Opportunities in Global Emerging Steel Markets

Opportunities in Global Emerging Steel Markets

The global steel industry is highly cyclical, very competitive, and still fragmented in terms of market share. Currently, the industry is at the height of the business cycle and is going through a consolidation phase, which might result in the smaller players being acquired by the larger ones. The total output from the industry exceeded 1.4 billion tons in 2005, most of it augmented by the increase in output from China. This is expected to increase further, making steel output from China among the largest in the world.

Growth of the Chinese steel industry appears to be staggering. However, when one considers that China has a population of 1.3 billion, the per capita steel consumption is around or below that of the developed countries. Indeed, while China has been progressively raising steel production for many years, it has also been importing substantial quantities of steel. It is only now that China has become a net exporter of steel. This indirectly means that China has also reached a level of production saturation and its steel industry is more likely to witness more of consolidation and reorganization in coming years rather than any major expansion of its assets.

Globally, the steel industry became a billion ton industry in 2004. How much more it will grow will depend primarily on how much more steel is consumed in the developing countries.

On the consolidation front, the steel industry has been focused on Mittal’s bid to gain control over Arcelor. On June 25, 2006, Mittal won its takeover effort for Arcelor after a protracted wooing. Mittal’s victory in the battle for global steel industry control is giving the steel industry a new direction. The world’s number one and number two producers have combined and this will go a long way to push consolidation.

The combined ArcelorMittal produces over 10% of the world output, which is approximately 100 million tons of steel. This would give an increased pricing power for producers and suppliers, and decrease the fragmentation. We expect more mergers and acquisitions (M&As) transactions to occur, with large players buying up the smaller players. Currently, it appears to be that Arcelor laid its weapons, which were out before, to defend itself from being acquired by Mittal, though Mittal proved itself to be an earnest and hard-to-shake-off suitor.

This report focuses on the global steel industry and in particular countries with fast-developing steel industries, namely China, India, Japan, France, and Germany. The report is a guide to all the recent developments going on in the industry, along with an analysis on market statistics, market structure, competition in the industry, where the Chinese Steel Industry stands on a global scenario, and much more. A comparison of the U.S. and EU steel industries is also included in the report.

Executive Summary 7

Section 1: Introduction to the Global Steel Industry 8
Overview 8
Growth Potential of the Industry 9
Consolidation in the Industry 10
Major Global Steel Companies 11
ArcelorMittal 11
Nippon Steel Corporation 12
Posco 13
Severstal 13
Corus 14
Steel Industry in the U.S. & the EU25 14
China Steel Industry 15

Section 2: The Chinese Steel Market 17
Defining the Industry 17
Market Segments 17
Historical Background 18
Market Overview 20
Industry Structure 22
Rise in Steel Production and Impact of China’s High Gross Domestic Product (GDP) Growth 23
Industry’s Competitive Landscape 24
Import/Export Data 24
Reasons to Invest in the Chinese Steel Industry 25
Expectation of an Acquisitions Scenario 26
Product Substitution 27
Global Integration 27
Market Size 27
Risks in Investment 27
Economic Risks 28
Personnel Risks 28
Government Risks 28
Strategic Concerns 29
Market Patterns, Challenges, and Growth Opportunities 31
Challenges Facing China’s Steel Industry 31
Chinese Steel Industry is Overinvested 31
Steel Industry Marked by Rising Costs and Excess Capacity 31
Special Steel Sector Needs Improvement 32
Industry Patterns 32
Increasing Prices of Steel Products 32
Government Enforcing Reduction in Foreign Investment 32
Rising Raw Material Prices 33
Rise in the Production of Rolled Steel 33
Technological Changes to Match Global Standards 33
Emerging Growth Opportunities in the Industry 33
Accession in the World Trade Organization (WTO) to Drive Growth 33
Booming Heavy Industries and Real Estate Sectors 34
Domestic Players to Benefit from Antidumping Duties 34
PEST Analysis of China’s Steel Industry 35
Political Factors 35
Value-added Tax (VAT) on Steel Exports Curbing Pollution 35
Restriction on Raw Material Exports 35
Economic Factors 35
Growing Economy 35
Increased Foreign Direct Investments (FDIs) 36
Social Factors 36
Rapid Urbanization Fostering Industry Growth 36
Technological Factors 36
Green Technologies from Japan Helping in Environment Protection 36
Outlook for the Chinese Steel Industry 37
Major Players 38
Shanghai Baoshan Iron & Steel Co. Ltd. 38
Maanshan Iron & Steel Co. Ltd. 38
Wuhan Iron and Steel (Group) Corp. 39

Section 3: The Indian Steel Market 40
Defining the Industry 40
Market Segments 40
Large-scale Primary Industrial Producers 40
Secondary Producers 40
Small Sector Standalone Processors 40
Historical Background 41
Market Overview and Size Statistics 41
Semi-finished 41
Finished Steel 41
Government Incentives to Boost the Industry 42
Role of the Ministry of Steel 42
Market Patterns, Challenges, and Growth Opportunities 44
Challenges Facing India’s Steel Industry 44
Overdependence on the Chinese Markets for Steel Exports 44
Threat from Cheap Imports 44
Increasing Pressure on Steel Prices 44
Increasing Raw Material Prices and Fuel Costs 45
Industry Patterns 45
Increasing Share of Exports 45
India Emerging as a Major Steel Destination 45
Booming Construction Activity and Infrastructure Development 46
Emerging Growth Opportunities in the Industry 46
Abundant Availability of High Grade Ore 46
Robust Global and Domestic Demand 46
Experienced and Skilled Manpower 46
Technology 47
Increasing Purchasing Power 47
PEST Analysis of India’s Steel Industry 48
Political Factors 48
Regulator for Steel Industry 48
Reduction in Customs Duty 48
Increase in Excise Duty 48
Neutral Stand on Duty Entitlement Pass Book (DEPB) 48
Economic Factors 49
Low Interest Rates 49
Rising Coking Coal Prices 49
Social Factors 49
Rapid Rate of Urbanization 49
Technological Factors 50
Role of Information Technology 50
Supply Chain Management 50
Outlook 51
Production and Consumption 51
Exports and Imports 51
Major Players 53
Steel Authority of India Limited (SAIL) 53
Tata Iron and Steel Co Limited (TISCO) 54
ESSAR Steel Ltd 55
ISPAT Industries Ltd 56
Jindal Vijaynagar Steel Ltd 56

Section 4: The Japanese Steel Industry 58
Market Overview 58
Market Value 59
Market Volume 60
Market Segments 61
Industry’s Competitive Landscape 62
Market Statistics 64
Steel Production 64
Domestic Demand for Steel 65
Steel Supply & Demand 66
Supply of Raw Materials 66
Energy Consumption by the Steel Industry 67
Steel Equipment & Technology 68
Research & Development (R&D) 68
Steel Trade 69
Steel Industry & Environmental Protection 71
Outlook 73
Major Players 74
Aichi Steel 74
JFE Holdings, Inc. 74
Sumitomo Metal Industries, Ltd. 74

Section 5: The French Steel Industry 76
Market Overview 76
Market Value 76
Market Volume 78
Market Segments 79
Industry’s Competitive Landscape 80
Outlook 82
Major Players 83
Arcelor 83
Merger with Mittal Steel 83
Corus Group plc 84
Vallourec S.A. 84

Section 6: The German Steel Industry 86
Market Overview 86
Market Value 86
Market Volume 87
Market Segments 88
Industry’s Competitive Landscape 88
Outlook 89
Major Players 90
Salzgitter AG 90
ThyssenKrupp AG 90
Kopf Group 91
Appendix 92
Glossary 94


List of Figures & Tables
Figures
Figure 1: Global Steel Industry Forecast 2006-2015 8
Figure 2: Market Share of the Top 5 Players 10
Figure 3: EU (25) Steel Imports from China: All Products 16
Figure 4: Historical Development of China's Steel Industry 19
Figure 5: Chinese Crude Steel Production 20
Figure 6: Output of High-Value-Added Steel Products in China in 2005 21
Figure 7: Finished Steel Production Share 41
Figure 8: Projected Demand of Steel-consuming Industries 52
Figure 9: Japan Steel Market Value: $ billion, 2001-2005 59
Figure 10: Japan Steel Market Volume: Tons Million, 2001-2005 60
Figure 11: Japan Steel Market Segmentation in % Share, by Volume, 2005 61
Figure 12: Japan Steel Market Segmentation on a Global Scenario in % Share, by Volume, 2005 62
Figure 13: Crude Steel Production 64
Figure 14: Crude Steel Production % Change from Previous Year 64
Figure 15: Japanese Steel Exports 70
Figure 16: Volume of Final Disposal of By-products (Slag, Dust and Sludge) 72
Figure 17: Japan Steel Market Value Forecast: $ billion, 2005-2010 73
Figure 18: France Steel Market Value: $ billion, 2001-2005 77
Figure 19: France Steel Market Volume: Tons Million, 2001-2005 78
Figure 20: France Steel Market Segmentation % Share, by Volume, 2005 79
Figure 21: France Steel Market Segmentation on a Global Scenario in % Share, by Volume, 2005 79
Figure 22: France Steel Market Value Forecast: $ billion, 2005-2010 82
Figure 23: Germany Steel Market Value: $ billion, 2001-2005 87
Figure 24: Germany Steel Market Volume: Tons Million, 2001-2005 87
Figure 25: Germany Steel Market Segmentation % Share, by Volume, 2005 88
Figure 26: Germany Steel Market Value Forecast: $ billion, 2005-2010 89
Figure 27: Users of the Chinese Steel Industry 92
Figure 28: Steel Demand Growth by Region, 2000 - 2005 92
Figure 29: Global GDP & Steel Demand 93
Figure 30: Hot Rolled Coil Prices, 2000 – 2005 (U.S.$/ton) 93

Tables
Table 1: Annual Output of Steel Products 20
Table 2: Japan Steel Market Value: $ billion, 2001-2005 59
Table 3: Japan Steel Market Volume: Tons Million, 2001-2005 60
Table 4: Japan Steel Market Segmentation in % Share, by Volume, 2005 61
Table 5: Japan Steel Market Segmentation on a Global Scenario in % Share, by Volume, 2005 62
Table 6: Actual Iron & Steel Production 65
Table 7: Japan Steel Market Value Forecast: $ billion, 2005-2010 73
Table 8: France Steel Market Value: $ billion, 2001-2005 76
Table 9: France Steel Market Volume: Tons Million, 2001-2005 78
Table 10: France Steel Market Segmentation % Share, by Volume, 2005 79