The region leads the world in economic growth and is driving demand for all commodities. A stimulus package in China has been aimed at boosting the automotive industry, which has driven strong demand for steel, imported from around the world.
IHS Global Insight steel economist Paul Robinson explains: “As part of controls by the Chinese government, they hoped to get the country’s power use down. To help figures, this sometimes meant stopping the power on some steel mills. But there is also a general inefficiency in China because there are a lot of small steel mills. It is a very dispersed market and China is trying to shift this and have larger mills. There are concerns that this will affect supply of material.”
Economists do not expect the US to fully recover from the financial crisis until 2012, but most of the steel mills have now come back on-line. It is a large player in the steel market but, with a recovering economy, steel’s position is not what it once was.
Much of the problem is down to the high demand but low supply of scrap, with nothing being demolished for new developments. In a recent report revealing 2011 half-year results, Sims MM said scrap intake at its North American operations was 5.1 million tonnes, a 1% increase on the year before. But Sims’ margins have been squeezed due to current supply and demand.
With the US economy continuing to recover, steel prices are being driven ever higher. Currently, Sims’ strategy is to invest in projects and companies that are able to provide it with more material.
Flooding in Australia in January caused disruption to the markets, forcing up the price of steel while three-quarters of Queensland’s coalfields were unable to operate, putting pressure on global stocks.
Robinson says: “The metallurgical coal steel mills were affected by the floods. But there hasn’t been a huge spike in prices, which indicates that there is now more concern over price than supply. It could have been a lot worse than it was.”
In addition, the recent hit by Cyclone Carlos in north-west Australia, where iron ore producers are situated, might also upset the steel market. Two of the major iron ore ports have been closed and, according to Robinson, if they were damaged, “there would be a huge impact on prices. But they are looking safe at the moment.”
Europe and the UK
According to Robinson, the amount of material entering and leaving the markets is fairly small when compared with the global market.
Recent unrest in Egypt has led to complexities within the local steel market because one of the owners of a steel company there was also a major figure in the Egyptian government. But this issue is not expected to affect the market too much as the region was not undergoing a significant amount of construction.
Severe winter weather in the last quarter of 2010 also meant European steel markets were badly affected by logistical difficulties. Sims reported a 15% drop in scrap intake as a result of the snow. Tata Steel also expressed difficulties, as managing director and chief executive Dr Karl-Ulrich Kohler revealed in the group’s financial results for the year ending December 31 2010.
“Higher raw materials costs and seasonal factors adversely affected our December quarter. International steel prices have been rising on the back of re-stocking and raw material cost increases, while Europe is an export-led recovery in certain major economies and sectors.”
Tata has revealed it is investing £6.5m in two new vacuum arc remelting furnaces at Stockbridge, while a £1.3m processing centre is being built at Scunthorpe for steel plate used in wind farm construction.