Bleak outlook for SA steel exports

by Tania Wannenburg
Bleak outlook for SA

The demand for South African steel exports remains weak.

Despite 2014 being another record year for the steel industry, international credit insurer, Coface, has indicated that the demand for South African steel exports remains weak in light of a restrained growth outlook for the global steel industry.

Last year, crude steel production totalled 1,665 billion tons, an increase of 1% compared to 2013. The World Steel Association forecasts that global apparent steel use will increase by 0,5% to 1,544Mt in 2015 and demand will grow by a further 1,4% in 2016 to reach 1,565Mt.

The restrained growth is mainly due to demand from China declining in 2014 for the first time since 1995, as well as the influence of major structural adjustments which might slow production growth in economies across the globe, owing to limited investment since 2008. According to Coface, China represents about 48% of the global market for steel, having dominated the industry for the past ten years. With this demand declining, the steel industry is expected to experience a slump until other markets start gradually driving demand.

Local influences
Although the local steel industry has always been prone to volatility, times have been particularly tough lately with more and cheaper exports from China in response to their slowing domestic growth. Locally, according to Coface, demand is weak, partly due to the government’s infrastructure programme failing to take off, while input costs such as electricity and labour are rising and the supply of these inputs is unreliable.

Production data for the metals and engineering sector released by Statistics SA suggests a deepening contraction in the sector. On an annualised basis, production has declined by 3,8% in April 2015 compared to April 2014, while the first four months of the year recorded a 3,3% decline compared to the same period in 2014.

With virtually all the business condition indicators for the sector pointing downwards, according to Coface, production is expected to slow down further in the coming months with potentially serious consequences for steel companies’ survival and employment.

Future outlook
Looking ahead, Coface indicates that urbanisation will play a key role in influencing the future demand for steel since it is estimated that a little more than one billion people will move to towns and cities between now and 2030. With the housing and construction sector being the largest consumer of steel today, using about 50% of all steel produced, urbanisation will spark a new demand for steel to be used in infrastructure developments.

By 2050, steel use is projected to increase to be 1,5 times higher than its present levels in order to meet the needs of a growing population.

Tel: 011 208 2500
Website: www.coface.com

• Low commodity prices.
• High input costs coupled with low productivity.
• Technological modernisation required.
• Transnet performance.
• Eskom load shedding.
• Platinum industry and SEIFSA strikes.
• Water management.
• Formulation of carbon taxes.
• Mining investment and capital expenditure constraints.
• Slump in Chinese growth.

Apparent steel use (finished steel products)
World total: 1 537Mt

China: 46,2%
Japan: 4,4%
Other: Asia: 15,8%
Others: 9,4%
European Union (28): 9,5%
Other Europe: 2,4%
Query: CIS: 3,7%
Query: NAFTA: 9,4%

Other comprises:
Australia and New Zealand: 0,5%
Africa: 2,4%
Central and South America: 3,1%
Middle East: 3,4%

Graph courtesy of Coface

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