,
restructuring
※ Compared to the stagnant domestic demand and strong exports during the foreign exchange crisis ten years ago,
the current crisis is accompanied by sharp drops in both exports and domestic demand.
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Economic Recession May Become Prolonged
Major institutions lower projections one after another
- Overseas institutions are much more pessimistic (IMF lowered its projection by 6%p in two months,
from 2.2% in November to -4.0%)
※ Average growth projected by world’s top ten investment banks is -2.3%
Institution
Growth rate
Institution
Growth rate
Institution
Growth rate
Institution
Growth rate
KDI
0.7 %
Deutsche
Bank,
- 4.0%
Goldman
Sachs
- 1.0%
UBS
- 3.0%
Bank of Korea
0.3 %
BNP Paribas
- 4.5%
J.P. Morgan
- 2.5%
Merrill Lynch
- 0.2%
IMF
- 4.0%
Citi
- 1.8%
Morgan
Stanley
- 2.8%
SC
- 1.2%
Uncertain whether economy will realize V-shaped recovery, unlike 10 years ago
- In 1998, domestic demand plummeted due to
excessive belt tightening, but exports were strong
→ Domestic demand rapidly recovered after resolution
of foreign exchange shortage
※ Economic growth rate: ’98(-6.9%) → ’99(9.5%)
- In current crisis, steep declines in exports lead to
stagnant domestic demand
Economic indexes during foreign exchange crisis
60
40
20
0
-20
-40
-60
1998
Exports (Volume)
Civilian consumption
Facility
investmen
t
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Steel Using Sectors’ Outlook for Korea
 Automobile : Production Cutbacks 12.4% at 3.4 million units
▶ Domestic Demand : 8.5% decrease expected with prospect of consumption
recovery delayed
▶ Exports : 15% reductions expected in 2009 as recession in global auto demand is
prolonged
(Thousand Units)
2007
2008
y-o-y (%)
2009 f
y-o-y (%)
(Thousand Units, %)
y-o-y (%)
Domestic demand
1,219
+ 4.7
1,154
- 5.3
1,056
- 8.5
Export
2,847
+ 7.5
2,684
- 5.7
2,290
- 14.7
Production
4,086
+ 6.4
3,827
- 6.4
3,351
- 12.4
15
 Construction : Recessions Continued at -2.0%
▶ Building Investment : To decline 5.7% caused by the construction companies’
liquidity risks and the contraction of permits for building sites
▶ Civil Engineering Investment : To increase 3.3% by SOC investments as part of
government’s stimulus package
(Trillion KRW)
2007
2008
y-o-y (%)
2009 f
(Trillion KRW, %)
y-o-y (%)
y-o-y (%)
Construction
Investment
119
+ 1.2
116
- 2.7
113
- 2.0
Building
Investment
70
+ 1.8
68
- 3.3
64
- 5.7
Civil Engineering
Investment
49
+ 0.3
48
- 1.8
49
+ 3.3
16
 Shipbuilding : Upward Trend Broken Down
▶ Ordered volume : To shrink by more than 50% due to deteriorating shipping
market and credit crunches against ship owners’ financing
▶ Building volume : Sluggish growth expected because of delayed payments and
possible order cancellations by ship orderers
(Million GT)
2007
2008
y-o-y (%)
2009 f
y-o-y (%)
y-o-y (%)
(Thousand CGT, %)
Order Volume
64.4
+ 63.5
41.2
- 36.0
20.1
- 51.2
Building Volume
20.8
+ 8.3
25.5
+ 22.6
27.3
+ 7.1
+ 54.1
140.6
+ 13.2
133.4
- 5.1
Source : Korea Shipbuilding Industry Cooperative
Note: Increase rate is based year-on-year
Order book
124.2
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Steel Industries’ Outlook for Korea
 Weak Demands Home and Abroad Forces Production Cuts by 14.1%
▶ Domestic Demand : Down 16.1% as steel using sectors are confronted by
record-breaking downturns
- Long Products -23.7%, Flat Products -11.0%
▶ Exports : Shrink by 12% as global economic slowdown is prolonged
▶ Imports : Nosedive by 20% led by long products and coated sheets
▶ Production : 14% cutback expected led by cold-rolled and galvanized sheets
(Million Tons)
2007
2008
y-o-y (%)
2009 f
y-o-y (%)
y-o-y (%)
Domestic Demand
55.2
+ 10.0
58.6
+ 6.1
49.2
- 16.1
Exports
19.1
+ 5.2
20.8
+ 8.6
18.2
- 12.3
Production
61.7
+ 7.8
64.4
+ 4.3
55.3
- 14.1
Imports
12.6
+ 13.6
15.0
+ 18.8
12.1
- 19.4
* Finished Product Base
Korea’s Demand for Raw Materials for Steel Expected to Increase
in Intermediate Term
 Demand for iron ore and coking coal to increase by about 4% through 2012
(※ Assuming steel business starts to recover and demand for steel increases in 2010)
- Hyundai Steel set to complete a new ISM by 2012 (total crude steel capacity of 8mts)
(Unit: million tons)
2008
2009 (F)
2012 (F)
CAGR
(’08∼’12)
Crude steel production capacity
60
62
82
8.1%
Crude steel production
53
47
66
5.6%
Iron ore
49
44
57
3.9%
Coking coal
22
20
26
4.3%
Raw
materials
demand
 Dependency on imports for steelmaking raw materials :
99% for iron ore and 100% for coking coal
- Types of iron ore consumed (’07) : Fine ore 78%, lump ore 19%, and pellets 3%
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19
Ⅰ
Change in the Global Economy and
Steel Industry
Ⅱ
Prospects for the Korean Economy, Steel
Market, and Demand for Raw Materials
Ⅲ
Conclusion
Conclusion
 Reorganization will accelerate in the steel industry amid the global
recession and sharp declines in the steel business
- The ‘struggle for survival’ during the recession will give way to ‘competition
among the winners’ when it is over
 Negative growth for Korea’s steel demand and production inevitable in ‘09
- Steel production and the demand for raw materials for steel will increase
in the intermediate term, when demand recovers
 Cooperation to secure stable supply of raw materials and for other
purposes is necessary among steel companies in Northeast Asia
20