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Metal Expert Europe Steel Trade Conference 2014 The Global Steel Market in 2030 – Larger or Smaller? Fatter or Thinner? Roger Manser (ex-SBB founder/ managing editor) Kestrelman Ltd 1 Structure of presentation 1. What is the big picture? The industrial revolution, steel and global warming 2. Future economic growth, steel demand and production: - business as usual or - a climate change consistent (CCC) scenario 3. Conclusions Kestrelman Ltd 2 The big picture: the industrial revolution, steel & global warming What was the “Industrial Revolution? An economic explosion from the 18 century onwards, which enabled real incomes to overtake population expansion, resulting in exponential GDP rises globally A step change in innovation/ technology involving much greater productive use of coal & oil, as well as iron, and then steel Kestrelman Ltd But with CO2 from burning fossil fuels as the by-product 3 GDP has driven steel demand: Kestrelman Ltd 4 And similarly CO2 emissions/year Steel Kestrelman Ltd 5 So pictorially, we move from this in 1750 Thmas Gainsborough. Mr. and Mrs. Andrews c.1750, NG, London Kestrelman Ltd 6 to this in 1850 Mrs Elizabeth Tackle: the viaduct at Bathford c.1850: the end of an era with the Firefly locomotive travelling above the stage coach. The bridge, built by Isambard Kingdom Brunel , was completed in 1841. Kestrelman Ltd 7 and then this in 1950 The Pond, 1950, L.S Lowry Kestrelman Ltd 8 and finally this, today Kestrelman Ltd 9 Where are we in (in terms of world GDP & steel demand) in 2014? (1) Coming out of a large global financial bubble: GDP growth picking up bit-by-bit China’s GDP still growing fast economically (7-7.5%), but now rebalancing away from investment towards consumption (NB lower steel growth, but from a much bigger base) Most other emerging markets are also expanding, but more slowly than in recent years, as lack finance with China’s raw material imports grow only gradually Kestrelman Ltd 10 Where are we in (in terms of world GDP & steel demand) in 2014? (2) Infrastructure and construction remain the key users of steel, powered by economic growth, as in India, Turkey, Mexico, Korea, Indonesia, Africa etc Developed countries are growing too, but in a less steel intensive way (eg robots, internet, ) Production overcapacity – continues to put pressure on finished prices Many questions about the pace and direction of future economic growth, due to climate change and other geopolitical questions Kestrelman Ltd 11 China producing more crude; the rest of the world relatively stable (monthly numbers) t/m Kestrelman Ltd 12 The future world demand for steel? Let’s contrast: Business as Usual (BAU): 2-3%/yr growth, the consensus scenario: compares with 5-10% pre-crisis A Climate Change Consistent (CCC): 1%/yr growth – a scenario reflecting lower GDP growth, less fossil fuel use, and resource/ CO2 constraints in steel production Kestrelman Ltd 13 Business as Usual: driven by China Kestrelman Ltd 14 BHP, 2014 Kestrelman Ltd 15 May 2012 Kestrelman Ltd 16 Vale’s contribution.... Kestrelman Ltd 17 In Contrast: A Climate Change Consistent (CCC) scenario: much lower rates of growth in economy & steel demand... “We can expect growing pressure points around water, food, and energy scarcity as the century progresses...Hovering over all of this is the merciless march of climate change.” – Christine Lagarde, Managing Director, International Monetary Fund. From her Richard Dimbleby lecture: February 2014 Kestrelman Ltd 18 Wikipedia, Kestrelman Kestrelman Ltd 20 (2) China rebalancing FT, Deutsche Bank, 6/13 Kestrelman Ltd 21 China’s economic growth is becoming less steel intensive Steel Ease: China steel demand 2011-2030, Oct 2013 Kestrelman Ltd 22 Some other numbers on China’s lower steel intensity of economic growth Period 1996-2000 2001-2005 2006-2010 2011-2015 estimate Average annual real growth rates (%) Investment Consumption GDP 8.8 8.9 8.6 14.6 8.6 9.8 16.4 11.1 11.2 6.5 10.4 7.8 2016-2020 3.2 forecast Dragonomics, Macquarie Research 4/14 9.8 Kestrelman Ltd 6.7 Investment ratio at end of period 34 40 46 44 39 23 And per unit of GDP output [not per head] Kestrelman Ltd 24 (3) Other emerging markets suffer from China’s rebalancing & low savings Low domestic savings rates Kestrelman Ltd 25 (4) Climate change: more renewable power generation, as CO2 price rises Kestrelman Ltd 26 Accompanied - perhaps - by less investment in fossil fuel power generation? And natural gas prices: up? or down? Kestrelman Ltd 27 And – perhaps - more steel in pipelines for oil, gas & carbon dioxide (CCS), heat/energy storage, as well as nuclear power Kestrelman Ltd 28 (5) Lower steel intensity of GDP/capita In the CCC scenario: Decoupling of GDP growth rates & steel used Kestrelman Ltd 29 (6) Climate change: less steel Light-weighting: much less steel in cars: lower CO2 emissions/km Kestrelman Ltd 30 By 2020, less than half the weight of a European car will be ferrous (vs almost 80% in 2000) 100% 90% 80% Other metals 70% Glass 60% Other materials 50% Plastic/composites 40% 30% Aluminium 20% High/medium strength steel Other ferrous 10% Source: OICA, Taub et al, analysis by Roger Emmott 31 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 0% Lower growth rates in steel demand in the coming 20 years likely A lower rate of growth (eg 1%) in steel consumption seems possible, if not probable in the period to 2030 Steel-making overcapacity will continue, as crude steel production utilisation rates may well remain low Over the next 20 years, concerns about climate change will increase – [was the fossil-fuelled/steelbased industrial revolution a one-off event?] Kestrelman Ltd 32 How will steel production react to climate change? Global GHG abatement cost curve: Mckinsey: version 2/EDF Kestrelman Ltd 33 Less steel from blast furnaces, more from EAFs in due course More co-generation from by-product gases Less high quality coking coal: more substitution Kestrelman Ltd 34 Steel consumption: less demand and more alloys CSC, Taiwan Kestrelman Ltd 35 Overall Conclusions A larger or smaller market? Larger perhaps – some growth, but not as rapid as with BAU; Some say that in tonnage terms, finished steel consumption might even decline. More production from scrap/EAFs; possibly more from DRI Fatter or thinner? A leaner industry: - more efficient, and producing more alloys, and if so, maybe lower tonnages and higher values Kestrelman Ltd 36 Thank You Kestrelman Ltd 37