Chill Wind Of Economic Reality To Blow Through 2024
At the very beginning of a new year, it is normal to wonder what lies ahead. How will my personal life and business life fare as the year progresses? To know the answer, people often look to predictions by so-called experts. However, as far as the New Zealand steel industry is concerned, an examination of the recent past offers the most reliable forecast for 2024. And it´s not looking great. In the September quarter of 2023, New Zealand’s gross domestic product fell 0.3%, according to figures released in mid-December by Stats NZ. “All goods producing industries were down, led by a fall in manufacturing,” said Ruvani Ratnayake, national accounts industry and production senior manager at Stats NZ. This cooling of the economy is consistent with the Reserve Bank of New Zealand´s fight against inflation. In fact, it is the desired effect. The RBNZ and all economists knew that the interest rate rises of 2023 would cause a slowing of economic activity: and will cause additional slowing of activity as 2024 rolls along.
On which point, the December edition of Steel & Tube´s latest Procurement Update reveals how of one of the country´s major steel industry players views the year ahead. The key finding in the update is that the year will likely be determined by the economies of scale – China and India. With the world macroeconomic environment remaining challenging, the report says the price outlook for steel and metals in 2024 is uncertain, and price volatility will remain a constant. Steel & Tube notes that the fluctuation in steel industry activity and margins in the latter part of 2023 reflected the local and global economies which had cooled. The report notes that capacity utilisation rates steadily decreased across the wider supply chain, from feedstock mines, steel mills and merchants through to the key market segments of fabricators and manufacturers, thus impacting the demand for steel. Globally, the update says, steel industry businesses have been struggling to achieve a healthy balance of volume and margin. The battle against inflationary pressures from rising fuel, energy, interest rates and labour costs has taken its toll. The combined factors have brought prices down to levels which many industry participants cannot sustain. A further complicating factor for the year ahead will be the momentum towards more environmentally considerate practices in manufacture and construction. This requires alternate feedstocks for steelmaking to reduce C02 emissions, and has increased demand for both high grade ore and scrap steel. The elevated prices of those commodities reflect this new reality and heightens the possibility of future price increases by steel mills.
To finish on a brighter note: New Zealand Steel has signed a supply arrangement with Global Metal Solutions (GMS) which will see thousands of tonnes of scrap steel recycled in a new electric arc furnace at Glenbrook from 2026. “One of the key benefits of the NZ Steel electric arc furnace is the ability for it to recycle significant tonnes of domestic scrap steel rather than that scrap being exported offshore to be recycled by overseas mills,” said NZ Steel´s chief executive officer, Robin Davies. GMS was set up 12 years ago by Craig Tuhoro. The company also has branches in Hamilton and New Plymouth, and employs 67 people nationwide.
* This month´s New Zealand Steel News was authored in-house by Australian Steel News