Message from Secretary General_December 2016

Posted on 28 December 2016

Source: SEAISI
2016 turned out to be an eventful and surprising year for the steel industry after all. The biggest story is the strong recovery of steel prices over the course of the year, though not without some worrying pauses and dips in between.
At the start of the year, few would have expected the steel industry to stage a rapid turnaround, not after steel prices fell to record lows in October 2015. As it turned out, steel prices started to rebound in March and although prices dipped again in May/June, the upward momentum in price movement has been generally well sustained over the course of the year.
The recovery of global steel prices has been led by the spike in Chinese steel prices. The steel industry in China has benefited from the increase in infrastructure spending by the government, a resurging property market and an upturn in the automotive industry following the reduction of taxes on vehicle purchases. The strong rebound in commodity prices, in particular coking coal, which saw its prices trebled between July and November 2016, has also contributed to the higher prices of steel products.

Due to the stronger domestic market demand, steel export offer prices from China have also gone up. While the higher export prices have not caused any significant dent in the volume of steel exports from China, with total volume for the period January to November 2016 dipping only 1% year-on-year to 100.68 million tonnes, the higher prices have at least brought some measure of relief to the steelmakers across the globe. 

In ASEAN, the region continues to bear the brunt of the Chinese steel exports. During the period January to October 2016, a total of 30.45 million tonnes of steel products from China found their way into the ASEAN-6 market, representing a full one-third of China’s total steel export volume for the same period. While the influx of steel exports from China into ASEAN is still a matter of great concern to the steelmakers in the region, the regional steel players could at least breathe easier with the recovery of steel prices and many of the steel producers are seeing a gradual return to profit path.

Besides the higher steel prices, another factor which has contributed to the improving performance of the steel companies in ASEAN is the continuing expansion in steel demand in the region. In the first six months of 2016, apparent steel consumption in ASEAN-6 expanded strongly by 19.3% year-on-year to 39.3 million tonnes. With this, steel producers in the region were able to step up their production resulting in output of hot rolled steel products surging 21.3% year-on-year to 16.5 million tonnes in the first half of 2016.

The worst appears to be over for the global steel industry and the steel industry in ASEAN. However, the road ahead is still fraught with challenges and uncertainties. How this is going to play out will depend a lot on the developments of the Chinese economy and its steel industry.

China’s economy is widely projected to expand at a comfortable 6.7% this year. However, its economic growth is expected to cool in 2017 as the government tightens monetary policy and imposes curbs to clamp down on asset price bubbles, especially in the property market. Thus, the general consensus is that China’s economic growth rate will slow down to 6.5% next year. 
The World Steel Association has projected China’s steel consumption to contract by 2% year-on-year in 2017 to 652.3 million tonnes while the China Iron and Steel Association (CISA) has indicated that China’s crude steel production will also decrease in the same year as a result of government measures aimed at reducing capacity. 
For steel raw materials, the popular consensus is that prices, especially for coking coal and iron ore, which have lost steam, might face further downward pressure.
How the above developments will pan out for the global steel industry is anybody’s guess. But what is certain is that price volatility in the steel industry is here to stay. Let us hope for a smoother ride as we move into 2017.

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