Annual Report 2012 EUROPE BELGIUM BULGARIA ... - Duferco

Strategy
Some countries
of the Eurozone
faced severe
recession and
the 2013
prospects are
certainly not
positive.
The global economic scenario remains
very uncertain. In particular, the market
experienced uncertainty factors caused
by the persisting economical and financial
difficulties in Europe. Some countries
of the Eurozone faced severe recession
and the 2013 prospects are certainly not
positive.
Because of the European crisis, the
International Monetary Fund marked down
growth forecasts for the current year, due
to the weakened global activity and also
the increased risks to the recent historical
level of GDP growth of major dynamic
economies. In spite of this scenario, global
steel production increased, achieving a
new record (more than 1.5 Billion Tons of
steel were produced in 2012).
Logically, production increased especially
in Asia and China, mainly due to the
ever-increasing fixed assets investment
level. For the near future, however,
such production increase could cause
a significant imbalance of global
overcapacity, especially in China, should
the economies of the developed countries
experience GDP stagnation, and the
developing ones reduce the growth of their
fixed assets investment.
We repeat that the definition of the global
steel market of the last three years can
be, in fact, summarised as a reality of “two
separate worlds”.
In Europe, North America and Japan, GDP
growth is slow, sometimes even stagnant
(the major part of European countries),
while on the other side of the world, there
is a very important GDP growth, especially
in Asia, Latin America and the Middle-
East.
These two separate worlds create a strong
global imbalance, with excess capacity
in the mature industrialized countries and
shortage in the emerging countries.
Value creation in the steel industry
continues to be significantly related to the
control of raw material sources (iron ore,
coking coal and other). The upstream
factors thus determine the economic
performances of industrial assets much
more than the downstream factors.
This represents a reversal of the traditional
fundamentals of the steel industry.
Historically, the market balance was
relatively clear, resulting in a pricing
picture that was predictable, although
not always positive for the steel industry.
Raw material prices were set for the year.
Raw material production was a known
factor, since new investments were scarce
due to the relatively poor outlook of the
mining industry. Similarly, steel demand
was relatively well known and growing only
moderately. All of this changed during the
past decade and is today influencing the
stability of the markets for steel-making
raw material. A huge margin shift from
steel mills to mining has occurred and
the cost curve of the different producers
steepened (large competitive advantage of
steel mills integrated upwards versus the
“orphans”).
The future is uncertain, with a large range
of factors affecting the future supply of
steelmaking raw material.
Apart from the need to develop new
mines, the infrastructures required to
supply raw materials, such as port and
railway connections to loading ports,
are a strong barrier to new projects.
Uncontrollable events, such as adverse
weather conditions, often have an impact
on the supply.
Demand is heavily influenced by China
steel output and Chinese domestic iron
ore production.
10 | Duferco Annual Report 2012