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Nerves of Steel: Views from the C-Suite



From demand and capacity to trade and company strategies, steel CEOs are a chatty bunch



This week’s Nerves of Steel series wraps up with some views from top executives, captured at the World Steel Association General Assembly by the Platts reporting team: Paul Bartholomew, Ekaterina Bouckley, Justine Coyne, Christopher Davis and Colin Richardson.


The upswing in the global steel market is more broadly underpinned by fundamental demand and not just sentiment driven, Edwin Basson, director general of worldsteel, told Platts on the sidelines of the association’s general assembly held this week in Brussels. He said underlying data showed clear growth in developed and developing economies and this made the association “more comfortable the upswing might be more durable than we previously thought." Basson reiterated worldsteel’s position that China was less of a driver than it had been in 2013-2014. “I fail to see how they [China] can dramatically increase exports given effects of capacity reduction,” he said, noting there had already been a substantial decline in long-product exports since the shuttering of induction furnace production. This year China is likely to export less than 2016, at around 70 million-80 million mt, he said. Basson added that China could cut 110 million mt of steelmaking capacity by the end of this year, and the 150 million mt net reduction may be reached by 2020.


Global steel overcapacity is a problem for many countries, but not for the US, according to Steel Manufacturers Association President Philip Bell. "You don't need to look at America. You need to look abroad," Bell told Platts. As recently as 2000, there were 22 US steelmakers with more than 2 million tons of annual capacity. Today, that number is 10 — an indication that the heavy lifting of capacity rationalization has already been done domestically by producers including Nucor, ArcelorMittal, US Steel, Gerdau Long Steel North America and Steel Dynamics Inc, among others, he said. New US greenfield capacity additions have been strategic and necessary by the likes of Big River Steel and Commercial Metals Co, he said, and additional M&A activity "will happen where it makes sense." China, which accounts for more than 50% of global production and a frequent target for global capacity cut pleas, has made strides to eliminate excess supply. "That should be commended," Bell said. "China has done a good job so far, but they have a long way to go. It's not enough and it needs to be sustained."


This year’s steel consumption in Russia is likely to exceed worldsteel’s forecast for the country of 2.6% (to 39 million mt), up from 38.1 million mt in 2016, according to Andrey Laptev, head of strategy at steelmaker Severstal. Full year-2017 steel demand in Russia may grow by as much as 5-7% year on year to 40 million mt as the first eight months of the year saw 7% growth, Laptev told Platts. On long-term prospects for the country’s recovering steel market, he said it will take less than five years to top and then exceed its previous peak of 44 million mt achieved in 2013. “The economy is made up of consumption and investments. Systematically, the share of investments in Russia’s GDP has been below 20% which, all experts concur, is quite low. For a country like Russia, a normal share of investments should and could be around 25%. Should this increase accordingly, it would give a boost to steel consumption, which is formed 70-80% by investment demand," said Laptev.


If the EU Commission were to swap its fixed anti-dumping duty per ton of Ukrainian hot-rolled coil exports (€60.50/mt) to a minimum import price – something requested by the Ukrainian government - this would be a slap in the face of European steelmakers, Axel Eggert, Eurofer's director general, told Platts. “Ukraine has already got lesser of the lesser duty. If it would have been ad valorem (a proportion expressed in a percentage of the estimated value of coil), as initially suggested, its duty would be twice as much, so not €60/mt but over €100/mt as the initial duty suggested for Metinvest’s HRC was 20%,” Eggert elaborated.


"I’m confident that whatever changes are made to NAFTA (North American Free Trade Agreement), we’ll always be able to sell still within the NAFTA region," Nucor’s John Ferriola, president and CEO said. Nucor and Japan's JFE Steel are in the process of building a new galvanizing plant in central Mexico to supply the country's automotive industry. The joint venture, which is expected to begin operations in the second half of 2019, will have an annual capacity of 400,000 st, with JFE and Nucor each supplying half of the plant's substrate requirements. Ferriola said he doesn't anticipate a new NAFTA agreement that would prohibit the JV from bringing in half of the substrate from Japan, but if an issue were to arise, Nucor is able to provide all of the required steel from its US facilities. "You have to look at the location of where you put these facilities," he said. "At the end of the day, you can have a lot of demand, but if you put it in the wrong place, it doesn’t matter. The logistical costs kill you. If you look at the circle of automotive producers, and you look at where our plant is going to be located, we’re right in the middle of the largest area. I think we’re in a very good position."


Also regarding NAFTA, American Iron and Steel Institute President and CEO Thomas Gibson said: "We want to see strong currency disciplines and it's not because of any concern among the three NAFTA partners (US, Canada and Mexico), but we think a model needs to be put in place right now in whatever the next trade agreement is...that will establish a baseline for currency disciplines and establish a precedent that trade agreements include enforceable disciplines for currency manipulation. That model can then be applied to whatever trade agreement comes next and maybe the next trade agreement will be with countries where we've had concerns in the past about currency manipulation." Along the same lines, the AISI and its member companies would also like to see strong provisions on state-owned enterprises, Gibson said.


India's JSW Steel Ltd is evaluating opportunities to expand its footprint into Europe, including Italian longs producer Aferpi, JSW Chairman and Managing Director Sajjan Jindal said. "It is one of the projects we're looking at. That's part of our strategy, to expand globally." JSW is thought to be one of up to eight entities interested in acquiring Aferpi. Its owner, Cevital, has until the end of October to submit a final industrial plan to the Italian government for approval, as Platts previously reported. The facility has been operating off and on over the past few months, and its rail mill — the only unit currently online — was recently restarted to produce a 15,000 mt rail order for Ferrovie dello Stato. Jindal did not elaborate on JSW's potential plans for Aferpi — whether an outright acquisition is planned or a joint venture might be considered. JSW currently sells 75-80% of its output within India, with the rest going to markets including Africa, South America, Europe and eastern Asia, he said. "I think Europe is more on the agenda right now," Jindal said of the company's expansion plans.


Large Turkish mill Colakoglu is examining ways to invest the profits it has made in the last few years, with 2017 being a stronger year for the company than 2016, CEO Ugur Dalbeler told Platts. The recent diplomatic kerfuffle with the US had not impacted the business, and hot-rolled coil and rebar should remain strong over the rest of the year, he added. Dalbeler said electrodes had become the second largest cost element for electric-furnace mills, and that blast furnace-based production was currently more competitive. The cost of BF-produced billet was around $360/mt, whereas EAF billet cost was around $420/mt, he said. Colakoglu has hedged around 45,000 mt of scrap, rebar and HRC this year on the LME and CME, and expects this to expand this next year.


While merchant slab can be acquired on the open market from closer to home, it's not always the technical specification required at a competitive price, Liberty Steel UK CEO Jon Bolton told S&P Global Platts. He explained this was why Sahaviriya Steel Industries invested in the old UK-based Teesside Cast Products site to feed its Thai rolling mills. "Some of it is about economics, some is about having the ability to influence the technical capability of the product you're buying," he said. Bolton headed up the Teesside plant, later bought by SSI, when it was Corus Teesside Cast Products. Liberty Steel is now considering importing Australian slab from Liberty OneSteel into the UK to feed its Scottish plate mills. Bolton also alluded to Liberty acquiring Rio Tinto's aluminum smelter, where it was planning to cast wheels to fulfill demand from re-shored automotive production.


Outgoing BlueScope Steel chief executive Paul O’Malley said the decision to continue making flat steel at the Port Kembla works, south of Sydney, in late 2015 – and saving 4,500 jobs in the process – was the “most satisfying thing I’ve achieved professionally.” But “no one believed we could do it,” he told Platts. O’Malley and team calculated that making cost savings of A$300 million would enable the works to continue operating. Some 500 jobs had to go but the strategy proved successful. BlueScope used the A$750 million it had allocated for the closure of Port Kembla to buy out Cargill’s 50% share of the North Star mini-mill in Ohio, giving the company total ownership of the US flats maker. The US now accounts for 40% of BlueScope’s business and the company is adding incremental capacity of around 45,000-50,000 mt/year at North Star. The company’s US West Coast Steelscape coated sheet operation was performing well, but the high US dollar was having some effect on demand growth. “In 2011 we saw a dramatic switch of investment out of China back into the US, so there’s been five solid years of growth in the US, but I suspect the US economy will maintain its resilience. If they unlock infrastructure in the same way the governments of [Australian states] New South Wales and Victoria have, there could be a dramatic boost to demand.”


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