CRU Consulting - OECD
[Pages:28]CRU Consulting
Steelmaking raw materials ? key trends
Prepared for the 82nd Session of the OECD Steel Committee 23rd March 2017
Prepared by CRU Consulting
Laura Brooks, Principal Consultant e: laura.brooks@ t: +44 (0) 20 7903 2239
Agenda ? Recent trends for the bulks ? Snapshot of base case long-run forecasts ? 4 key trends to watch ? Why are these trends important? ? Conclusion
OECD Steel Committee
2
OECD Steel Committee
2014 - 2015: prices crashed due to over-investment in supply
CRU uses super cycles to justify expectations for long-run price trends 1. Super cycles typically take about 25 years peak to peak or trough to trough
2. High capital cost commodities (hard rock or bulks) have a wide amplitude, while less capital- intensive industries have a narrow amplitude
3. Super cycles come about because of an overreaction of investment following a price spike
Price versus volume change
Upstream steel market 100
50
% Price 2015/2011 % Volume 2015/2011
0
-50
-100
-150
Source: CRU
3
Lower costs also helped to drive prices down
CRU Business Cost Curve x axis: cumulative production, Mt y axis: Business Cost (normalised to 62% Fe fines, CFR China, $/t
Downwards pressure from lower oil prices, currency depreciation, lower contractor costs, reduction in headcounts, change in mine plans etc.
OECD Steel Committee
Are the cost reductions sustainable?
....this is critical for CRU's price forecasts
Source: CRU
4
5
Source: CRU
Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17
0
Average quarterly price
Australian quarterly contract HCC
50
100
150
200
250
300
350
Hard coking coal price
Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17
0
50
100
150
200
Average monthly price
Monthly price, 62% Fe fines, CFR China
250
Iron ore price
A recovery ensued in 2016, followed by sharp gains in 2017. Why?
OECD Steel Committee
OECD Steel Committee
An improved demand side picture stabilisation in global crude steel production...
Global crude steel production 2000
1500
1000 500
ROW China
0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
...and higher sC6a%treboen lcrupdreiscteeelsproadunctdion mgrowathr,gy/iyn%s
A slight in4%crease in demand and expectati2o%ns of production cuts in China drove ste0e%l prices higher
-2%
-4%
Steel ma-6r%gins fattened despite the
increase-s8%in iron ore and coking coal
prices
Q1
Q3
Q1
Q3
Q1
Q3
2014 2014 2015 2015 2016 2016
Rest of world
China
HR coil EBITDA margin for Chinese producers, %
20% 10%
0% -10% -20% -30%
China
North America
Europe
Source: CRU, WSA
6
OECD Steel Committee
For iron ore = a Chinese import boom, not a demand boom, drove prices higher
Chinese crude steel production and iron ore consumption, 2016, y/y change, Mt
80
78
55
30
5 -4
-20 Crude steel
The result of a sharper cut in Chinese domestic iron ore production
-4 Hot metal
-9 Iron ore consumption
Iron ore imports
Source: CRU, WSA
7
OECD Steel Committee
For coking coal = the Chinese government's policies played a central role in price movements
China coal capacity, annualised, bn t 5
276 working day policy in China
Implementation
Relaxation
Global prices
Global prices
+13%
4
3
2
1
0
15
16 Q1
16 Q2
16 Q3
Operating new capacity Permanently closed capacity
NB. Total capacity figures exclude idled capacity.
Source: CRU
16 Q4 Operating capacity
17 Q1 8
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