Worldwide, the most important commodity globally after crude oil is perhaps steel. It makes sense. After all, steel is one of the most fundamental building materials there is. There are important trends emerging in the industry which are important to note.
The increasing dominance of China: The dragon nation accounts for 40% of the world steel capacity, 46% of the world steel production and 48% of the world steel consumption. Interestingly, the Chinese government plans to ban the exports of basic steel products. It wants to encourage exports of value-added products.
Consolidation: The steel industry witnessed a wave of consolidation in the last decade. However, it slowed down with the onset on the credit crisis. The next wave is likely to take place in China. Its government has publicly stated that it expects consolidation in the Chinese steel industry. It also expects that that the top ten Chinese steel producers will account for 65% of national production by 2015. Additionally, it wants to see at least two producers with 100 m tonnes capacity in the next few years.
Emerging economies driving production growth: When it comes to annual steel production, the trends are sharply divided between the developed world and the emerging world. As per the World Steel Association, the crude steel production for 66 countries was 1,220 m tonnes during CY09. Thatís 8% lower compared to CY08. In contrast, the production at major Indian companies grew anywhere between 8% and 12% depending on the type of product during FY10.
The type of demand: Steel consumption now clearly differs between developed markets and emerging markets. In developed economies it is weighted towards flat products and a higher value-added mix, while developing markets utilise a higher proportion of long products and commodity grades. Flat products are used in automobiles and white goods, while long products are used in construction.
Short term raw material contracts: Normally, the two most important inputs in steel making - iron ore and coal imports - were bought under long-term contracts. The contracts generally had terms of three to ten years. They provided for periodic price adjustments to the prevailing market prices. Of late, due to the pressure from large mining companies, the trend is towards shorter contract periods.