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                                                Steel market and SSAB’s position

                                                Steel industry dynamics are shaped by global trends in steel demand, steel supply capacity, steel trade flows and the raw material markets. These in turn are influenced by global megatrends such as climate change and resource scarcity, population growth, urbanization and digitalization. Since SSAB is a relatively small player in the global steel industry in terms of production capacity, we have specialized in certain segments within carbon flat steels.

                                                Four fundamental forces shaping steel industry dynamics

                                                Four fundamental forces shaping steel industry dynamics

                                                1. Steel demand

                                                Global steel demand continued to grow driven by China, apparent demand contracted in the second half of 2019

                                                In October 2019, worldsteel forecast that global steel demand would grow 3.9% to 1.8 billion tonnes in 2019 and is estimated to grow another 1.7% in 2020. Even though the economic growth rate in China is decreasing, China remains the clear driver for global steel demand development.

                                                Overall, apparent steel demand was strong in all markets in the first half of 2019, but a slowdown occurred in the second half of the year. This was largely due to customers destocking in response to a more uncertain market environment. Manufacturing, particularly the automotive industry, contracted in many countries impacting the steel markets. Caution from steel customers is mainly attributed to overall economic uncertainty, continuing trade tensions and geopolitical issues. However, the long-term demand outlook remains positive.

                                                Apparent demand for finished steel products
                                                Innovation toward productivity and sustainability will drive new steel demand

                                                Global megatrends and industry-specific trends shape customer demand across all industries, including the steel industry. Steel companies continue to develop their product offerings to be able to meet the future needs of customers. For example, users in the construction and automotive industries are working to lower costs, improve safety and lighten the weight of their products, thereby reducing their environmental impact. In the mining industry, customers are striving to increase the durability of equipment and reduce downtimes. These trends have led to a growing use of high-strength steels, which provide advantages in the form of stronger, lighter and more durable steel solutions. This means the growth potential for high-strength steels continues to be higher than that for standard steels.

                                                2. Steel supply capacity

                                                Improved balance in capacity and demand

                                                Excess steel production capacity, especially in China, and to a lesser extent in Europe, has been impacting steel industry dynamics since the financial crisis of 2008. However, apparent demand and effective capacity have become more balanced in recent years. The Chinese authorities have worked actively to improve their domestic situation by stimulating demand, driving consolidation and downsizing capacity, effectively removing more than 130 million tonnes of crude steel capacity in recent years.

                                                The US, on the other hand, remains an undersupplied market, where imports satisfy around 30% of the total steel demand. However, due to favorable market conditions, US steel manufacturers have started to increase domestic steel capacity, which is expected to come online in the next few years. Capacity expansions are also taking place in many developing economies as those countries start to industrialize more. Meanwhile, demand-capacity was in balance for most of 2018 and 2019, but as apparent demand in Europe decelerated in 2019, major steel producers, including SSAB, adjusted their production levels by idling steelmaking capacity. 

                                                Supply landscape transformation

                                                Despite extensive consolidation over the past 20 years, the global steel sector remains relatively fragmented. Further attempts to drive consolidation have been made in recent years with varying success. Major European steel producers ThyssenKrupp and Tata Steel Europe attempted to form a joint venture in 2019, but were unable to obtain competition clearance from the European Commission.

                                                ArcelorMittal acquired Italy’s biggest steel maker, Ilva, but in 2019 some issues arose regarding the legal protection designed to protect ArcelorMittal’s liability related to a clean-up plan for the plant and discussions with the Italian government are still ongoing. Consolidation can also be noted in the Chinese market.

                                                3. Steel trade flows

                                                Increasing trade tensions 

                                                Global trade patterns have been scrutinized and debated in recent years, resulting in more and more countries installing protection mechanisms. The introduction of trade barriers is growing worldwide and the number of global trade cases has increased by almost 50% between 2016 and 2019. Section 232 tariffs in the US may be the best known measure, but several other regions have also introduced retaliatory measures. Current trade policies will likely be in force for a number of years, and more may be introduced if perceived necessary or real predatory trade practices continue. As such, they may dampen economic growth prospects and/or hinder exports of niche materials, but should, on the other hand, at least in the short term, be supporting steel prices in home markets.

                                                Market regionalization

                                                Trade policies combined with increasing steel demand locally have resulted in decreased trade, particularly between geographical regions. Extra-regional steel trade (i.e. excluding trade within the EU, NAFTA, CIS, etc.) accounted for 16% of global steel demand in 2018, down one percentage point from 2017. The US remains the largest net importer of steel, with a trade deficit of about 23 million tonnes in 2018 while Europe had a trade deficit of about 17 million tonnes.

                                                4. Raw materials

                                                Price volatility of raw materials has increased

                                                Steelmaking requires substantial quantities of raw materials, including iron ore, scrap metal, metallurgical coal, injection coal, coke and alloys. Raw material prices are thus important drivers for the steel industry. The large raw material categories are priced based on seaborne availability and demand – the latter driven by expected steel production levels. Prices, which are primarily quoted in US dollars, have been very volatile in recent years due to uncertain and fluctuating steel demand globally, supply disruptions and shortages of raw materials, currency fluctuations and general price speculation among buyers.

                                                Challenging raw material prices during 2019

                                                In 2019, iron ore prices reached their highest level in years, negatively impacting steel producers’ margins as steel prices failed to keep up at the same pace. The main drivers for the increase in iron prices are production disruptions from some of the large low cost producers, coupled with high demand based on high Chinese steel output rates. The combination has meant that producers higher up on the cost curve had more influence over global iron ore prices. However, iron ore prices started to decline during the autumn.

                                                Steel prices

                                                Steel demand, steel supply capacity, steel trade flows and raw materials all impact the sales prices of steel products globally. Steel prices have been increasingly volatile and unpredictable in recent years, which reflect the turbulent development of the underlying four factors. Steel prices have seen negative development across all geographies during 2019 compared to the previous year.

                                                SSAB’s steel market position

                                                SSAB is present in the steel segment commonly referred to as flat carbon steels, i.e., steels with a particular carbon content rolled into flat sheets or plates. With annual steel production capacity of approximately 8.8 million tonnes, SSAB is a small player in the global carbon steel market. This is why SSAB specializes in and focuses on four defined segments within flat carbon steels, where we have strong market positions:

                                                1. Flat carbon steel and tubes in the Nordics
                                                2. Heavy plate in North America
                                                3. Automotive premium steel (Advanced High-Strength Steel, AHSS) globally
                                                4. Special steels (Quenched & Tempered, Q&T and AHSS) globally

                                                SSAB has leading positions in our Nordic and North American home markets. SSAB has an overall market share of around 40-45% for flat carbon steels in the Nordic region. In North America, SSAB is the largest producer of heavy plate, with market share approaching 30%. With our leading products, brands, knowledge and well-invested asset base, SSAB also holds the number one position in the global market  for Quenched and Tempered (Q&T) plate and strip and in selected Advanced High-Strength Steel (AHSS) segments. 

                                                These market segments account for about 3% of the global market for carbon steel. In addition to being a steel producer, SSAB is also a steel and non-ferrous metal distributor via our subsidiary Tibnor and offers steel-based construction solutions through our subsidiary Ruukki Construction. 

                                                SSAB is market leader in defined areas of the global steel market

                                                The main customer segments served by SSAB include heavy transport, construction building and infrastructure, automotive, industrial applications, construction machinery (including lifting), energy and material handling (including mining). In our home markets, the Nordic region and North America, standard steels are, to a large extent, sold through steel service centers and distributors. 

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