Busik Choi, POSCO Research Institute Stainless Steel Industry Outlook
[Asian Nickel Conference] Stainless Steel Industry Outlook Sep. 26, 213 Busik Choi, Economist
POSCO Research Institute? 3 Management Think Tank of POSCO - Working as an Intelligence unit - Over 12 economists and business analysts Strategic decision Future planning Management intelligence In-house consulting Economic analysis Industry study Supporting upper management strategic decision making Finding the best possible solution of cooperate planning Providing tools and intelligence for managerial innovation
Contents 4 1. Overview of the Global SS Industry 2. SS Market in Asia 3. Outlook of SS Consuming Industry 4. Outlook of SS industry
1. Overview of the Global SS Industry
Global economy 6 Current economic uncertainty led by the US-QE exit and China economy hard landing followed by the aftershock of the 28 global financial crisis Financial crisis Debt bubble burst Aftershock ( 28~ 29) ( 21 ) ( 211~12 ) ( 213~ ) Growth rate Consumption bubble Real estate bubble Bankruptcy of L.B. Economic recovery Surging debt Southern Europe s fiscal crisis Global inflation US-led panic Financial instability in EU countries US QE-exit Fast recovery 3.5%(15%) slow recovery 2.5%(6%) Double dip -1%(25%) China Hard-landing
Structural changes in SS production 7 Global stainless steel production increased by 5.7% each year - Global SS production, excluding China, showed a stagnant growth at CAGR.4% for 12 years - After peak in 26, global production excluding China diminished by -3.% annually Trends of crude steel production 4 (mil. ton) World World(ex. China) 35 35 34 31 5.7% 3 28 25 23-3.% 2 1918.4% 2 2 19 15 1 5 '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 Production growth rates CAGR (1~12) EU -.4 USA.8 JPN -1.8 KOR 3.1 Taiwan -.8 China 32.5 India 7.3 world 5.7 world (Ex. China).4
'5-1 '5-6 '5-11 '6-4 '6-9 '7-2 '7-7 '7-12 '8-5 '8-1 '9-3 '9-8 '1-1 '1-6 '1-11 '11-4 '11-9 '12-2 '12-7 '12-12 '13-5 Price fluctuation 8 Fluctuation of raw material prices fluctuation of SS product prices conversion to other materials or steel grades Poor performance of mills SS CR (34) and carbon CR price index 25. Jan=1 4 35 3 25 2 15 1 5 CR34 Ni Carbon CR Ni Price Fluctuation CR 34 Fluctuation Carbon CR Fluctuation Passing on price increases to customers by alloy surcharge Conversion to other materials Worsening profit structure of mills due to absorption of increased prices Unstable management
Survival strategy for deteriorating profitability 9 Disconnection between price increase and profitability has led mills into financial difficulties Requiring business model to change in the industry - Financial performance of SS mills are worse than those of carbon steel mills - SS mills show higher fluctuation rates with risks 2 15 1 5-5 -1-15 -2 Average of operating income ratio (%) 7% difference 19%p '7 '8 '9 '1 '11 '12 SS(Acerinox, Outokumpu) Carbon(TK EU, POSCO) 1%p Strategies for mills Spin off & Restructuring - Aperam(21) Consolidation - Outokumpu & Inoxum(212) Upstream vertical Integration - POSCO SNNC expansion(211)
Conversion to less nickel intensive materials(4 & 2 Series) 1 Fluctuation of raw material prices price fluctuation of nickel intensive SS product(3s) conversion to other materials or steel grades 4 Series + 3%p, 2 series + 5%p SS CR (34) and carbon CR price index SS production by grades $/t 7, 6, CR 34: SD 934 4 23% 26% 26% 26% +3%p 5, 4, 3 63% 59% 56% 55% -8%p 3, 2, CR 43: SD 327 2 +5%p 1, '5 1Q '6 1Q '7 1Q '8 1Q '9 1Q '1 1Q '11 1Q '12 1Q 13% 15% 17% 18% '5 '7 '1 '12 SD: standard deviation
Nickel price & SS producers profitability 11 Nickel price and profit of SS making firms have a strong correlation - Correlation Coefficient of those:.64 - When price of Ni increases, profit of SS producers also increases (sometimes with time lag), vice versa - End-users stocking behaviors and passing nickel price on SS products are the main cause Nickel price V.S. profit of SS producers 9% 8% 7% Ni Price(Right) $/t 3 25 6% 2 5% 4% 15 3% 1 2% 1% % Avg. Profit of SS producers*(left) '1 1Q '1 2Q '1 3Q '1 4Q '11 1Q '11 2Q '11 3Q '11 4Q '12 1Q '12 2Q '12 3Q '12 4Q '13 1Q '13 2Q SS producers: Acerinox, Aperam, TISCO 5
2. SS Market in Asia
Asian SS market in the world 13 Asian SS production takes 7% of world SS production - Production in Asia has been more than tripled due to Chinese growth - Chinese production share in Asia increased by 56%p Trends of crude steel production Crude steel production in Asia 4 35 Others Asia 35 21 212 3 25 2 15 1 5 19 11 8 28 13 15 11 25 China, 73, 9% India, 1,48, 13% Taiwan, 1,212, 14% S Korea, 1,546, 18% Japan, 3,868, 46% China, 16,87, 65% India, 2,279, 9% Japan, 3,166, S 13% Korea, 2,167, 9% Taiwan, 1,19, 4% '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12
SS production in recent years 14 Even in Asia, there are two different side of market - Productions of SS in China and India shows strong growth - However, SS productions in Japan, Korea, and Taiwan have little change or gradually decreased Trends of crude steel production 2 1 (mil. ton) 7.2 China 17.4% 16.1 3 2 1 1.7 6.6% India 2.3 '7 '8 '9 '1 '11 '12 '7 '8 '9 '1 '11 '12 6 4 2 3.9 Japan 3 1.9-4.% 3.2 2 2.2% 1 S. Korea 1.5 2.2 2 1 Taiwan -6.1% 1.1 '7 '8 '9 '1 '11 '12 '7 '8 '9 '1 '11 '12 '7 '8 '9 '1 '11 '12
Still growing SS capacity 15 China and India SS capacity expansion will lead further growth in Asia - China will add 3.5 million tons of slab capacity in near future - In other Asian regions, India will put almost 1 million tons Slab capacity in Asia 25 2 (mil. ton) China 17.5 21. 14 12 1 (mil. ton) Other Asia + 3.5 +.9 15 1 TISCO + 1. Jilin +.5 Yongda +.9 8 6 Jindal +.8 4 5 2 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15
3. Outlook of SS Consuming Industry
SS consuming industries 17 Consumer goods takes the biggest share of Global CR consumption - Industry share of SS CR consumption have no dramatic change overtime - Consumer goods and Industrial use have the same share in 28 and 212 - Construction gains 3%p in past 5 years Industry share of global SS CR consumption 28 212 Others Others (12%) Construction (1%) Construction (15%) (18%) Consumer Goods(34%) Transportation (13%) Consumer Goods(34%) Transportation (12%) Industry Use (26%) Industry Use (26%) (%) (%)
Industrial Production 18 Chinese IP growth rate will decrease gradually - In the past, China showed incredible growth rate of IP, however the rate will be gradually diminished - IP of Other Asian countries are expected to increase gradually Global IP growth rate 2 15 1 5 Forecast china Japan S. Korea -5-1 -15-2 India Asia Global -25 '7 '8 '9 '1 '11 '12 '13 '14 '15
Automobile production 19 Global auto production will increase gradually due to growth in China and N. America - Auto production in China has doubled in past 5 years, and is expected to grow continuously - Production in N. America in 212 recovered the level of 25 Global automobile production 12 (mil. unit) Forecast 1 8 6 4 73.3 22.2 15.2 7.5 62.2 77.6 8.1 84.1 26.9 12.2 9.9 87.5 91.8 95.6 31.2 12.3 1.9 Others EU Japan 2 11.6 19.3 22.7 8.9 15.4 15.8 18.5 27 28 29 21 211 212 213(F) 214(F) 215(F) China N. America
Construction production 2 Construction production will show gradual increase - Construction growth rates in India and China have been reduced, but still over 1% - Construction in S. Korea, Japan, and Taiwan will show gradual recover after 212 Global construction production growth rate 3% 25% 2% 15% 1% 5% % -5% -1% -15% -2% Forecast '7 '8 '9 '1 '11 '12 '13 '14 '15 china Japan Taiwan S. Korea India Asia global
4. Outlook of SS industry
SS production forecast 22 Global SS production will increase 4% each year - China will lead global SS industry growth, but the growth rate will be reduced to 8% - Production in EU will stagnate and other countries will show slight increase in SS production SS production forecast 45. 4. 35. 3. 25. 2. 15. 1. 5.. (mil. ton) CAGR: 4.4% 25.9 8.1 6.9 CAGR: 8% CAGR: 23% 4.2 35.4 3.4 3.2 9.2 8.7 7.3 7.3 CAGR: 8% 2.3 16.1 Forecast '8 '9 '1 '11 '12 '13 '14 '15 Others Asia(w/o China) EU China
Nickel demand in SS industry 23 Nickel demand will increase by 3% annually - Share increase of 4s is one of the main cause of low nickel demand growth rate - Production share of 4s will gain 2%p in 215, and share of 3s will lose 2p% SS production by grades Nickel demand by SS production 45 (mil. ton) 2.5 Net demand Scrap (mil. ton) 4 35 3 25 2 15 6 8 7 9 19% 26% 8 11 19% 28% Others* 4s 3s 2. 1.5 1. 1.74 1.9 1.86 1.15 CAGR: 3% 2.1 1.25 1 5 17 19 55% 21 53%.5.65.71.76-21 212 215. 21 212 215
Thank You for Your Attention! Q & A? 24