January 5, 2024

Steel Market Summary - International

Volatile Year Ahead As Nippon Steel Buys US Steel

New Year´s resolutions and predictions for the year ahead often fade into obscurity even before we reach February. But this doesn´t stop us making them. However, the wisest forecast to make is always: “It´s hard to predict…” And who wouldn´t take that option as a volatile 2024 stretches out before us. The war in Ukraine is ongoing; the Israel-Hamas conflict is unresolved and may expand; China is increasing its aggression in Taiwan; it´s a US presidential election year; and inflation is still not fully tamed. Hardly the time to be sticking your neck out with a prediction. Nevertheles, in the last week of December, China´s Metallurgical Industry Planning and Research Institute (MPI) stepped forward with its brave forecast for 2024. After telling a news conference that China’s steel demand in 2023 declined by 3.3% from the 2022 levels, the MPI predicted demand will contract by a further 1.7% in 2024, due to a significant drop in construction activity. The country’s steel industry has come under pressure from


the debt-ridden property sector and demand for construction steel declined by 4.8% in 2023. The MPI says steel demand is set to contract in 2024 to 875 million m/t with construction steel demand dropping by 4%. However, the MPI said demand from the infrastructure sector will partly offset the decline in the property market. “The issuance of one trillion yuan of sovereign debt as well as local government debts that are frontloaded in the fourth quarter of 2023 will support the infrastructure sector in 2024,” said Xiao Bangguo, vice president of MPI. It´s worth remembering that China is by far the largest steelmaker and consumer of steel in the world. So, whatever happens in China has direct ramifications around the globe.

The other big December event saw the fourth largest steelmaking company in the world – Nippon Steel – clinch an all-cash $14.9 billion deal to buy US Steel, the third largest steelmaking company in the United States. The acquisition will help Nippon Steel move toward 100 million m/t of global crude steel capacity, while significantly expanding its production in the United States, where steel prices are expected to rise as automakers ramp up production following their recent deals with labour unions to end strikes. US Steel was founded in 1901 by some of America´s biggest magnates, including Andrew Carnegie, JP Morgan and Charles Schwab. The Pittsburgh-based company is best known for making steel used by the automobile industry. However, it also supplies the renewable energy.

The transaction is expected to close in the second or third quarter of 2024, subject to regulatory approvals. However, opposition has already been raised by the United Steelworkers Union which said it simply doesn´t believe Nippon Steel´s assurances that all labour agreements will be honoured. Separately, the National Economic Council Director, Lael Brainard, said President Joe Biden welcomed manufacturers from the across the world investing in US jobs and workers. “However, he also believes the purchase of this iconic American-owned company by a foreign entity – even one from a close ally – appears to deserve serious scrutiny in terms of its potential impact on national security and supply chain reliability,” she said in a statement. Nippon Executive Vice President, Takahiro Mori, told Reuters that the company had operated in the United States for 40 years and was confident the transaction would be completed.