Metallurgical plants and rolling mills
One of the fundamental problems of the steel industry, high overcapacities, was further exacerbated in the course of the pandemic.
Slight decline in crude steel production and capacity utilization
In the metallurgical and rolling mill technology sector, the members of the VDMA Large Industrial Plant Manufacturers Group take of €1.1 billion in 2020. This is 55% less than in the previous year (2019: €2.5 billion). The last time orders were below this level was in 1988, more than 30 years ago.
Global crude steel production fell by 0.9% to 1.86 billion tons in 2020 (2019: 1.88 billion tons) in the wake of the Corona pandemic. In addition to a general slump in demand, the production freeze during the first lockdown in spring 2020 was also responsible for this.
Significant regional differences can be seen. India (-11.1%), Europe (-12.7%) and North America (-13.7%) experienced significant declines, whereas China, the largest single market, recovered quickly from the slump in the first quarter of 2020 and closed the year with production growth of around 5%.
One of the fundamental problems of the steel industry, high overcapacities, was further exacerbated in the course of the pandemic. Installed crude steel capacity stagnated at the 2019 level of around 2.5 billion tons. Due to the decline in production, utilization of installed capacity deteriorated further from 75% in the previous year to 72% (2020). Other challenges in the market include geopolitical and economic uncertainties and rising raw material prices. The reduction of CO2 emissions in the manufacturing process called for by politicians is one of the key research and future issues for the steel industry.
China - Resilience of steel industry gives hope
The steel industry in China has shown strong resilience in the face of the Corona pandemic. Production at Chinese steel mills increased by 5% year-on-year to 1.05 billion tons in 2020. This was primarily due to demand for steel in the construction sector. With manufacturing capacity unchanged at 1.268 billion tons, capacity utilization at Chinese steel mills rose to a rate of 82.5% (2019: 78.9%).
Falling Chinese steel exports and rising imports at the same time illustrate the different development that the steel markets inside and outside China took during the pandemic. The export ratio in the People's Republic fell to 5.4% in 2020 (2019: 6.4%). Other influencing factors in this context were the trade conflict with the USA and rising raw material costs.
In the future, German and European plant manufacturers could benefit from government incentives to relocate production sites to coastal regions. This decision, which was formulated as part of the 14th Five-Year Plan, could lead to an increase in orders, particularly in the area of resource-saving plants and technologies. Chinese manufacturers continue to strive to increase the quality of their products and reduce production costs. It is therefore expected that China will continue to be one of the key markets for metallurgical plant and rolling mill construction in 2021.
India - Hope for rapid recovery after the recession
The Indian steel industry was hit hard by the outbreak of the Corona pandemic. As a result of a sharp drop in domestic demand, supply chain disruptions and liquidity problems at Indian steel producers, crude steel production fell by 11% year-on-year to 99.6 million tons in 2020 (2019: 111.3 million tons).
However, the optimistic growth forecasts for India by the World Bank and other research institutes give rise to hopes of a rapid market recovery. At the same time, government investments in the construction industry and the automotive sector are supporting the economy and creating the necessary confidence for capacity expansion in the steel industry.
Against this background, the plant manufacturers organized in the VDMA can hope for increasing orders from India. However, this will depend to a large extent on an improvement in the financial and administrative framework conditions (including approval procedures and property rights).
Other Asia - impetus mainly from Southeast Asia
Crude steel production in the world's third largest single market - Japan - fell by 16.2% in 2020, continuing the downward trend of recent years. Due to a continuous population decline and poor deindustrialization, it can be assumed that there will be few orders for new plants in Japan in the future. On the other hand, the modernization of existing plants opens up attractive market opportunities for VDMA plant manufacturers.
This observation also applies to other countries in East Asia, such as South Korea and Taiwan. In Southeast Asia, the prospects in some smaller but fast-growing markets such as Indonesia (2020: +11.5 %) and Vietnam (2020: +2.0 %) are promising.
The world's largest free trade agreement, RCEP, concluded in November 2020 by 15 countries in the Asia-Pacific region, has once again significantly improved the framework conditions for investment and foreign trade. Trade in steel between the ASEAN countries and China has picked up in the course of this liberalization process, leading to more Chinese investment in regional steel mills. This trend is expected to continue in the medium term, which could result in increasing orders for the suppliers of metallurgical plants and rolling mills in Southeast Asia organized in the VDMA.
North America - overcapacities dampen hopes for new orders
Crude steel production in North America slumped as a result of the Corona pandemic. After moderate growth in 2019, production in the USA fell by 13.4% to 76.1 million tons in 2020 (2019: 87.9 million tons). In the much smaller markets of Mexico and Canada, volumes also fell by a double-digit percentage. A decisive factor here was the drastic decline in US demand for steel products by 17% to 83.5 million tons.
Hopes of a market recovery can currently be derived above all from government infra-structure programs. The FAST program has been extended by a year, making an additional 60 billion US dollars available for infrastructure investment in the USA in 2021. In addition, the US government plans to provide a further 500 billion US dollars in the period 202X to 202X with the so-called INVEST program. In addition, protectionist measures to protect the US market against imports from China are intended to strengthen domestic demand.
With overcapacities still high and crude steel production slumping sharply, demand for metallurgical equipment in North America is expected to recover only gradually despite the support measures mentioned. Particularly in the new equipment business, which was still booming in 2018 and 2019, little impetus is expected in 2021.
Europe - Weak order intake expected
Crude steel production in Europe slumped by 12.7% to 189.4 million tons in 2020, and capacity utilization fell to a long-term minimum of 60%. A major reason for this downturn was a decline in demand for steel in the auto industry and the construction sector. In addition, domestic demand in 2020 suffered from the global recession in the wake of the Corona pandemic, intensifying trade disputes and the multiple challenges and uncertainties associated with Brexit.
In the course of the expected overall economic recovery, the steel industry also expects production figures to rise again in 2021. At the same time, the industry faces historic challenges: Against the background of the EU's very ambitious climate protection targets, the steel industry is called upon to become climate-neutral by 2050. To achieve this goal, companies are focusing on the development of innovative technologies that can eliminate greenhouse gas emissions as far as possible. Hydrogen-based direct reduction processes (e.g., the Midrex process) are the most advanced and climate-smart methods in this regard.
However, the provision of the necessary quantities of green electricity is challenging, because hydrogen-based reduction processes require large quantities of electrical energy for electrolysis. The total energy requirement for a climate-neutral conversion of the blast furnace route is around 120 terawatt hours (TWh) per year.
CIS - investments only for modernization and service
CIS - investments will be mainly limited to modernization and service orders
Crude steel production in the CIS countries decreased by 2.2% in 2020 and reached a value of 78 million tons (2019: 79.7 million tons). The triggering factor was the Corona-related decline in Russian steel demand and, in particular, weakness in the automotive sector.
Despite the extension of economic sanctions by the EU, Russia managed to increase steel exports by almost 7% in 2020, partly compensating for weakening domestic demand. Due to the favorable costs for steel production in Russia - important location factors include low raw material and energy prices - exports are expected to increase further. In this respect, VDMA plant manufacturers can hope to receive modernization and service orders in 2021 to increase the productivity of Russian steel mills.
Middle East and Africa - Political challenges
While crude steel production in Africa declined in 2020 (-9.7%), output in the Middle East increased by 1.3% to 46 million tons. This growth was triggered in particular by Iran, which recorded a 9.4% increase in production last year. This positive trend could lead to an increase in orders for metallurgical plant and rolling mill construction in the Middle East in the future.
However, the many political and economic challenges in the region and the sanctions policy enforced by the USA against Iran are hampering a sustainable growth process. It remains to be seen how the new US administration will position itself in terms of foreign policy in the Middle East and what impact this will have on plant engineering.
Unique selling proposition through sustainable innovations
As a result of a drastic slump in demand, falling steel prices and rising raw material costs, the customers of VDMA metallurgical and rolling mill equipment suppliers are under high price and consolidation pressure. The plant engineering sector is also feeling the effects of this development. In a highly competitive environment, low-cost Asian suppliers are also steadily gaining market share on Western markets.
The metallurgical and rolling mill equipment suppliers organized in the VDMA can only calculate with adequate margins if they succeed in generating unique selling points on the basis of innovative products and services. To achieve this, plant engineering must develop solutions for flexible, cost-optimized and sustainable product processes. The megatopics of digitization and climate change offer starting points for this.
For example, there are currently numerous research projects and cooperations between plant manufacturers, plant operators and universities that are looking into the use of hydrogen as a direct reduction agent in the steel industry and pursuing the goal of climate-neutral steel production. Furthermore, the topics of "digital steel mill" and "digital construction site" have received a boost in the past year and are increasingly moving from mere vision to reality.
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