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By Sean Windle
Oil Prices Affecting Steel
D
CN
China
Shipping losses declined by 32
percent in 2014 compared to
the previous year, continuing
the downward trend of recent
years. Allianz Group’s global
corporate and specialty business reports that one-third of
reported total losses occurred
in two regions: South China,
Indochina, Indonesia and the
Philippines (17 ships), and
Japan, Korea and North China
(12 ships). The most common
cause of total loss is sinkage,
accounting for 65 percent of
losses in 2014. “The new, larger
ships can also mean larger
losses,” warns Andrew Kinsey,
senior marine risk consultant.
“The industry should prepare
for a loss exceeding US$1 billion in the future, featuring a
container vessel or specialized floating offshore facility.”
Other risks include overreliance on electronic navigation
and piracy risks shifting from
Africa to Asia.
ID
Indonesia
The
ASEAN
e c o n o m y,
including Indonesia, Malaysia,
the Philippines, Singapore,
Thailand and Vietnam, is one
of the fastest-growing in the
world, with 60 million people
expected to be part of the
region’s consumer class in the
next five years. “Consumer
packaged goods companies
hoping to compete for new
consumers must be bold and
move fast if they are to take
advantage,” says Dwight
Hutchins, managing director,
Accenture Strategy, AsiaPacific. An Accenture report on
the region suggests companies
invest in relationships with reliable retailers, distributors and
wholesalers to create a network to reach markets of every
size, and use analytics to predict demand and plan
pla supply.
espite stronger demand from the construction and manufacturing sectors, steel prices have dropped signifi cantly since
September 2014, due to declining demand from the energy sector
and a recent surge in imports. After a modest gain in 2014, steel
prices are expected to drop 7.1 percent this year, according to
market research fi rm IBISWorld.
After reaching historic levels in the past few years, growth in
U.S. oil production is beginning to taper off due to rapidly falling
prices. Lower oil prices have softened demand for pipes, tubes and
other energy-related steel products. Furthermore, shale drilling,
which has been at the helm of the U.S. oil boom, is more complicated than extracting liquid crude oil. The advanced equipment and
personnel required to extract oil from shale rock results in higher
drilling costs, which makes operators reliant on higher oil prices
to maintain profi tability.
That’s why many oil drilling companies have scaled back their
operations and slashed orders for steel products in response to
falling oil prices. Major steel producers are already feeling the
effects. In January 2015, leading steel manufacturer United States
Steel Corporation announced it would lay off more than 2,500
workers at three different plants, one of which produces steel pipes
and tubes for the oil and gas industry.
Growth in Steel Imports
While demand from the energy sector is declining, a rash of
imported steel is flooding the U.S. market, particularly from China.
As China’s economic growth slows and demand for steel declines
there, Chinese steel manufacturers have increasingly targeted the
United States to unload excess inventory. What’s more, an appreciating U.S. dollar has bolstered the purchasing power of domestic
buyers sourcing foreign-made goods. Chinese steel imports are also
cheaper than their U.S. counterparts, further boosting their appeal
in the eyes of U.S. buyers. These factors have led to more low-cost
Chinese steel entering U.S. ports. In 2015, IBISWorld expects steel
imports from China to surge 22.6 percent.
Future Outlook
Increasing import penetration and declining demand from the
energy sector have left U.S. steel producers reeling, and pushed
prices downward. Given these factors, buyers of steel and products
derived from steel will have greater purchasing power through 2015.
Supply chain practitioners should take advantage of the low-price
environment and lock in current rates owing to IBISWorld projections
that steel prices will return to growth in 2016. ISM
Sean Windle is a business research analyst for IBISWorld’s
procurement division in Los Angeles. For more information,
send an email to author@ism.ws.
ISM May 2015
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