The steel industry is a cornerstone of global infrastructure and manufacturing, playing a vital role in various sectors, including construction, automotive, energy, and machinery. This article provides a broad overview of the steel market, focusing on the major challenges that the industry faces as the result of retarded growth in China, the impact of the Russia-Ukraine conflict and the impact of the CHIPS and IRA legislations in the US.
Global Market Overview
Global steel production exceeded 150 million tons (Mt) in August 2023, an approximately 4% increase compared to September 2023. Carbon steel and stainless steel accounted for the largest share of the global steel market. Steel and its derived alloys and products find applications in the construction of buildings, automobiles, trains (and tracks), appliances, weapons, boats, bridges, and millions of additional items. In 2022, the construction industry accounted for nearly 49% of the global market share. This industry was followed by heavy industry and the consumer goods industry.
Steel usage in the automotive motor manufacturing industry accounted for the largest share of the global steel market, as about 60% of its weight comes from steel, according to a trade body, the World Steel Association
The global steel market was negatively affected by the COVID-19 pandemic, mainly due to a halt in international trade, prolonged lockdowns, and ceased manufacturing processes. Additionally, significant end-user companies in the US, China, Germany, and the UK are suffering financially because of the production halt. But even though the supply chain has been made more streamlined and category suppliers have been able to resume their operations since the adoption COVID-19 vaccines and the recovery of the global economy. Also, according to the World Steel Association, the demand for steel declined in 2022 amid the high inflationary pressure caused by the invasion of Ukraine by Russia. The energy crisis and the high cost of raw materials.
In addition to producing and exporting steel, Russia and Ukraine provide raw materials, including coal and natural gas. The Russia-Ukraine issue continues to influence the dynamics of supply and demand, input costs, and the global economy, thereby hindering category demand.
Impact of Russia-Ukraine conflict on supply chain
The Russia-Ukraine conflict has had a significant impact on the global steel industry, particularly concerning the supply and pricing of steel raw materials. Ukraine has historically been a major player in the production and export of iron ore, coal, and other essential inputs for steel manufacturing. However, the conflict has disrupted these supply chains in several ways.
Disruption of Iron Ore and Coal Supplies: Eastern Ukraine, where much of the conflict has taken place, is home to many iron ore and coal mines. The fighting has disrupted mining operations, leading to a reduction in the availability of these crucial raw materials. This, in turn, has had a ripple effect on steel production, as steelmakers struggle to secure a consistent supply of inputs.
Geopolitical Tensions and Trade Restrictions: The Russia-Ukraine conflict has heightened geopolitical tensions in the region. This has resulted in trade restrictions, sanctions, and export disruptions, making it more challenging for steel producers in other countries to access Ukrainian raw materials. These disruptions have forced steel manufacturers to seek alternative sources, often at higher costs.
Price Volatility: The uncertainty caused by the conflict has contributed to increased price volatility in global commodity markets, including iron ore and coal. Price spikes can significantly impact the cost structure of steel production, leading to higher prices for steel products and potentially affecting demand.
Infrastructure Damage: The conflict has caused damage to critical infrastructure, including transportation networks and ports. This damage can hinder the efficient movement of raw materials and finished steel products, causing logistical challenges for steel producers.
Energy Costs: Ukraine is also a key supplier of coking coal, an essential ingredient in the steelmaking process. Disruptions in the coal supply chain have led to fluctuations in energy costs for steel manufacturers, affecting their competitiveness.
Challenges due to weak Chinese construction sector
The Chinese construction industry has long been a key driver of global steel demand due to the country’s rapid urbanization and infrastructure development. However, in recent years, the industry has experienced a noticeable slowdown, which has had significant implications for the global steel market. China’s construction steel demand is expected to be subdued through the end of 2023 because of a weak property industry and constrained infrastructure sector growth in the wake of some local government debt problems. China’s property home sales, a major channel to fund new projects, were likely to continue in a downtrend witnessed in August for the remaining year, after National Bureau of Statistics data showed July home sales declining 46% month on month and 24% year on year. Furthermore, the same agency reported that the growth rate of infrastructure investment in China slowed to 4.6% year on year in July, from 9% over January-February and 9.4% in 2022.
Despite the issues with the construction sector, the largest consumer sector, steel producers in China in increased steel production by 4.1% in January 2023 – April 2023 compared to the same period in 2022, up to 354.39 million tons. In April, Chinese steelmakers produced 92.64 million tons of steel, which is 1.5% more than in April 2022. The global average prices are expected to pick-up albeit marginally in the coming months from current levels, driven mainly by the bottoming out of Mainland China’s construction sector which is expected to occur before the year-end.
On the supply side, China is set to export the most steel this year since 2016, as the weakening yuan and competitive prices help the world’s biggest producer offload surplus metal due to weak demand at home. China’s steel industry has been hard hit by the slump in the property sector, pushing steel prices to three-year lows in May. Strong demand has been witnessed from Asia and Africa which is helping suppliers offload stocks and continue operations. Steel exports from China in the first five months were up more than 40% compared to a year ago. It is expected that the exports for 2023 could easily surpass the 67.32 million metric tons shipped last year reaching as high as 77 million metric tons.
Impact of Inflation Reduction Act (IRA), CHIPS Act on the Industry
The IRA and CHIPS Act are expected to have a positive impact on the steel industry due to the US$370 billion in funding offered in the form of tax incentives, which is expected to spur new projects that demand steel. IRA establishes “Make it in America” provisions for the use of American-made equipment for clean energy production. The law provides expanded clean energy tax credits for wind, solar, nuclear, clean hydrogen, clean fuels, and carbon capture. Apart from driving the increasing domestic steel demand, the IRA and CHIPS Act will also support the steel industry’s decarbonization drive. The American Iron and Steel Institute (AISI) estimated that for each $1 billion invested in infrastructure spending, it would generate a demand equivalent of about 50,000 tons of steel. While the act has focused on the semiconductor industry, it is expected that it will lead to the building of new fabrication facilities which are very steel intensive.
Even though the US steel industry is not currently operating at full capacity, there is enough capacity to meet the rise in steel demand expected to be generated from the policies domestically. According to Kevin Dempsey of the AISI, “We’re nowhere near running at full capacity today, so there’s certainly more steel that can be produced today from existing facilities and then we have millions of tons of new capacity coming online over the next couple of years. There’s going to be plenty of steel production available in the US. We’re seeing a lot of new demand, but it definitely can be met by the domestic industry”. Typically, US mills operate at about 76-77% of capacity. Capacity utilization rate was 75.9% in the week ended on 5 August 2023, according to, down slightly from a capability utilization of 78% in the respective week last year.
The IRA promotes “Build American” clean energy supply chains, by incentivizing domestic production in clean energy technologies like solar, wind, carbon capture and clean hydrogen. The investments going into the production of clean energy in the steel supply chain come amid a larger push in the industry to lower greenhouse gas emissions in the steelmaking process. There is a strong demand among customers in the construction and automotive market, to harmonize their entire supply chains to emit as low carbon as possible. Steelmakers, albeit slow, are responding to the demand by producing low carbon-emitting products. Going forward the steel industry is expected to see further investments in the production of clean energy through wind turbines, solar panels, and hydrogen hubs, which will, in turn, benefit the steel industry. Furthermore, the domestic market share for US steel producers in solar and wind segments is expected to continue to rise.
Conclusion
The steel industry stands at a crossroads at one hand facing challenges related to sustainability, overcapacity, and technological transition, it also holds immense potential for growth and innovation. As the world transitions toward cleaner, more efficient, and sustainable steel production, the industry remains vital for economic development, infrastructure enhancement, and technological progress. By embracing change and working towards a greener, more efficient future, the steel industry can continue to play a central role in shaping the global economy.
