June 6, 2024

Steel Market Summary - Australia

Conference Hears Of Slowing Steel Demand And Insolvencies 

The Australian Steel Association (ASA) held its annual conference over May 19 -21, attracting more than 100 attendees. The ASA´s president, David Buchanan, told Australian Steel News: “The event not only provided those attending with useful networking opportunities, but the discussions held at the conference gave valuable insights into the current state of the Australian steel industry: and its likely future state.” Delegates heard that a slowing economy, reduced demand and slowing housing construction starts had been dragging on volumes in 2024, as all steel products show signs of a retreat in demand. It´s clear the peaks and shortages of the pandemic have long since passed. However, the conference was told that major infrastructure projects are bucking that trend with steel demand to remain strong – especially in NSW where more than $280 billion worth of projects are in the pipeline. Victoria also remains strong, despite its challenges, with $196 billion of infrastructure work lined up. Likewise, Queensland is showing resilience with more than $159 billion of work scheduled. It was also mentioned that there is increasing demand for imported contingency products in a range of long products. Buchanan said

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another major topic at the conference, held on Hamilton Island, was the manner in which insolvencies are affecting the steel industry. “Total insolvencies in 2023 exceeded pre-COVID averages by 15%, with the December quarter being 30% higher than the corresponding pre-pandemic benchmark,” Buchanan told ASN. “The construction sector led insolvencies in 2023, accounting for 28% of all appointments in the year. This trend will continue as ongoing margin pressure and delays, coupled with the contagion impact of supply chain failures, hinder activity for small to medium businesses in the sector,” Buchanan added. Whilst many of the corporate failures over the last six months have involved small- to medium-sized enterprises, tighter credit conditions may also lead to larger corporates requiring restructuring, in some cases via the voluntary administration process. There could even be an ‘unwind’ of several private equity led, highly-leveraged transactions that have taken place over the last few years, when the low interest rate environment resulted in excess liquidity. The ASA conference was told the remainder of 2024 would include more pain. As the credit leniency available during and immediately after the pandemic period dissipates, there will be more businesses in distress. A larger proportion will be unable to solvently restructure because of both a decline in liquidity and less support from key stakeholders.

Sustainability was another key topic during the conference sessions. It was agreed that steel purchasing decisions these days include an examination of a mill´s sustainability credentials; though less so its emission factors. Currently, Australia´s steel manufacturers have relatively high emission factors. That said, InfraBuild plans to reduce emissions through renewable energy; Liberty Steel Whyalla has ambitious plans for an EAF investment; and BlueScope Steel is investing in and waiting for new technology. This contrasts with south-east Asia where increasing use of coal-fired power and declining scrap availability are driving the narrative. On an even broader note, conference delegates heard that countries in the Middle East are planning to be early movers with H2 / low emission technology. Meanwhile, Europe is leading the way by rapidly adapting to a carbon-constrained environment with numerous mills scheduled to reach Low Emission Status by as early as 2030.

“One of the focal points of the conference was green steel,” said Buchanan. “Fortunately, on this topic we benefited from the knowledge and insights of experts such as David Trotter, Bernhard Steenken and Jacky Zheng.” Some of the information shared included news that Baosteel had introduced its green steel offering – Beyond Eco – which will be commercially available in 2024. David Trotter from the Minerals Research Institute of Western Australia introduced the pathway for WA to lead the development of green steel manufacturing, including the potential for the state to lead the green steel transition in Australia. SMS group said it had introduced the world´s first H2 green steel mill. Based in Boden in northern Sweden, the plant will commence production in 2025. Phase 1 will produce 2.5 million metric tonnes of crude steel.

The conference also provided a platform to address the complex challenges associated with energy transition. Industry leaders and economists, including Vivek Dhar and Stephen Koukoulas, shared perspectives on navigating the evolving landscape of energy commodities and market economics. A key take-away was that the global push for green steel will reduce the export from Australia of metallurgical coal. Another point was that green pig iron through the DRI-OBF route can be economically produced in Australia with local iron ores when the green hydrogen price reaches $4/kg. Finally, conference delegates were told that Australia should exploit its unique potential to produce green hydrogen through renewable power to export it as green ammonia for the future green steel producers.

In other news: The Anti-Dumping Commission (ADC) has been asked by InfraBuild to investigate a number of large Chinese companies which InfraBuild says are bending the rules in the selling of steel reinforcing mesh grids. The acting commissioner of the ADC, Isolde Lueckenhausen, agreed on May 9 to start a fresh inquiry and is seeking submissions by June 17. Steel reinforcing mesh is used in large concrete slabs, the foundations for housing construction and renovations. InfraBuild is alleging “circumvention activity” by the Chinese companies, who are its commercial rivals. By having the rods modified into steel mesh in China, rather than by metal fabricators in Australia, the Chinese companies are gaining an apparent unfair advantage, InfraBuild says. In its complaint, InfraBuild says labour rates in China are one quarter of the Australian equivalent. The Australian federal government, on advice from the ADC, put in place a 33.1% tariff on Chinese steel rods in 2016 and then extended it in 2021 for a further five years.

Finally, over recent months on ASN´s companion platform AustralianSteel.com we have published Special Product Features on scrap metal, wire products, importers, and stainless steel. The latest one focusses on New Zealand. Check it out: https://australiansteel.com/nz-spf-june24