Carbon Steel
Market, Supplier, Risk and
Competitive Intelligence

Industry Outlook & Drivers

Carbon Steel Market Analysis and Global Outlook

• Expected increase in downstream demand to 1,887 MMT by 2021 and the need for cost reduction are the key market drivers
• Supply glut, due to Chinese slowdown, has adversely affected the steel market, resulting in cautious market growth

Steel Market Overview - Global

• The steel production market is expected to grow at a moderate 2-3% CAGR during the period 2018-2021.
• Construction constitutes to around 36 percent of the steel end use. The decline in commodity prices, along with the surplus market condition in major regions, such North America and China, has adversely impacted the steel prices.
• Despite the moderate cut down in production towards the end of the year in China, in light of environmental regulations especially during the winter heating season, ramp up in production across the globe, resulted in a growth in overall steel production in 2018

Global Steel Drivers and Constraints

Drivers

Downstream Demand 

• Increasing demand from downstream industries, such as construction, engineering, and manufacturing, will impact the steel market
• Construction industry is expected to be the primary driver of steel industry

Need for Cost Reduction 

• Increased focus on reducing the total cost of ownership of steel making process has led to:

−The adoption of new technologies

−Use of more energy

-efficient fabrication, manufacturing process

Technological Advancements 

• Development of new technologies is driven by the need to attain low cycle time in the manufacturing process
• Suppliers in emerging economies are rapidly adopting technologies, in order to improve efficiency and increase production capacity

Constraints

Current Supply Glut 

• Steel industry has been facing supply glut since 2014, mainly due to fall of demand from the largest consumer, China
• China ‘s weak economic growth has impacted the global steel industry and subsequently, the carbon steel prices
• The recent curtailment, globally, and lower production rates are expected to improve the conditions sooner

Lower Profit Margins 

• For the past 12–18 months, steel suppliers experience lower margins, due to falling prices
• Suppliers are also susceptible to commodity price fluctuations, against which, they cannot hedge, due to relatively shorter contract period

Supplier Landscape

• The global crude steel market is moderately consolidated, with the major manufacturers such as ArcelorMittal, Hesteeel Group, NSSMC, POSCO, and Baosteel Group, accounting for a market share of around 28 percent. However, persistence of supply and consequent losses to steelmaker are expected to result in further consolidation of the global steel industry
• The steel production market is expected to grow at a moderate 2-3 percent CAGR during the period 2018-2021. Despite the moderate cut down in production towards the end of the year in China, in light of environmental regulations especially during the winter season, ramp up in production across the globe, resulted in a growth in overall steel production in 2018
• Asia has the largest share of global production accounting for nearly 49 percent of the total production. China’s crude steel production for April 2019 was 85.0 MT, an increase of 12.7 percent compared to April 2018

Cost Driver Analysis

The major price drivers of crude steel are raw materials such as iron ore, ferrous scrap, nickel along with utility cost, production and administrative overheads, logistic cost, and labor. A rise in prices of raw material, labor, and electricity will impact the cost of crude steel.

Raw Material

• Iron ore and ferrous scrap are the primary raw materials used in crude steel and is the major cost driver. However, for stainless steel, nickel with other alloys serves as the major cost driver
• More than 60 percent of steelmaking cost is contributed by raw material, both in Blast Oxygen Furnace (BOF) and Electrical Arc Furnace (EAF) of the steel making processes

Utility Cost

• Based on the method of steel making, such as BOF and EAF, utility cost varies from 11 to 20 percent of the steel making cost

Labor

• Labor cost accounts for 8–10 percent of the total steelmaking cost. The cost is lower in China, when compared to the US and Europe

Overheads (production & administration)

• Overhead expenses include production and administration costs. Overhead cost is expected to account for ~2–5 percent of the overall cost of crude steel