Steel sector eyes domestic demand to ease trade woes

Increasing trade protectionism is concerning several steel producers globally, with attention turning to domestic demand in many countries to support steel output and prices, said participants at the World Steel Association's annual conference in Tokyo.

Protectionism and overcapacity remain the major issues in global steel business, said the top executive of a major global steel producer. "China's winter steel output restrictions are heard to be softer this year. That is not great news, though China does not seem to have intention to increase exports," he added.

China's autumn-winter steel output restrictions are expected to be more relaxed than last year as China seeks to bolster economic growth amid a spiralling trade conflict with the US.

Several senior executives of global steel companies talked of trade challenges and domestic opportunities in growing their steel business. The conference too place amid a background of global events such as an escalating trade conflict between the China and the US, the depreciation of emerging market currencies and rising oil prices.

The US import duty of 25pc on steel imports this March did not have much impact on its steel business, but one of Japan's large steel producers is concerned about US trade action affecting Japanese automobile export sales into the US that could affect its sales, said the chief executive of the company. Japan and the US are negotiating a trade agreement that may put limit on Japan's auto exports to the US. It may also lead to appreciation in the yen versus the US dollar, both negative outcomes for the steel sector, said the president of the Japan centre of economic research Kazumasa Iwata.

South Korean steel producer Posco is concerned about moving about a million tonnes of steel that it exported to the US into other countries, said senior vice-president Ki-soo Kim. This includes steel it sold to a subsidiary company that sold oil and gas pipelines to the US. The hike in oil prices will increase investments in the US energy sector and expand demand for pipelines but the higher import duties will keep Posco mostly out of participating in that business, he added.

EU steel producers are concerned about increase in Turkish steel exports into Europe amid a sharp devaluation of the lira and slower Turkish domestic demand this year. "The Turkish steelmakers have been careful to not exceed EU import quotas which could attract tariffs," said the senior executive of a steel producer with operations in the EU.

European steel demand has showed an increase this year but most of the increase was met with imports, said the managing director of the Finnish steel and metals producers association Kimmo Jarvinen.

European producers are also concerned about China's export intentions. "The reduction in China's steel capacity is a drop in the ocean. China can really quickly ramp up exports if there is a softening of demand," said the director-general of UK Steel Gareth Stace. The UK could be especially vulnerable to higher exports as it may not have a trade remedies agency in place if a no-deal Brexit takes place next March as the country exits the EU.

Turkey's steel market could be in the downturn for the next 9-10 months but government policies are expected to revive the economy and steel demand, said the senior executive of Turkish steel producer Erdemir.

"Rumors are being spread that Turkish hot-rolled coil is being offered into Vietnam. I do not think Turkish rollers are offering into Asia. Turkey is also not exporting so much steel that we should be in danger of exceeding EU quotas," said the executive. Quality not cheaper prices will sustain Turkish steel exports into the EU, he added

Protectionism around the world is unlikely to affect trade volumes much, with a third of global steel output continue to be traded, although steel prices could vary sharply across regions because of these barriers, said the director-general of the World Steel Association Edwin Basoon.

Domestic steel demand is expected to hold firm in Japan, China, India and the US at least in the short term.

Steel demand for infrastructure building for Japan's staging of the 2020 summer Olympics has been strong. although labour shortages in Japan is a concern for the construction sector, said the president of Nippon Steel and Sumitomo Metal Kosei Shindo.

India's rapidly falling currency has largely insulated the country from imports while making exports competitive, said executives of four large integrated steel producers.

"Infrastructure growth is a long-term story in India. It is no longer the federal government funding infrastructure, but provincial governments competing with each other to build infrastructure and drive investment higher," said Tata Steel managing director TV Narendran.

"Infrastructure investments are on the upswing ahead of the general elections in 2019 as the government wants to show its work to the electorate," said the senior executive of another Indian steel producer.

US steel producer are enjoying the higher tariffs supporting the steel business, adding that any capacity addition will be marginal, with one producer reporting a still-shut blast furnace despite the higher duties.

The US was always a steel importer, with volumes rarely going below 15pc of total consumption in the last few decades. This is unlikely to change, although the higher tariff has upended efforts by some countries to find new ways to beat trade action cases brought by the US to counter unfair trade practices, said the chief executive of a US steel producer, adding that the increase in automobile production is the strongest support for the company's business.

China's steel industry is expected to remain profitable amid stable to higher prices of long products in the domestic market for the remainder of the year, said an executive of Magang Steel. Magang's profit margin has been 8pc this year. Autumn-winter steel output restrictions will drive long product prices higher, said an executive of fellow Chinese producer Shagang Steel.