Just spent some time looking at global steel consumption because this was one part of the investment case that I was relatively uncomfortable with. I was curious whether the numbers would show that China's steel consumption was about to mean revert to the downside (which would obviously suggest a bearish stance on MMC).
In 2015, there was about 1.62Bt of crude steel used globally, according to the Belgium-based World Steel Association, an industry association. This represented roughly 0.22t of steel consumption per capita. In 1967 (the earliest year for which I could find data), the global market was 0.50Bt, representing 0.14t of steel consumption per capita. In the 48 years between 1967 and 2015, worldwide steel consumption grew at a 2.5% compounded rate. Annualized population growth over the same time period was 1.6% and per capita crude steel consumption growth was 0.9%.
In 2015, 37 geographic markets made up 95% of total crude steel consumption (~1.54Bt of the 1.62Bt). In 1967, these same 37 markets also made up 95% of total crude steel consumption ~0.47Bt of the 0.50Bt).
I proceeded to break these 37 geographic markets down into 4 distinct categories.
1. China
2. Stagnant Population Markets (annualized population growth below 1% since 1967)
3. Maturing Population Markets (annualized population growth between 1.0% and 1.5% since 1967)
4. Developing Population Markets (annualized population growth above 1.5% since 1967)
1. CHINA
Not surprisingly,China is the world's most important crude steel end market. In 2015, it accounted for nearly 44% of worldwide consumption. Its 0.70Bt of 2015 crude steel consumption represented 8.1% annualized growth since 1967 when its crude steel consumption was under 0.02Bt. Given such explosive compounded growth (relative to 1.3% annualized population growth), I was worried that China's per capita steel consumption would be an outlier relative to the rest of the world.
Fortunately, that doesn't yet seem to be the case, particularly if you compare China to other leading East Asian economies on this metric. One cautionary flag would be the per capita consumption gap between China and the U.S. that might be best explained by the U.S.' shift to a service-based economy. Similarly, the enormous per capita gap between China and India is more of an indictment of India's economic underperformance in the 20th century.
2015 PER CAPITA CRUDE STEEL CONSUMPTION (top 37 markets ranked)
1. South Korea 1.16t
2. Taiwan 0.88t
3. United Arab Emirates 0.87t
4. Singapore 0.85t
5. Former Czechoslovakia 0.63t
6. Japan 0.53t
7. Germany 0.53t
8. China 0.51t
9. Turkey 0.46t
10. Saudi Arabia 0.43t
11. Canada 0.41t
12. Malaysia 0.39t
13. Poland 0.35t
14. USA 0.33t
35. India 0.07t
Going forward, China's steel consumption growth will definitely decelerate, particularly as its birth rate declines and its population growth stagnates. Based on the experience in more mature European and Asian markets (like Germany and Japan), it would appear that China's per capita steel consumption will stagnate, as opposed to reverse. In such a backdrop, if MMC can cement its position as a low cost supplier to China, it should be able to maintain and grow its market share as a coal supplier to China's domestic steel industry.
2. STAGNANT POPULATION MARKETS (Europe and Japan)
The 12 markets that fall in this category represent a cautionary tale for China going forward. In 1967, these markets accounted for 58% of world crude steel consumption (0.29Bt). In 2015, they accounted for only 17% (0.28Bt). Total crude steel consumption from these markets fell 0.1% annually since 1967 as compared to annualized population growth of 0.6% in the same time period. In 1967, per capita steel consumption in these markets was 0.30t. 48 years later, it was down to 0.22t. If we strip out the former Soviet Union from these results, the figures improve marginally. Steel consumption grew 0.3% annually since 1967 compared to annualized population growth of 0.4%. Per capita steel consumption fell from 0.40t in 1967 to 0.39t in 2015.
3. MATURING POPULATION MARKETS (U.S., South Korea, Taiwan, Canada, Australia/New Zealand, Argentina)
The 6 affluent markets that fall in this category are largely dominated by the U.S., whose heavy manufacturing industry footprint has significantly diminished over time. In 1967, these markets accounted for 29% of world crude steel consumption (0.15Bt). In 2015, they accounted for only 13% (0.22Bt). Total crude steel consumption from these markets grew only 0.8% annually since 1967 as compared to annualized population growth of 1.1% in the same time period. In 1967, per capita steel consumption in these markets was 0.48t. 48 years later, it was down to 0.43t. If we strip out the U.S. from these results, the figures improve markedly. Steel consumption grew 3.7% annually since 1967 compared to annualized population growth of 1.2%. Per capita steel consumption grew from 0.18t in 1967 to 0.59t in 2015.
4. EMERGING POPULATION MARKETS (South Asia, Southeast Asia, Middle East, Brazil, Colombia, South Africa)
The 18 largely underpenetrated markets that fall in this category represent the growth in steel consumption going forward. MMC may benefit here if, in the face of slowing domestic demand, China's steel industry increases exports to many of these end markets. In 1967, these 18 markets accounted for merely 5% of world crude steel consumption (0.02Bt). In 2015, they accounted for 21% (0.34Bt). Total crude steel consumption from these markets grew 5.7% annually since 1967 as compared to annualized population growth of 1.7% in the same time period. In 1967, per capita steel consumption in these markets was 0.01t. 48 years later, it was up to 0.08t. Obviously, there remains quite a runway for many of these markets -- notably India -- to consistently grow their steel consumption going forward.
