In 2019, the world’s apparent consumption of crude steel was 1.89 billion tons, of which China’s apparent consumption of crude steel was 950 million tons, accounting for 50% of the world’s total. In 2019, China’s crude steel consumption reached a record high, and the apparent consumption of crude steel per capita reached 659 kg. From the development experience of developed countries in Europe and the United States, when the apparent consumption of crude steel per capita reaches 500 kg, the consumption level will decline. Therefore, it can be predicted that China’s steel consumption level has reached the peak, will enter a stable period, and finally the demand will decline. In 2020, the global apparent consumption and output of crude steel were 1.89 billion tons and 1.88 billion tons respectively. The crude steel produced with iron ore as the main raw material was about 1.31 billion tons, consuming about 2.33 billion tons of iron ore, slightly lower than the output of 2.4 billion tons of iron ore in the same year.
By analyzing the output of crude steel and the consumption of finished steel, the market demand of iron ore can be reflected. In order to help readers better understand the relationship between the three, this paper makes a brief analysis from three aspects: world crude steel output, apparent consumption and global iron ore pricing mechanism.
World crude steel output
In 2020, the global crude steel output was 1.88 billion tons. The crude steel output of China, India, Japan, the United States, Russia and South Korea accounted for 56.7%, 5.3%, 4.4%, 3.9%, 3.8% and 3.6% of the world’s total output respectively, and the total crude steel output of the six countries accounted for 77.5% of the world’s total output. In 2020, the global crude steel output increased by 30.8% year-on-year.
China’s crude steel output in 2020 is 1.065 billion tons. After breaking through 100 million tons for the first time in 1996, China’s crude steel output reached 490 million tons in 2007, more than quadrupling in 12 years, with an average annual growth rate of 14.2%. From 2001 to 2007, the annual growth rate reached 21.1%, reaching 27.2% (2004). After 2007, affected by the financial crisis, production restrictions and other factors, the growth rate of China’s crude steel production slowed down, and even showed negative growth in 2015. Therefore, it can be seen that the high-speed stage of China’s iron and steel development has passed, the future output growth is limited, and there will eventually be negative growth.
From 2010 to 2020, India’s crude steel output growth rate was second only to China, with an average annual growth rate of 3.8%; Crude steel output exceeded 100 million tons for the first time in 2017, becoming the fifth country with crude steel output of more than 100 million tons in history, and surpassed Japan in 2018, ranking second in the world.
The United States is the first country with an annual output of 100 million tons of crude steel (more than 100 million tons of crude steel was achieved for the first time in 1953), reaching a maximum output of 137 million tons in 1973, ranking first in the world in terms of crude steel output from 1950 to 1972. However, since 1982, the output of crude steel in the United States has decreased, and the output of crude steel in 2020 is only 72.7 million tons.
World apparent consumption of crude steel
In 2019, the global apparent consumption of crude steel was 1.89 billion tons. The apparent consumption of crude steel in China, India, the United States, Japan, South Korea and Russia accounted for 50%, 5.8%, 5.7%, 3.7%, 2.9% and 2.5% of the global total respectively. In 2019, the global apparent consumption of crude steel increased by 52.7% over 2009, with an average annual growth rate of 4.3%.
China’s apparent consumption of crude steel in 2019 is close to 1 billion tons. After breaking through 100 million tons for the first time in 1993, China’s apparent consumption of crude steel reached more than 200 million tons in 2002, and then entered a period of rapid growth, reaching 570 million tons in 2009, an increase of 179.2% over 2002 and an average annual growth rate of 15.8%. After 2009, due to the financial crisis and economic adjustment, the demand growth slowed down. China’s apparent consumption of crude steel showed negative growth in 2014 and 2015, and returned to positive growth in 2016, but the growth slowed down in recent years.
India’s apparent consumption of crude steel in 2019 was 108.86 million tons, surpassing the United States and ranking second in the world. In 2019, India’s apparent consumption of crude steel increased by 69.1% over 2009, with an average annual growth rate of 5.4%, ranking first in the world in the same period.
The United States is the first country in the world whose apparent consumption of crude steel exceeds 100 million tons, and ranks first in the world for many years. Affected by the 2008 financial crisis, the apparent consumption of crude steel in the United States decreased significantly in 2009, nearly 1 / 3 lower than that in 2008, only 69.4 million tons. Since 1993, the apparent consumption of crude steel in the United States has been less than 100 million tons only in 2009 and 2010.
World per capita apparent consumption of crude steel
In 2019, the world’s per capita apparent consumption of crude steel was 245 kg. The highest per capita apparent consumption of crude steel was South Korea (1082 kg / person). Other major crude steel consuming countries with higher per capita apparent consumption were China (659 kg / person), Japan (550 kg / person), Germany (443 kg / person), Turkey (332 kg / person), Russia (322 kg / person) and the United States (265 kg / person).
Industrialization is a process in which human beings transform natural resources into social wealth. When social wealth accumulates to a certain level and industrialization enters a mature period, significant changes will take place in the economic structure, the consumption of crude steel and important mineral resources will begin to decline, and the speed of energy consumption will also slow down. For example, the apparent consumption of crude steel per capita in the United States remained at a high level in the 1970s, reaching a maximum of 711 kg (1973). Since then, the apparent consumption of crude steel per capita in the United States began to decline, with a large decline from the 1980s to the 1990s. It fell to the bottom (226kg) in 2009 and slowly rebounded to 330kg until 2019.
In 2020, the total population of India, South America and Africa will be 1.37 billion, 650 million and 1.29 billion respectively, which will be the main growth place of steel demand in the future, but it will depend on the economic development of various countries at that time.
Global iron ore pricing mechanism
The global iron ore pricing mechanism mainly includes long-term association pricing and index pricing. Long term association pricing was once the most important iron ore pricing mechanism in the world. Its core is that the supply and demand sides of iron ore lock the supply quantity or purchase quantity through long-term contracts. The term is generally 5-10 years, or even 20-30 years, but the price is not fixed. Since the 1980s, the pricing benchmark of the long-term association pricing mechanism has changed from the original FOB price to the popular cost plus sea freight.
The pricing habit of the long-term association pricing mechanism is that in each fiscal year, the world’s major iron ore suppliers negotiate with their major customers to determine the iron ore price of the next fiscal year. Once the price is determined, both parties must implement it within one year according to the negotiated price. After any party of the iron ore demander and any party of the iron ore supplier reach an agreement, the negotiations will be concluded, and the international iron ore price will be finalized from then on. This negotiation mode is the “starting follow the trend” mode. The pricing benchmark is FOB. The increase of iron ore of the same quality all over the world is the same, that is, “FOB, same increase”.
The price of iron ore in Japan dominated the international iron ore market by 20 tons in 1980 ~ 2001. After entering the 21st century, China’s iron and steel industry flourished and began to have an important impact on the supply and demand pattern of global iron ore. iron ore production began to be unable to meet the rapid expansion of global iron and steel production capacity, and international iron ore prices began to rise sharply, laying the groundwork for the “decline” of the long-term agreement price mechanism.
In 2008, BHP, vale and Rio Tinto began to seek pricing methods conducive to their own interests. After vale negotiated the initial price, Rio Tinto fought for a greater increase alone, and the “initial follow-up” model was broken for the first time. In 2009, after the steel mills in Japan and South Korea confirmed the “starting price” with the three major miners, China did not accept the 33% decline, but reached an agreement with FMG on a slightly lower price. Since then, the “starting following the trend” model officially ended, and the index pricing mechanism came into being.
At present, the iron ore indexes released internationally mainly include Platts iodex, TSI index, mbio index and China iron ore price index (ciopi). Since 2010, Platts index has been selected by BHP, Vale, FMG and Rio Tinto as the basis for international iron ore pricing. The mbio index was released by the British metal herald in May 2009, based on the price of 62% grade iron ore in Qingdao port, China (CFR). The TSI index was released by the British company SBB in April 2006. At present, it is only used as the basis for the settlement of iron ore swap transactions on the Singapore and Chicago exchanges, and has no impact on the spot trade market of iron ore. China’s iron ore price index was jointly released by China Iron and Steel Industry Association, China Minmetals chemical import and Export Chamber of Commerce and China Metallurgical and mining enterprises association. It was put into trial operation in August 2011. China’s iron ore price index consists of two sub indexes: domestic iron ore price index and imported iron ore price index, both based on the price in April 1994 (100 points).
In 2011, the price of imported iron ore in China exceeded US $190 / dry ton, a record high, and the annual average price of that year was US $162.3 / dry ton. Subsequently, the price of imported iron ore in China began to decline year by year, reaching the bottom in 2016, with an average annual price of US $51.4/dry ton. After 2016, the price of China’s imported iron ore rebounded slowly. By 2021, the 3-year average price, 5-year average price and 10-year average price were 109.1 USD / dry ton, 93.2 USD / dry ton and 94.6 USD / dry ton respectively.