The global steel industry continued to be squeezed by both macroeconomic and industry demands. In the short term, the overcapacity in the industry as a whole will hardly materially change. The credit risk exposure of small and medium-sized steel enterprises in regions with more and more pressure on the solvency of global iron and steel enterprises For the obvious, the overall credit quality in the industry can hardly be substantially improved.
Demand growth is limited
Steel industry based on the same type of product competition, are demand-driven. After the subprime mortgage crisis, stimulated by the large-scale quantitative easing monetary policy in the major developed countries, the global economy has experienced a brief rebound, but has been in a downward spiral since then, indicating that it is hard to reverse the global macro-downturn in a short period of time. The global economic growth in 2016 has again dropped to a similar level as in 2012 after a few years of upward growth, reflecting the fragility and repetitiveness of global economic growth.
In view of the economic growth of the world’s major economies since 2017, the global economic growth is expected to be completed in the short term and a slow recovery from the bottom will be completed. In the medium and long term, with the promotion of economic structural reforms by all major countries, the global economy is expected to stabilize at a new point of balanced growth under the background of innovative changes in various factors of production. The global macro-demand downturn will directly affect the downstream steel industry investment and consumer demand, resulting in the steel business revenue and profit space shrinking.
Steel is mainly divided into crude steel and special steel, of which crude steel is mainly used for infrastructure and real estate construction, oil and gas pipeline construction, special steel is mainly used in automobiles, machinery, home appliances and other industries.
In the field of infrastructure construction, the global investment in fixed assets continued to shrink, and insufficient investment will restrict future economic growth. Since 2011, the growth rate of global fixed asset investment has dropped sharply, reflecting the negative impact on global investor confidence caused by the sluggish global macro demand. In particular, the sustained downturn in economic growth in developing countries in recent years is difficult to meet the huge investment demand for fixed assets. Continued sluggish investment demand will reduce the competitiveness of enterprises in the region and eventually restrict its future economic growth.
In the field of real estate construction, the growth rate of demand in major global countries has been somewhat different. In East Asia and the Pacific, the growth rate of investment in real estate development and construction in China and Japan basically hovered at the zero growth margin. In Europe, the number of new housing starts in Europe slowed down year-on-year, and the German quarterly adjusted construction output grew YoY Hovering at the edge of zero growth, the Italian house price index has shrunk year on year for many years. In the medium to long term, demand for housing in East Asia and the Pacific will continue to be sluggish due to economic restructuring or structural problems.
Global infrastructure investment has basically fallen into recession. Real estate and construction investment (excluding North America and Southeast Asia) basically hovered near zero growth. Global auto production growth basically followed China’s output and will maintain the normal state of slow growth in the future. It can be seen from this that despite the global economic downturn and the global downturn in investment in fixed assets, the outlook for investment or output growth of the major steel-consuming industries is hardly optimistic. In summary, both in terms of macro demand and industry demand, the global steel industry needs very little room for growth in the future, optimistic scenario can achieve low growth, and even under the pessimistic situation will shrink. This means that in the future, the global steel industry will have limited room for growth in revenue growth. The outlook for earnings growth is not optimistic. In the face of highly leveraged operations, the solvency risk is deteriorating.
Short-term supply and demand fundamentals difficult to improve
The global crude steel output growth continued to slump, supply and demand fundamentals difficult to effectively improve. In recent years, the global crude steel output growth basically dropped year by year, even year-on-year contracted by 2.96% in 2015 and started to reverse the shrinking trend in 2016, basically keeping production stable. Given that China’s crude steel production is close to half of global output, the supply and demand situation of China’s steel industry has a significant global impact. In the second half of 2016, with the strict implementation of the government’s productivity-to-GDP policy, steel prices have risen sharply, directly driving demand in the surrounding areas and the upstream and downstream industries. However, in view of this round of steel prices caused by the contraction of the supply side led by the policy, and macroscopically no substantial improvement in the demand side of the industry, therefore, the current round of steel prices is more positive effects of overdraft future policies expected short-term global steel industry The overcapacity situation is hard to be improved. The global steel companies will face a difficult situation in terms of capacity reduction or output reduction. Their revenue and profit growth will have very limited room for growth.
By region, as the world’s major steel producer and exporter in Asia, crude steel output in 2016 accounted for about 70% of the world’s total output and crude steel apparent consumption accounted for about 64% of the world’s total consumption. In recent years, its crude steel output growth rate dropped significantly, even in 2014 year-on-year decline, the basic only barely maintain growth. The EU’s crude steel output has only increased in 2014 since 2011, while the EU’s overall economy has maintained its growth in recent years. It is also one of the few areas in the world where the apparent consumption of crude steel has maintained its growth. Crude steel output in North America shrank by 8.38% YoY in 2014, while apparent crude steel consumption in the region shrank by 8.22% YoY. Although investment in real estate and construction in North America in recent years, automobile production are maintained growth, but as the main steel industry in North America, the continuing sluggish oil and gas industry eventually led to sharp drop in demand for steel.
The world’s major steel enterprises output growth rate of decline
In the global steel industry is facing the dual needs of macroeconomic needs and shrinking context, the world’s major steel companies solvency under varying degrees of pressure. Generally speaking, the risk of macro-demand fluctuation is regional and global. Steel companies respond mainly through geographical distribution while the risk of fluctuation in demand of the industry has upstream and downstream conductivity. Iron and steel enterprises often respond to cross-sectoral distribution through product categories. As a result, large-scale iron and steel enterprises across geographic regions can fully ease macroeconomic and industry fluctuations in demand, maintain stable output and maintain sound solvency.
Crude steel output from ArcelorMittal, the world’s largest steelmaker, continued to decline from 2015 to 2016. However, the overall output fluctuation trend is much smaller than that of global output due to the cross-regional layout of production capacity in Europe and the United States and the high value-added product mix , Solvency remained sound. Regional small and medium-sized iron and steel enterprises are generally affected by regional macro and industry demand, lower value-added products, production fluctuations tend to be larger, is not conducive to maintaining a stable solvency. At the same time, small and medium sized iron and steel enterprises in areas with insufficient steel supply are also often faced with the impact of importing cheap steel products. The risks of fluctuations in production and operation are more significant and the risk of deterioration in solvency is greater.
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Post time: Jan-30-2018