Estudios Económicos
Metals

Metals

Metals
Latin America
Northern America
Central & Eastern Europe
Western Europe
Asia
Middle-East & Turkey
Change sector

Strengths

  • Still dynamic worldwide vehicle sales
  • Growing use of electrical batteries, made of metals alloys
  • On-going restructuring of key metal activities (nickel, copper, zinc, rare earths, aluminium) and lower production costs

Weaknesses

  • Low production capacity rates overall
  • Increased pressure from the Chinese authorities to reorganize the industry
  • High dependence on Chinese economic policy regarding the metal sector
  • High level of indebtedness for some companies

Risk assessment

Highlights
Steel Price Index (USD)

Steel Price Index (USD)

The metal sector has been one of the sectors at the centre of the unfolding trade war. The United States’ government has imposed tariffs on steel (25%) and aluminium (10%) imports from several countries (such as China), including allies (the European Union, Canada, Mexico, Japan).

These extra tariffs sustained US steel prices, in addition to those already imposed. According to SteelHome, monthly US average steel prices increased by 29% between end December 2017 and May 2018, while Chinese and European prices sent mixed signals (-5% and + 6% respectively).

Moreover, on the 24th May 2018, the European Commission opened an anti-dumping investigation into some Chinese steel products, after a complaint was lodged by the European Steel Association EUROFER. In addition, European steelmakers fear the rerouting of steel products from the United States, after the imposition of the additional tariffs.

Other base metals and alloys prices are experiencing mixed trends as well. Aluminium, cobalt, and nickel grew by 10%, 24%, and 24% over the December 2017 – May 2018 period. Zinc and copper saw their prices shrinking (4.5% and 0.5% respectively).

Steel, the most-traded metal in the world, provides the bulk of revenue for the biggest mining and metal companies. It is often viewed as well as a barometer of global activity due to its use in several industrial activities (including in the construction sector, vehicle manufacturing, ship building, consumer goods manufacturing such as household appliances). This is why we examine steel in further detail below.

Demand

We expect global consumption of steel products to grow by 1.3% in 2018, due to less buoyant and less synchronized economies. Metals whose consumption is set to increase are aluminium (2.6%), copper (3.2%), nickel (5.7%), and zinc (3.5%). The fact that the US decision to impose tariffs on all steel and aluminium imported products came into force in June 2018, is likely to disadvantage client sectors, including automotive and construction, the latter of whom has so far benefitted from low steel prices.

China is likely to experience a stagnating consumption in 2018; due to an anticipated deterioration in the economic conditions of the Chinese construction sector this year, given the high level of indebtedness of companies in the sector (USD 30 billion of debt due during the year). A slowdown in real estate investment in the country's largest cities has indeed led to deterioration in the corporate financial situation of the parties involved, as mentioned in Coface’s March 2018 China Payment Survey.,Although we expect an increase in automotive sales in 2018, this will not be sufficient to counterbalance the ongoing reform of the construction and infrastructure sectors, led by the Chinese authorities. India's consumption of steel products is forecast to grow by 6% in 2018 due to strong public support for infrastructure projects, as well a manufacturing sector that has boosted domestic consumption, which is likely to continue in the medium term.

Western Europe should experience a 2% growth in consumption in 2018. The strong performance of the European automotive market will benefit domestic producers, who are better positioned with high added value steel. Registrations of new vehicles are set to rise, while favourable borrowing conditions and the improvement of household finances will likely continue to fuel an upturn in the construction sector in 2018.

Steel consumption in the United States should grow by 1.2% in 2018. Players in the construction sector, the primary customer for the steelmaking industry, appear to be rather optimistic, despite being hit by hikes in steel product prices due to antidumping countermeasures and extra tariffs. 20,000 exemptions have been requested by US steel customers. It is worth noting that the steel industry in Canada will suffer from the US protectionist measures on steel and aluminium imports: exports represent nearly 50% of steel production in the country, and 87% of these exports are to the US.

Supply

Steel is the most-traded metal in the world, and therefore acts as a bellwether for economic trends. Global steel production is set to grow by 1% in 2018, following the heavy crackdown on polluting plants in China. Also expected to grow is production of aluminium (2%), copper (2.6%), nickel (5.5%), and zinc (5%).

Chinese production is likely to stagnate in 2018 due to China’s crackdown on pollution from its steel plants, as well as its decelerating economy. Chinese steelmaking mainly focuses on low added value products for the construction sector. In addition, it is largely decentralized and local provinces have little incentive to reduce this relatively major tax resource. Although rising steel prices encourage local producers to increase production, local consumption is likely to stagnate. In parallel, China has been accused of dumping several steel products.

Steel production in Western Europe is forecast to grow by 2% in 2018, compared to 3.7% in 2017, impacted by lower economic prospects. The current environment of trade spats and tit-for-tat retaliatory measures has adversely affected investors’ confidence, among other factors. However, the European steel sector should continue to benefit to a certain extent from the measures taken by the European Commission since August 2017, when they imposed customs tariffs on some Chinese products.

Some steelmakers in Central Europe will be able to manage the decelerating economy due to their positioning on high-value products, and their efficient production processes.

In the United States, steel production should grow by 5% in 2018, boosted by the Trump’s administration measures to support the US steel industry via tariffs, but also by measures taken during former President Barack Obama’s tenure to curb Chinese steel imports. Among the retaliation measures taken by China following the US administration’s protectionist measures, Chinese authorities have imposed 25% retaliatory tariff that targets US coal producers, mainly located in the Appalachian region. This does not appear to be random: this region is a vital location for the Republican party ahead of the upcoming November 2018 mid-term elections.

 

Last update : August 2018

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