03 - POSRI · 2017-06-30 · industrialization. First, urbanization is the most important construction trend impacting the steel industry. Closely intertwined with rising popula-tion

J U N E 2 0 1 7

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FUTURE MEGATRENDSAND THE STEEL INDUSTRY

INTERVIEW with worldsteel Chairman

Beyond Survival to SuccessJohn J. FerriolaChairman, CEO and President of Nucor

ON THE COVER

Future Megatrends in Steel-consuming Industries and Their Impact on the Steel Industry

FEATURED ARTICLES

Chinese Steel Moves along the One Belt, One Road

SPECIAL REPORT

Autosteel and the New Materials CompetitionDr. Peter Warrian

MARKET TREND AND ANALYSIS

Measuring and Forecasting Steel Market Conditions with the POSRI Steel Index

J U N E 2 0 1 7

ASIAN STEEL WATCH

03

J U N E 2 0 1 7

ASIAN STEEL WATCH

03

C O N T E N T S

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Bi-annual

06 Future Megatrends and the Steel Industry

12 Understanding the New Mobility Paradigm

20 Will the Shipbuilding Industry Flourish Again?

26 Eyes on Energy Transition

32 Future Cities and Changes in Steel Materials

38 The Steel Industry over the Next Two Decades

On the Cover04FUTURE MEGATRENDS IN STEEL-CONSUMING INDUSTRIES AND THEIR IMPACT ON THE STEEL INDUSTRY

Autosteel and the New Materials Competition Dr. Peter Warrian54 Special Report

Interviewwith worldsteel ChairmanBeyond Survival to SuccessJohn J. Ferriola, Chairman, CEO and President of Nucor46

6668 The Impact of Sino-Indian Economic Cooperation on the Indian Steel Industry

78 Chinese Steel Moves along the One Belt, One Road

Featured Articles

88Market Trend and Analysis

90 Measuring and Forecasting Steel Market Conditions with the POSRI Steel Index

FUTURE MEGATRENDS AND THE STEEL INDUSTRY

4 Asian Steel Watch

06

12

20

Future Megatrends and the Steel Industry Choi, Dongyong

Understanding the New Mobility Paradigm Park, Hyung-keun

Will the Shipbuilding Industry Flourish Again? Dr. Lee, Eun-chang

ONGOING AND EMERGING MEGATRENDS Source: POSCO Research Institute

Ongoing Trends Emerging Trends

Global Climate Action

Fourth Industrial Revolution

Motorization

Globalization

Urbanization

Industrialization

On the Cover

Future Megatrendsin Steel-consuming Industriesand Their Impact on the Steel Industry

Future Megatrends and the Steel Industry

Vol.03 June 2017 5

26

32

38

Eyes on Energy Transition Park, Hyung-keun

Future Cities and Changes in Steel Materials Dr. Kim, Hoon-sang

The Steel Industry over the Next Two Decades Dr. Hang Cho, Dr. Moon-Kee Kong

Demand / Investment

Steel Contents / Intensity

Needs for SteelProducts

AUTOMOBILE

SHIPBUILDING

CONSTRUCTION

ENERGY

6 Asian Steel Watch


Choi Dongyong Senior Principal Researcher, POSCO Research [email protected]

What is a megatrend?To understand future megatrends, the definition

and characteristics of megatrends must first be

made clear. Megatrends are a long-term

process of transformation with a broad

scope and dramatic impact. They are

considered powerful factors shaping fu-

ture markets.1 Megatrends have three

main characteristics through which

they are distinct from other trends:

their time horizon, reach, and intensity

of impact.2 Companies can gain insight

into what areas will emerge or grow in

the future by analyzing and predicting

future megatrends. In doing so, they

are able to uncover clues for business

portfolios, new future businesses, and

R&D themes.

Ongoing trends in the steel industryThis article deals purely with mega-

trends which will significantly impact the future

steel industry rather than general megatrends.

In this article, megatrends with a great influence

over the steel industry are divided into ongoing

trends and emerging trends, considering the

lapse of time. The time horizon of 20 to 30 years

is considered here to reflect new megatrends—

worsening global warming and the spread of the

Fourth Industrial Revolution—which bring fun-

damental changes to global industrial structures.

Looking back on the last 50 years of the

global steel industry, the expansion of steel-con-

suming industries has driven the growth of the

steel industry. In order to review the history

of quantitative growth from the perspective of

steel demand, the share of steel demand within

each industry should first be considered. The

largest consumer of global steel is the construc-

tion industry, which absorbs nearly 50% of

global steel production. This industry accounts

for a large share of the global economy. As urban

infrastructure such as commercial and residen-

tial buildings, bridges, and pipelines has been

1Z-punkt GimbH, a German

consulting firm for strategic

foresight consulting

2Firstly, megatrends can be

observed over decades.

Quantitative, empirically

unambiguous indicators are

available for the present. They

can be projected—

with high probabilities—at

least 10 years into the future.

Secondly, megatrends have a

comprehensive impact on all

regions and actors—governments

and individuals and their

consumption patterns, but also

businesses and their strategies.

Finally, megatrends fuel

fundamental, multidimensional

transformations of all societal

subsystems, whether politics,

society, or the economy.


Vol.03 June 2017 7


mand. These industries consume only

a few types of steel products, but do

so in large amounts. Table 1 shows the

annual average proportion of steel demand by

industry over the nine years from 2007 to 2015.

The steel industry has been propelled by four

main drivers of steel-consuming industries:

urbanization, motorization, globalization, and

industrialization. First, urbanization is the most

important construction trend impacting the steel

industry. Closely intertwined with rising popula-

tion and incomes, the number of urban dwellers

has increased steadily. In 1960, only 33.7% of

people worldwide resided in urban areas (1.02

among 3.03 billion people), but by 2015, 54% of

the world’s population was urban (3.96 among

7.33 billion people).3 Second, the key trend for

Characteristics Details

Time horizon Can be observed over at least 10 years

Reach Have a comprehensive impact on every sector of society (including policy authorities, customers, and companies)

Intensity of impact Megatrends deeply and extensively influence technology, society, the economy, politics, and the environment

Table 1. Characteristics of Megatrends

Figure 1. Global Steel Demand Share by End-use (’07-’15 average)

Source: worldsteel

Construction Mechanical machinery

Metal product & Domestic appliance

Energy

Shipbuilding& Other transportation

Automotive

47%

5%7%

14%

15%

12%

installed in major cities worldwide, steel demand

for construction has continued to increase. The

second and third largest steel-consuming indus-

tries are the machinery industry and the metal

products/domestic appliance industry, which

consume about 15% and 14% of global steel, re-

spectively. These industries have relatively many

end-user companies, therefore an indivisual

company purchase a small volume of steel but

require a wide range of steel products. Next, the

automotive industry accounts for 12% of glob-

al steel demand. The automotive industry has

experienced increasing demand for auto sheet

and wire rod, such as for exhaust pipes and inner

and outer automobile panels. The shipbuilding,

other transportation and the energy industries

combined account for 12% of global steel de-

3UN World Urbanization Prospects

(2014 Revision)

8 Asian Steel Watch


the automotive industry is motorization. Led

by high income earners, the motorization rate

(vehicles per 1,000 people) generally grows grad-

ually at the introductory stage4 but rises rapidly

during the growth stage as cars become popular

among general customers responding to rising

incomes and improved road infrastructure. This

is called the stage of mass motorization. Car own-

ership rose ten-fold over the period from 1960

to 2015, from 127 million to 1,262 million units,

bolstered by increased household incomes and

a relative decline in car prices. The global rate of

motorization (vehicles per 1,000 peo-

ple) also increased significantly, from

42 units to 172 units over the same

period, indicating that the era of full-

scale motorization has arrived. Third,

globalization is the most important

trend for the shipbuilding industry, on

the ground that globalization is char-

acterized by increased trade between

countries.5 After World War II, the

global trade environment gradually im-

proved thanks to voluntary cooperation among

member countries of the General Agreement

on Tariffs and Trade (GATT, 1948) and World

Trade Organization (WTO, 1995). As a result,

the export-to-GDP ratio increased profoundly,

from 12% in 1960 to 30% in 2015. Finally, under

the influence of rapid industrialization, the ma-

chinery and domestic appliance industries have

sparked global steel demand. These ongoing meg-

atrends will continue to affect the steel industry

in the future.

Emerging trends for the steel industryTogether with these ongoing megatrends, global

climate action and the Fourth Industrial Revolu-

tion are the emerging trends that will affect the

future of the steel industry.

At the 2015 United Nations Climate Change

Conference held in Paris, known as COP21 or

CMP11, all 196 Parties agreed to adopt the Par-

is Agreement. It creates a new legally-binding

framework for coordinated international efforts

Figure 2. Four Main Drivers for Steel-consuming Industries

4Automobiles are durable goods

with a lifecycle similar to that

of general goods (introductory,

growth, maturity, and decline

stages).

5The International Monetary

Fund (IMF) identified four basic

aspects of globalization: trade

and transactions, capital and

investment movement, migration

and movement of people, and the

dissemination of knowledge.

55

50

45

40

35

30

25

180160140120100806040200

Urbanization Motorization

Urbanization Rate Motorization Rate

1960 19601965 19651970 19701975 19751980 19801985 19851990 19901995 19952000 20002005 20052010 20102015 2015

(%) (Vehicles per 1,000 people)

Steel consumptionSteel consumption

Source: worldsteel, World Bank, POSCO Research InstituteNote: The right axis abbreviated denotes annual global steel consumption

Vol.03 June 2017 9


to tackle climate change. Since then, global cli-

mate action has accelerated although U.S. Presi-

dent Donald Trump's decision to withdraw from

the Agreement would damage its solidarity. This

will promote the development of innovative re-

newable energy, CO₂ emission controls, and green

production. The Paris Agreement is meaningful

in two ways. First, it has an expanded scope of

application. The Kyoto Protocol was applicable in

only 37 industrialized countries and the Europe-

an Community, while all 196 Parties to the Unit-

ed Nations Framework Convention on Climate

Change (UNFCCC) are subject to this Agreement.

Second, it includes a long-term target: Keeping

global temperature rise well below two degrees

Celsius above pre-industrial levels or limiting the

temperature increase even further to 1.5 degrees

Celsius. To meet these goals, global greenhouse

gas emissions are to be reduced to at least 10%

below 2010 levels by 2030 and 55% by 2050.

Therefore, the Agreement will have a long-term

impact on the steel industry in terms of demand,

products, and production process.

The Fourth Industrial Revolution, the second

emerging trend, is accelerating based on key tech-

nologies such as IoT, big data, and AI. With the

progression of these technologies, companies will

convert themselves into smart enterprises, pur-

suing smart factories and smart management.

As a result, new industries and services such as

smart cars, smart energy, and smart buildings

will all gain ground. This will bring about pro-

found changes in the steel industry by both direct

and indirect means: an indirect impact on steel

demand through steel-consuming industries and

a direct impact on steelmaking pro-

cess. For smart factories, production

costs will be reduced due to increased

work efficiency, reduced waste, and

swifter decision-making.6 In addition,

120

100

80

60

40

20

0

Industrial Production

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

(2010=100)

Steel consumption

35

30

25

20

15

10

5

0

Export/GDP

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

(%)

Steel consumption

Globalization Industrialization

6According to a survey by PwC

in 2016 (cost reduction effects

for five years, 2016-2020), smart

factories contribute to an annual

cost reduction of USD 54 billion.

10 Asian Steel Watch


knowhow for smart factories will become explicit

knowledge.

These emerging trends will impact the ongo-

ing trends, resulting in a multiplier effect, which

refers to a ripple effect through which changes in

one factor transform another. In this article, two

factors—climate change and the Fourth Indus-

trial Revolution—will be closely intertwined with

ongoing trends and become a driver of change. In

other words, the two emerging trends of concerted

action on global warming and the Fourth Indus-

trial Revolution will have a significant impact on

the future of the ongoing trends of urbanization,

motorization, globalization, and industrialization.

Impact of Megatrends on the Steel Industry

The ongoing and newly emerging trends

will in combination change the landscape of

steel-consuming industries and ultimately impact

the entire steel ecosystem.

Changes in megatrends will influence both

product/investment demand and steel content,

the ‘steel intensity’ in respective industries.

First, in the case of the automotive industry,

global demand for new cars will increase over

the long term apace with widespread motoriza-

tion; however it will not grow to the degree that

might have been expected given the impact of

Figure 3. Emerging Trends Reshaping the Future of the Steel Industry

GLOBAL CLIMATE ACTION

Green ProductionRenewable Energy Disruption

Emission Control196 countries agreedto act on global warming

+2ºC

Smart Factory Smart SCM

Smart EnergySmart Car Smart Building

Smart Management

FOURTH INDUSTRIAL REVOLUTION

Technology Disruption

Smart Enterprise

New Industry / Service3D Printing

Robotics IoT

AI Big Data

Vol.03 June 2017 11


nomic development in emerging countries. The

steel intensity of energy investment will be sus-

tained by rising investment in transmission and

distribution (the sector with high steel intensi-

ty), despite declining investment in energy in-

frastructure (the sector with low steel intensity).

These impacts on product/investment demand

and steel intensity will eventually affect future

steel demand.

As new megatrends develop, there will be a

considerable shift in customer needs for steel

products. In particular, demand is rising for high

strength and toughness, high corrosion resis-

tance, and high performance steels. Under global

climate action the steel industry will continue to

develop energy saving and recycling technologies

and new eco-friendly steelmaking process. The

4th Industrial Revolution will profoundly change

the future of the steel industry. The steel indus-

try will move beyond plant automation, toward

smartization across all process using smart tech-

nologies. Through this smart transformation, the

global steel industry will create new values.

Figure 4. Impact on the Steel Industry

Source: POSCO Research Institute

AUTOMOBILE

SHIPBUILDING

ENERGY

CONSTRUCTION

Demand / Investment

Steel Contents / Intensity

Needs for SteelProducts

ONGOING TRENDS EMERGING TRENDS

Global Climate Action

Fourth Industrial Revolution

Motorization

Globalization

Urbanization

Eco-friendly steelmaking process Smart factory management

High strength & toughness High corrosion resistance High performance

Automobile Shipbuilding Energy Construction

Industrialization

STEEL PRODUCTION PROCESS

STEEL PRODUCTS

STEEL DEMAND

autonomous driving technologies and the rise of

the sharing economy. Steel content per vehicle

is expected to decline as automobile materials

become lighter and stronger owing to stricter

fuel efficiency standards, electrification, and

safety concerns. Second, in the shipbuilding

industry, the current oversupply situation will

run its course until 2025. However, the ship-

building market will grow after this point due to

the expansion of global trade and rising demand

for vessel replacement. Steel intensity by ship’s

tonnage will fall continuously as vessels become

larger and lighter, and it will further decline with

the rise of electric propulsion and unmanned

and autonomous ships. Third, the trend of ur-

banization will cause global construction invest-

ment to rise continuously over the long term.

However, the steel intensity of construction in-

vestment will continue to decline given that for

smart and green cities software requires greater

investment than steel. Fourth, in the energy

industry, global energy investment will continue

to increase thanks to rising populations and eco-


Understanding the New Mobility Paradigm

Park Hyung-keun Principal Researcher, POSCO Research [email protected]

The evolution of the car industryBased on its appearance, the Consumer Electronics

Show (CES) held in January of 2017 might have

been described as a ‘Car Electronics Show.’ Starting

out 50 years ago as an electronics show for display-

ing home appliances, the CES has emerged as ma-

jor arena for IT competition. Recently, however, it

seems to be evolving into an automotive showcase.

The Detroit auto show (NAIAS), once the mecca of

the automobile world, was held in the same month

but seems to have lost its sparkle compared to the

CES. In April 2017, Tesla, the definitive maker of

electric vehicles (EVs), overtook Ford and GM in

terms of market cap to further undermine the po-

sition of the Motor City. It is fair to state that the

center of attention in the automotive industry has

shifted from Detroit to Silicon Valley as IT com-

panies such as Google spin-off Waymo, graphics

processing units maker Nvidia, and microproces-

sor fabricator Intel are actively working to develop

autonomous driving technologies.

The popularization of cars began in the 1920s

when the Ford Model T first hit the road. The au-

tomobile market of the time was so lopsided that

carmakers were able to offer customers only a

single color option (black). Today this unbalanced

consumption structure has shifted to a more

customer-oriented market in which car buyers

can choose from a vast range of brands, dozens

of models, and thousands of options. The auto-

mobile industry must manage further innovation

through the rise of new mobility services. Such

mobility services allow the production of a car

customized to a single individual, and can even

blur the lines between what is shared and what

is owned. Driving the fundamental changes in

this industrial structure is the exponential ad-

vancement of technologies such as AI, Big Data,

IoT, and 3D printing that together comprise the

Fourth Industrial Revolution. These deep changes

are most evident in the automotive industry.

The rise of electric vehiclesTesla was the first company to begin pulling down


Vol.03 June 2017 13


the entry barriers into the traditional automotive

industry. When others were still doubtful as to

whether EVs could gain ground in the market,

Tesla was releasing electric luxury cars with sleek

designs and elevated performance comparable to

sports cars: Model S sedans and Model X sport

utility vehicles. The company is now heading

toward the 200,000 sales milestone.1 Tesla deliv-

ered 25,000 cars in the first quarter of 2017 alone

and plans to release the more affordable Model

3 in July of this year. Tesla is now surely on a par

with traditional automakers in many regards.

The Renault-Nissan Alliance, although further

from the spotlight than Tesla, had sold a total of

425,000 EVs worldwide by 2016, contributing

greatly to the popularization of the category. The

company is taking steps to appeal to a broader

audience with a wide range of lineups, including

the Nissan Leaf (which has topped 250,000 in to-

tal sales), Renault Zoe, and Mitsubishi Outland-

er.2 Moreover, China is also gearing up for the

EV competition. Backed by robust support from

the Chinese government, more than 350,000 EVs

were sold in China last year alone, roughly half

of the global total. With this fast-growing trend,

global plug-in vehicle sales reached 773,600 units

in 2016, 42% above the total for 2015.3 Although

EVs currently account for less than 1% of the

overall market, they should become as competi-

tive as internal combustion engine (ICE) vehicles

by around 2020, and will be increasingly pre-

ferred by customers.

The success of Tesla has awoken traditional

carmakers. Major global automobile companies

are rushing to develop their own EVs. As the

first among the major players, GM has rolled

out an affordable, second-generation

all-electric vehicle, the Chevrolet Bolt.

It has doubled the battery capacity

of the first-generation plug-in hybrid

Volt and achieved a range of 380 km

on a single charge. By solving the most

significant barrier, it has significantly

improved driver convenience. The USD

30,000 price tag after subsidies is also

competitive compared to ICE vehicles.

Figure 1. Plug-in Electric Vehicle Sales Trend Figure 2. Plug-in Sales and Growth Rate

Source: EV-Volumes Source: EV-Volumes

China

Global annual PEV sales

Growth rate 162% 57% 53% 68% 42%

PEV share

2010 2011 2012 2013 2014 2015 2016

0.01%0.07%

0.17%0.25%

0.38%

0.62%

0.86%

134211

325

546

774

(1,000 units) (1,000 units)

Japan

Europe

USA

Other

2016 2015

0 50 100 150 200 250 300 350 400

351

221

157

196

115

20

22

22

25

190+85%

-11%

+13%

+36%

+11%

1“Tesla Beats Estimate With

25,000 Deliveries as Model 3

Nears”, Bloomberg, April 3, 2017

2“Renault-Nissan maintains

dominance in global electric car

market”, driveEV.net,

February 8, 2017

3“Global Plug-in Sales for 2016”,

EV-Volumes.com



This price competitiveness can be at-

tributed to the rapid decline in battery

costs: The average battery pack has

fallen in cost from over USD 1,000/

kWh in 2010 to USD 273/kWh in 2016. By 2030,

it is expected to drop below USD 100/kWh. This

means that EVs capable of surpassing 300 km on

a single charge could possibly be produced for less

than ICE vehicles. The effect of the widespread

acceptance of EVs is clearly evident in Norway.

Thanks to tax incentives, EVs there have reached

at a price point similar to ICE vehicles, and their

market share has surged dramatically from 1.4%

in 2011 to 29% in 2016. Assuming charging in-

frastructure is available, the global EV market

should expand rapidly. Bloomberg New Energy

Finance forecasts that the market share of plug-

in EVs will top 35% by 2040.4

One step closer to the age of robotic vehiclesDriverless cars were once a subject of science

fiction, but today they have already hit the road.

High-end luxury brands such as Mercedes-Benz,

Audi, and Hyundai Genesis EQ900 come

equipped with Advanced Driver Assistance Sys-

tems (ADAS), such as Adaptive Cruise Control

(ACC) which automatically adjusts vehicle speed

to help maintain a safe distance from vehicles

ahead, and a Lane Keeping Assist System (LKAS)

which prevents motorists from drifting out of a

lane. Some countries are attempting to legalize

Auto Emergency Braking (AEB) to combat colli-

sions on the roads. This kind of driver assistance

is classified as Level 1 or 2 driving automation for

on-road vehicles. The development of automated

driving systems is currently underway, spanning

from Level 3 (conditional automation) to Level 5

(full automation). Waymo’s fleet of autonomous

vehicles (AVs) has logged more than three million

miles on public roads since 2008. Tesla is outper-

forming other companies by producing automat-

ed vehicles equipped with its Level 2 Autopilot.

In 2016, Tesla announced that all of its cars will

feature the autonomous driving hardware neces-

sary for full Level 5 autonomy.5

Figure 3. EV Battery Pack Price Trend

Source: Bloomberg New Energy Finance Summit, April 25, 2017

2010 2011 2012 2013 2014 2015 2016

1,000

800

642599

540

350273

4“Bloomberg New Energy

Finance Summit”, M. Liebreich,

BNEF, April 25, 2017

Figure 4. EV Sales Forecast by Region

Source: Bloomberg New Energy Finance

2010 2018 2020 2022 2024 2026 2028 2030

5

0

10

15

20

25

(million units)

Rest of the world

Japan

China

USA

Europe

EV penetrationby 2040

35~47% of new cars

(USD/kWh)

Vol.03 June 2017 15

Table 1. Automated Driving Level Definitions

The automobile industry is expected to reach

Level 5 autonomy by around 2020. To this end,

the cost of expensive components must first be

reduced. High-speed computers for processing

autonomous driving are priced at minimum over

USD 10,000. Key sensors, such as Light Detection

and Ranging (LiDAR) are also expensive, coming

in at somewhere from thousands to tens of thou-

sands of dollars. There are additional obstacles as

well. Outside of advanced countries, it is difficult

to set up basic infrastructure such as precision

3D mapping and 5G wireless communications

among cars and with road infrastructure. In ad-

dition, lanes should be designated for exclusive

use of AVs during the transition period. Regional

road conditions and driver characteristics should

also be considered. Companies have been pursu-

ing various efforts to overcome these obstacles.

Relatively affordable radar and camera sensors

are being used to reduce AV costs. Companies

are developing autonomous driving technologies

that mimic human driving using deep learning to

allow autonomous driving without 3D mapping

or 5G wireless communications.

Self-driving cars will bring about several posi-

tive effects. First of all, automobile ac-

cidents will be reduced. Nearly 1.3 mil-

lion people die annually in car crashes

around the globe, 95% of which are

caused by human error. Tesla has even

pointed that driving by humans could

be considered reckless behavior in the

Source: SAE International

SAElevel

Name Narrative Definition Steering and Acceleration/Deceleration

Monitoring of Driving Environment

Fallback Performanceof Dynamic Driving Task

System Capability(Driving Modes)

Human driver monitors the driving environment

0No

Automation

Full-time performance by the human driver of all aspects of the dynamic driving task, even when enhanced by warning or intervention systems

Human driver Human driver Human drivern/a

1Driver

Assistance

Driving mode-specific execution by a driver assistance system of either steering or acceleration/deceleration using information about the driving environment and with the expectation that the human driver perform all remaining aspects of the dynamic driving task

Human driverand system

Human driver Human driverSome drivingmodes

2Partial

Automation

Driving mode-specific execution by one or more driver assistance systems of both steering and acceleration/deceleration using information about the driving environment and with the expectation that the human driver perform all remaining aspects of the dynamic driving task

System Human driver Human driverSome drivingmodes

Automated driving system (“system”) monitors the driving environment

3ConditionalAutomation

Driving mode-specific performance by an automated driving system of all aspects of the dynamic driving task with the expectation that the human driver will respond appropriately to a request to intervene

System System Human driverSome drivingmodes

4High

Automation

Driving mode-specific performance by an automated driving system of all aspects of the dynamic driving task, even if a human driver does not respond appropriately to a request to intervene

System System SystemSome drivingmodes

5Full

Automation

Full-time performance by an automated driving system of all aspects of the dynamic driving task under all roadway and environmental conditions that can be managed by a human driver

System System SystemAll drivingmodes


5The US National Highway Traffic

Safety Administration (NHTSA)

has defined five different levels

of autonomous driving. SAE

International identifies six levels

of driving automation from 0 (no

automation) to 5 (full automation).



Figure 5. Autonomous Vehicle Equipment

Decline in AV Costs

near future. For this reason, companies including

Waymo and Ford are even removing the steering

wheel, brake, and accelerator pedals to ensure

fully autonomous driving without human inter-

vention. Self-driving cars are energy-effective and

reduce collisions. They will also benefit those who

are unable to drive a car, including young people,

people with disabilities, and the elderly.

Imagining future mobilityDespite the 130-year history of cars, there is

much room for improvement, particularly in

terms of engine efficiency and utility. In response

to climate change, highly-efficient EVs are be-

coming increasingly widespread and resources are

being used more effectively via car sharing. The

combination of autonomous driving technology

and car sharing will in turn bring about profound

changes. In 2015, the International Transport

Forum (ITF) at the OECD selected Lisbon, Portu-

gal as a case study for a simulation on the effects

of the sharing economy. In a rather aggressive

scenario in which all motorized trips were carried

out by high-capacity autonomous public trans-

portation, 90% of vehicles could be removed

from the streets while delivering nearly the same

level of mobility as before. Although this scenar-

io is based on the premise that all residents use

car sharing and are not reluctant to share a ride

Source: The Boston Consulting Group (BCG)2014 2015 2025 2030

200

50

10 1

Figure 6. Types of Autonomous Vehicles

Family Autonomous Vehicle

Private Self-driving

cars Shared Autonomous Vehicle

Robo-taxi Pooled Shared AV

Self-drivingMini-bus

LiDAR (Key component)GPSpositioning

$80 – $6,000

Ultrasonic sensorsMeasure position of nearby

objects $15 – $20

Odometry sensorsComplement GPS info.

$80 – $120

Central ECUInformation processing & control

50 – 200% of sensor costs

LiDARMonitors surroundings$90 – $8,000

Video cameraVisual monitoring$125 – $200

Radar sensorsMonitor surroundings(pedestrians, roads)$50 – 150

Source: Shutterstock.com Source: Shutterstock.comSource: nuTonomy.com

(USD 1,000)

Vol.03 June 2017 17

with strangers, the effect of even partial sharing

mobility will reduce the need for parking spaces,

which account for about 30% of large cities, and

road networks, thus allowing a more pleasant and

convenient environment for people.6

The Boston Consulting Group (BCG) has

projected that autonomous driving technology

will result in the replacement of conventional

taxis with robo-taxis, and that the cost of a ride

in such a robo-taxi would be lower than that in a

conventional cab.7 Traveling short distances as

part of daily routines for commuting to work or

school, or for shopping would be accomplished by

robo-taxi rather than in privately-owned vehicles.

As most trips are currently taken by one or two

people and autonomous cars require no driver’s

seat, cars in the future can be made smaller. This

explains why Google’s pod and NuTonomy’s ro-

bo-taxi in Singapore are compact cars. Ten-seat

mini-buses would be practical for short-distance

commutes by those who share destinations or

travel routes. If IT technology advances enough

to offer commuters door-to-door service without

causing inconvenience to other commuters, tra-

ditional public transportation can be replaced by

autonomous public transportation.

Attitudes toward car ownership are gradually

shifting as well. Under rapid urbanization, road

networks are becoming increasingly complicat-

ed. With the development of public transpor-

tation and the more widespread use of cars, car

ownership is less considered a status symbol. At

this juncture, the sharing economy is gaining

momentum, giving rise to Uber, a ride-sharing

platform with a nearly USD 66 billion valuation.

Uber plans to provide cheaper rides to more cus-

tomers by taking advantage of self-driving cars.

If autonomous driving technology reduces labor

costs and door-to-door autonomous public trans-

portation is available for the cost of conventional

public transportation, car ownership is certain to

become less meaningful.

Changes in needs, changes in materialsThe sophistication of EVs and autonomous driv-

ing technology and the spread of the sharing

economy will transform automobile demand, and

subsequently the related materials. EVs do not re-

quire as many auto parts as do conventional ICEs.

In particular, metal parts such as powertrain

components—the engine, vehicle intake and ex-

haust system, and transmission—will

be replaced by batteries, motors, and

electronic parts. As cars are made light-

er to improve driving range, alternative

materials such as aluminum and CFRP

are being used in some luxury lineups.


6“Urban Mobility System

Upgrade”, OECD-ITF, April, 2015

7“Revolution in the Driver’s Car

Seat”, Boston Consulting Group,

April 3, 2015

Figure 7. EV Platform


Disappearing Parts Components Electrification New Parts

Electric Pump(HVAC)Drive Motor

High Voltage Components

Electric Steering System

Electric BrakeRegenerative Brake

Intake/ExhaustEngine

Transmission

Axle Fuel Tank

Battery Pack

ICE EV



Self-driving cars will significantly influence auto-

mobile demand. While some controversy exists,

many research outcomes suggest that automobile

demand will decline with the rise of self-driving

cars. If this becomes a reality, the steel industry

will have to withstand a double impact of falling

automobile demand and the threat of alternative

materials.

Global sales of passenger cars will increase

from 89 million units in 2016 to over 100 million

units by 2023. This expansion is mainly the result

of growth in emerging markets, including China

and India. A number of institutions forecast that

if this trend continues, global passenger car sales

will increase to 130 million units by 2035. How-

ever, such forecasts are bound to change with the

significant development of self-driving technology

and the visible effects of sharing mobility. Accord-

ing to results from car sharing enterprises such as

ZipCar and Uber, as well as from the University

of Michigan Transportation Research

Institute (UMTRI) and Barclays, each

shared vehicle is expected to replace

between nine and twenty new cars.8 Assuming

that shared vehicles run more than traditional

vehicles and have a shorter replacement period;

however, POSCO Research Institute projects that

the shorter replacement period will reduce this

only by two to three new car sales. If robo-taxi

and mini-bus fares fall to the level of conventional

public transportation, groups more vulnerable to

transportation exclusion, such as the young and

people with disabilities, will be highly likely to buy

cars and use robo-taxis, leading to an increase in

mobility demand. Therefore, the projected impact

still remains to be seen.

Higher fuel economy standards are being

implemented in the USA and Europe to combat

climate change. A timeline has been created for

reducing CO₂ emissions from the current 140g/

km to about 100g/km within a decade and to

60g/km within two. The USA has prepared well

for fuel economy standards, mainly by the U.S.

Environmental Protection Agency (EPA) under

the Obama administration, setting the Corpo-

rate Average Fuel Economy (CAFE) standards to

Figure 8. Automobile Market Forecast

Impact of New Mobility on Automobile Demand

Source: Modified by POSCO Research Institute (based on IHS Markit data)

2015Production

2035Ongoing trend-based

Scenario

2035New Mobility

Scenario

92

+50 142

21

-26

+11127 2015-2035

CAGR 1.6%1

Car sharing impactFamily-, ride-, car sharing combined with autonomous vehicle effect

3

3

Motorization ofemerging countries

1

Low cost travel, teenagers, elderly(+15% VMT assumed, work on progress)

Increasing mobility 4

4

8“Disruptive Mobility”, Barclays

Capital, July 20, 2015

2 Share of autonomous vehicles

2

(million units)

Vol.03 June 2017 19

improve from the current 34.1 mpg to 54.5 mpg

(miles-per-gallon) by 2025. Despite the unpre-

dictability surrounding potential attempts by the

Trump administration to ease this restriction, it

will be difficult to profoundly change this limit. To

comply with these fuel economy standards, ICEs

must be improved, electrified, and lightened. Ac-

cording to the technical assessment report (TAR)

by the EPA, cars will have to become lighter by

about 10% every decade in order to comply with

the CAFE standards. However, car body strength

and price should not be compromised in order to

satisfy higher safty standards. For these reasons,

steel materials, which account for nearly half of

auto parts, cannot be significantly reduced. The

steel industry is also actively developing lighter

and stronger steel materials such as advanced

high-strength steel (AHSS) to replace traditional

general steel. The industry will be able to main-

tain competitiveness in the future.

Some believe that plastic cars will come to

occupy the roads with the advent of EVs and

self-driving cars. However, the era of plastic cars

still seems to remain in the distant future.9 The

rapidly increasing energy density of EV batteries

(EVBs) will offset the weight of car bodies. EVBs

pose a risk of fire, so they still require strong ma-

terials such as steel. Steel materials are also price

competitive. Therefore, steel remains attractive

for EVs. The same is true for self-driving cars. Al-

though IHS Markit has made a rather aggressive

forecast that self-driving car sales will reach 21

million units per annum by 2035 (about 20% of

total sales), it is estimated that only 8% of cars

on the roads will be self-driving by that year. This

suggests that self-driving cars will share the roads

with human drivers, making it all the more nec-

essary to build cars strong enough to withstand

accidents. This means that steel will remain an

important material for cars. The future of auton-

omous cars is so unpredictable that no institution

has released a forecast with strong conviction.

Close attention must continue to be fo-

cused on the rapidly changing environ-

ment surrounding electric vehicles and

self-driving cars.


Figure 9. Material Composition of a Car and Steel Content Per Vehicle

Source: Compiled by POSCO Research Institute 2015 2025 2035

1,546

1,391-10%

54%

51%49%

18%23% 29%

-10%

-2%

+6%

-3%

+5%

1,252

Curb Weight(kg/vehicle)

Steel Content (%)

Medium&HighStrength Steel (%)

Lightweight materials (AHSS, Al, CFRP)54% (‘15) 51% (‘25) 49% (’35)

Steel Content Reduction

Lighter

Medium & High Strength Steel:18% (‘15) 29% (‘35) of vehicle total

Higher Safety Standards

Stronger

CO² Emission Regulation [g/km]

141 (‘15) 100 (‘25) 60 (’35)10% Weight reduction every 10 years

LowerEmission

9“Autonomous vehicle sales

forecast to reach 21 mil. globally

in 2035”, IHS Markit,

June 6, 2016


Will the Shipbuilding Industry Flourish Again?

Dr. Lee Eun-chang Principal Researcher, POSCO Research [email protected]

Shipbuilding industry is highly influenced by environmental issues and technological advancesThe shipbuilding industry is greatly influenced

by increases in seaborne trade, the lifecycle of

ships, changes in regulations, and advancing

technology. After the first-ever of its kind set sail

in 1956, container ships emerged as a popular

new type of vessel following the recessions of

the 1970s. Undergoing a continuous process of

development, they have become one of the most

important kinds of vessels on today’s oceans.

Thanks to the development of container ships,

a growing need for replacement of ships built

during the 1970s boom, and new regulations

such as double-hull requirements for oil tankers,

the shipbuilding industry underwent an addi-

tional boom in the 2000s. Similarly, advancing

technology and a rapidly shifting

business environment will bring con-

siderable changes to the shipbuilding

industry in the future.

Shipbuilding industry to be recovered in the long term, backed by global economic growthThere has been increasing concern that the world

economy is facing a prolonged period of low

growth following the 2008-09 financial crisis,

influenced by slow growth in advanced countries

and a Chinese economic slowdown. In 2016, Dre-

wry, a British maritime research firm, expressed

concern over a new “new normal” in which sea-

borne trade growth will continue to slow more so

than expected 1 owing to reshoring in advanced

countries and stringent protectionist measures.

However, globalization is certain to gradually ex-

pand over the long term. In consequence, the ex-

port-to-GDP ratio is expected to rise moderately

from 30% in 2015 to 33% by 2035.

The shipbuilding industry boomed in the

2000s, but the boom quickly turned to bust after

the 2008-09 financial crisis, followed by massive

counter-cyclical ordering. From 2008 to 2015, the

shipbuilding industry was in oversupply, with an

average annual new order volume of 77 million

1Rahul Kapoor, “Diminishing

returns?”, TOC Asia Container

Supply Chain Conference,

April 20, 2016.


Vol.03 June 2017 21


GT. This oversupply will linger until 2025, and the

average annual volume of new orders will remain

around 54 million GT over the next ten years. How-

ever, the shipbuilding market will then turn to an

upswing with increasing growing global trade and

rising demand for ship replacement. Shipbuilding

orders will rise to the level of 95 million GT.

Moreover, demand for new and renewable en-

ergy will rise along with environmental issues, and

demand for coal and oil will slow. Environmental

concerns have positive impacts on the shipbuild-

ing industry, such as the rise of CO₂ carriers and

increasing demand for liquefied natural gas (LNG)

carriers, but demand for conventional bulk carri-

ers, such as coal and oil carriers, will potentially

slow. Under such circumstances, demand for gas

tankers and container ships will grow considerably.

Rising demand for eco-friendly shipsIn 2016, the International Maritime Organiza-

tion (IMO) decided to introduce more stringent

SOx emission regulations. Under a new global

cap, ships will be required to use fuel oil with a

sulfur content of no more than 0.5% starting in

2020. Moreover, the IMO Tier III NOx emission

limits took effect in 2016. Under these Tier III

requirements, NOx emission levels for engines

installed on vessels built (keel laying) on or after

January 1, 2016 must be reduced to 3.4g/kWh

if they are to operate in a designated Emission

Control Area (ECA), including the North Amer-

ican Sea Area and United States Caribbean Sea

Area. There is a further regulation that requires

improved operational energy efficiency in order

to reduce CO₂ emissions. If the Energy Efficiency

Design Index (EEDI) is further strengthened, a

20-30% reduction of CO₂ emissions will be man-

dated by 2020-2030.

A wide range of technologies are being ad-

opted to meet emissions regulations. More

expensive low-sulfur fuel oil can be used, or

engine scrubbers can be installed to reduce SOx

emissions. Selective catalyst reduction (SCR) or

exhaust gas recirculation (EGR) technologies are

options that reduce the level of NOx. To lower

both SOx and NOx emissions, ships can use more

eco-friendly fuels such as LNG, methanol, and

biodiesel. In the distant future, ships will utilize

electric batteries or hydrogen fuel cells just as

electric cars do today. Moving away from a heavy

fuel oil (HFO) environment, ships will enjoy

more technological options in a new era, such as

installing ancillary devices for fuels or replacing

conventional fuels with new alternatives.

Figure 1. Growing Global Trade

Global GDP(USD trillions)

2015 2035

Export(% of GDP)

Source: IHS Market, Roland Berger Trend Compendium, WTO

75.2 130.8

30% 33%



Which options will be preferred depends on

fuel costs, installation and repair costs for facilities

or equipment, areas of operation, and bunkering

infrastructure for fuels. Although LNG-fueled

ships are currently regarded as a positive solu-

tion, a number of considerations should be kept

in mind. LNG-fueled ships require larger fuel

tanks than do HFO-fueled ships. Furthermore,

additional bunkering is required for long-distance

round-trips. Ship owners prefer round-trips to be

fully fueled since LNG prices vary by region. Fuel

tanks large enough for round-trips would require

considerable investment due to their expense and

the reduction in shipping capacity re-

sulting from their space demands. To

address these concerns, ships require

a totally new type of design. In the de-

signs of the PERFECt (Piston Engine

Room Free Efficient Containership)

project,2 an LNG-fueled ship runs on

an electric motor instead of a main

engine. Hyundai Heavy Industries and

GE Marine have developed a design for

a gas turbine-powered LNG carrier equipped with

GE’s COGES (Combined Gas turbine, Electric and

Steam) system,3 which is much lighter and more

efficient than conventional engines. These exam-

ples indicate how a range of technologies will bring

about differentiated and innovative types of ships.

The more technologies that are available for

adoption, the higher the related uncertainty be-

comes. In order to reduce this uncertainty, all

possible technologies should be developed and

examined. Green Ship of the Future, a Danish

public-private partnership, is evaluating various

technological alternatives for addressing environ-

mental concerns and continuously conducts prac-

tical verification: retrofitting with an SCR or scrub-

ber system and the economic feasibility of retrofit

conversion to LNG propulsion.4 New technologies

can be more short-lived than the ships themselves

with their life-cycle of more than 20 years. There-

fore, ships should be equipped with more creative

designs to allow easier conversion or application

of various technologies. Consortiums or groups

pursuing technological innovation will play a more

Figure 2. Global Shipbuilding Demand

Source: POSCO Research Institute based on Clarkson data Source: Clarkson, POSCO Research Institute

Image credit: Wikimedia commons

77.0

54.2

95.2

'08–‘15 '16–‘25 '26–‘35

(mil. GT, Annual Average)

(mil. GT, Annual Average)

34.5

27.7

17.0

19.6

4.7

12.2

12.7

25.4

8.1

10.4

‘08–‘15 ‘16–‘25 ‘26–‘35

Declining coal demand

Slowing oil demand growth

Fast growing gas demand

Growing world trade

Others(Leisure ships, etc)

Bulker

Tanker

Gas carrier

Others

Containership

2Gerd Würsig, “PERFECt–LNG

feasibility study for a Piston

Engine Room Free Efficient

Containership”, DNV-GL,

October 27, 2015

3Marine Insight,

July 16, 2015

4http://greenship.org/major-

studies/

Vol.03 June 2017 23

Existing, IMOEU Sulphur DirectiveExisting, regionalPossible future

important role in developing leading prospective

technologies and debating technology standards.

Just like what currently takes place in the ICT

industry, traditional industries will be required to

more actively discuss pertinent standards.

In addition, global warming will create an ad-

ditional impact. The potential for using the North

Pole route (NPR) is rising. The IMO Polar Code,

which is a mandatory code for ships operating

in polar waters, took effect on January 1, 2017.

The NPR reduces the travel distance from Busan

to Rotterdam by 32% (22,000 km 15,000 km)

compared to the conventional Suez Canal route,

and cuts the travel time by up to 10 days (40 days

30 days).5 As a result, more ships will travel via

the North Pole route, but the total capacity of the

global fleet will fall.

Changes brought about by new technologies Competition is consistently intensifying in the

shipping market. Shipping companies will contin-

ue to seek economies of scale as a response to this

increasing competition, and ships will subsequent-

ly become larger. There are limitations on the

improvement of efficiency simply by scaling up

the size of ships, so efficiency will have to be im-

proved through the integration or optimization of

value chains. Moreover, the world’s leading ports,

including Rotterdam in the Netherlands, Copen-

hagen in Denmark, and Hamburg in Germany, are

attempting optimizations that would allow the en-

trance of ultra-large container ships and improve

the efficiency of loading and discharging.

Such efforts do not end here. The Port of Rot-

terdam Authority has joined forces with Delft

University of Technology to launch a Port Inno-

vation Lab intended to discover new technologies

and value for the maritime industry. Key enablers

of the Fourth Industrial Revolution are being

adopted in the shipbuilding and shipping indus-

tries. Preventive maintenance is already available,

such as collecting operational data via

sensors embedded in ships and moni-

toring the data via satellite communi-

cations at onshore control centers. This

Figure 3. Sulfur Emission Control Area

Source: The International Council on Clean Transportation (ICCT)

5Press release of the Ministry of

Oceans and Fisheries, “MOF

implements Polar Code this

year,” January 2, 2017




enables ship owners to improve ships’ operation

rates and conduct real-time asset and shipment

management.

Just like self-driving cars, remotely controlled

or fully autonomous ships will become available in

the future. Such autonomous ships can improve

operational efficiency by ensuring optimal opera-

tion routes based on real-time weather and mari-

time conditions. Above all, the issue of crew short-

ages will be offset, leading to a decline

in the labor costs that currently account

for the lion’s share of total operation

costs. Crews today must face difficulties

living on board for long periods, but

working conditions will be significantly

improved in the future when fleets are

managed from onshore control centers.

These changes are not limited to the

crews on board. The designs of ships

will fully evolve. With no crew to ac-

commodate, the deckhouse and safety

design can be eliminated, allowing fu-

ture ships to be designed with a larger

cargo capacity.

In 2016, Rolls-Royce released a plan to devel-

op an autonomous unmanned ocean-going ship

by 2035.6 DNV-GL is developing an autonomous

and fully battery-powered vessel, named ReVolt.7

Shipbuilding companies in former shipbuilding

powerhouses such as certain European countries

and the USA can increase their prominence by

improving their competitiveness using advanced

technology. They will be able to raise value added

through the development of key technologies for

remotely controlled and unmanned ships, auton-

omous ships, and remote management. Korea

is working to escalate the competitiveness of its

shipbuilding and maritime industries through

ICT convergence.8 As existing shipbuilding giants

prepare for a new era of change, competition will

grow even more intense in the future.

Emerging technology will not only change

ships. Shipyards will transform themselves into

smart yards in order to improve productivity and

safety. It will become more difficult to increase

productivity through new technologies such as

6Rolls-Royce, “Autonomous ships

The next step”, 2016 (http://

www.rolls-royce.com/~/media/

Files/R/Rolls-Royce/documents/

customers/marine/ship-intel/rr-

ship-intel-aawa-8pg.pdf)

7https://www.dnvgl.com/

technology-innovation/revolt/

8Press release of the Ministry of

Science, ICT and Future Planning,

“ICT Convergence to Increase

Competitiveness and Take a Leap

Second for the Shipbuilding and

Maritime Industries,”

December 6, 2016

Figure 4. North Pole Route (NPR)

Source: visualcapitalist.com

Vol.03 June 2017 25

a mega-block construction method. However,

virtual reality and augmented reality (VR/AR)

will improve efficiency at work, and virtual 3D

engineering technology will reduce design errors.

Workers will be able to operate in a safer work

environment using smart helmets. Difficult man-

ual jobs that require high levels of concentration,

such as welding, painting, and grinding, will be

gradually taken over by robots, leading to an im-

provement in productivity and quality at work.

Qualitative changes in steel products and falling steel intensityWith the development of ultra-large container

ships, LNG-fueled ships, electric ships, CO₂ car-

riers, polar ships, and environmentally–friendly

equipment, the shipbuilding industry needs

immediate qualitative changes. High-strength

steel is a must for ultra-large and lighter ships,

and high-strength low-alloy steel, such as POS-

CO’s high-manganese steel, is required for safe

and affordable LNG and CO₂ storage tanks.

High-efficiency electrical steel sheets for electric

propulsion motors will be required rather than

forged and cast steel for massive main engines.

Demand for low-temperature toughness steel

will rise for polar operations. There will also be a

demand for steel materials for various environ-

mentally-friendly equipment and devices.

Such qualitative changes will influence steel

intensity. As vessels become larger and lighter,

the steel intensity of ship’s tonnage will fall con-

tinuously, and then decline even further follow-

ing the rise of electric propulsion, unmanned,

and autonomous ships. Larger and lighter vessels

will reduce steel intensity by 6% by 2035. If large

diesel engines are replaced by electric motors

after 2025, the weight of engines will be signifi-

cantly reduced. No deckhouse is necessary for

unmanned ships. With these, steel intensity will

decline further by around 4%.

With the advent of the world’s largest ship,

the Mearsk Triple-E9 container ship, 20,000 TEU-

class container ships have been booming. Since

then, related shipbuilders and steel companies

have been leading the ultra-large container ship

market. As more technologies are available to

choose from, investment decisions are inevitably

delayed. However, once the validity of a certain

technology is established, it will soon come to

lead the market. Shipbuilders and steel compa-

nies able to support various types of ships and

technologies will enjoy considerable benefits in

the future. Therefore, the steel industry should

devise various solutions in partnership

with the shipbuilding, shipping, and

marine equipment industries.

9http://www.maersk.com/en/

hardware/triple-e

Figure 5. Steel Intensity of Ship’s Tonnage

Larger & lighter (Ongoing trend)

Change of propulsion system & deckhouse design, etc. (New trend)

2015 2025 2035

100

97

90

94

Source: POSCO Research InstituteNote: Steel intensity = Steel demand for shipbuilding/gross tonnage (GT)

[2015 = 100]



Eyes on Energy Transition

Park Hyung-keun Principal Researcher, POSCO Research [email protected]

Global climate actionThe year 2016 was the hottest ever recorded

in the history of meteorological measurement,

but 2017 is already poised to break its record. It

seems that it will be difficult to combat climate

change without a concerted global response. At

the COP21, held in Paris in 2015, 196 Parties

agreed to work together to hold the increase in

global average temperature to below two degrees

Celsius above pre-industrial levels or even to

limit the rise to 1.5 degrees Celsius. Well aware

of the potential severity of the impact of climate

change, many countries across the globe are

already reducing their coal use and sparing no

efforts in providing policy support to new and

renewable energy and to electric vehicles (EVs).

These multi-year efforts have already started to

pay off: global CO₂ emissions have fallen since

2014. However, it is still far short of what will be

required in order to reach the two-degree target.

The International Energy Agency (IEA)

forecasts an average global temperate

increase of around 2.7 degrees Celsius by 2100,

even with the implementation of existing global

energy policies. Despite these concerns, global

population growth and economic development

are expected to drive energy consumption up.

Even still, about 1.2 billion people will have no

access to electricity in 2040. Today, humanity is

caught in the dilemma of attempting to pursue

both economic development and environmental

protection.1

1World Energy Outlook 2016, IEA

Figure 1. Global Land-Ocean Temperature Index

Source: NASA's Goddard Institute for Space Studies (GISS). Credit: NASA/GISS

1880 1900 1920 1940 1960 1980 2000 2020

774

1.0

0.5

0.0

-0.5Tem

pera

tue

anom

aly(

c)


Vol.03 June 2017 27

Peak oil demand still under debateIn October 2016, Fitch Ratings released a rather

shocking report warning that EVs could send

big oil companies into an “investor death spi-

ral.” Soon thereafter global oil giants including

ExxonMobil, Royal Dutch Shell, and Total also

published sobering projections that oil demand

would peak by around 2020. Coal, the classic

fossil fuel energy source, provides a related exam-

ple of what could happen. The bankruptcy of the

largest coal mining enterprise, Peabody Energy,

has convinced many investors that the coal in-

dustry is in a death spiral and is expected to reach

peak demand by around 2020.2 In contrast, the

natural gas market seems to be growing thanks

to the development of shale gas and its replace-

ment of coal. Opinions are mixed regarding peak

oil demand. Some institutions are expressing

a strong sense of urgency, as described earlier,

while other long-term energy forecasters includ-

ing BP and the International Energy Agency (IEA)

expect that fossil fuels will still dominate through

2035-2040. In 2016, the IEA, in its New Policies

Scenario (the central scenario), predicted that

energy consumption will rise by 30% by 2040

compared to 2014, while the share of fossil fuels

within primary energy consumption will fall from

81% to 74% over this span. Despite this decline,

fossil fuels will expand in terms of quantity of

consumption, and will continue to play a dom-

inant role in the energy sector. However, these

forecasts could be quickly turned on their head

if a sudden transition were to occur, impacted by

such variables as the rapid distribution of renew-

able energy, widespread use of EVs, and a fall in

energy demand driven by increased efficiency.

Not “alternative,” but “mainstream” energyThe atmospheric concentration of car-

bon dioxide should be maintained at

450 ppm to meet the two-degree Cel-

sius target. This would allow the per-

missible carbon budget3 to increase to

2Oil Groups ‘Threatened’ by

Electric Cars, Financial Times,

October 19, 2016

3The sum of all exchanges

(inflows and outflows) of carbon

compounds between the earth’s

carbon reservoirs (such as land

mass and the atmosphere) in the

carbon cycle.

(Source: Business Dictionary)


Figure 2. Primary Energy Demand by Fuel Type

Source: World Energy Outlook 2016, IEA

2014 2025 2035

13,634

81% 78%75%

15,34117,057

29% 26% 24%

28%

24%

6%

18%

30%

22%

6%

16%

31%

21%

5%14%

Renewables

Nuclear

Gas

Oil

Coal

Fossil Fuel

[Mtoe]



about 800 gigatonnes of CO₂ (GtCO₂). According

to the trend in the global carbon dioxide budget

over the last decade, CO₂ fluxes from fossil fuel

and industry emissions stand at 34.1 GtCO₂/yr,

and those from land-use change emissions at 3.5

GtCO₂/yr, while CO₂ absorption from land sink

is 11.5 GtCO₂/yr and that from ocean sink is 9.7

GtCO₂/yr. This means a 16.4 GtCO₂ annual in-

crease in CO₂ emissions. Although it is assumed

that this trend will continue, the two-degree tar-

get for 2100 cannot be achieved within 50 years.

The earth will evade a disaster only if it reaches

“carbon-neutral” (or 100% carbon reduction) by

2060.

As a response to global warming, renewable

energy is increasingly being preferred.

Wind power generated 140% of Den-

mark’s electricity demand in 2015,

and Germany broke a daily record for

renewable energy by generating 85%

of its power from renewable sources

in April 2017. In the same month, the

United Kingdom, the birthplace of

the Industrial Revolution, generated a full day’s

electricity without coal. Global renewable energy

capacity, mainly wind and solar power, increased

from 20 GW in 2004 to 88 GW in 2010 and

reached as far as 160 GW in 2016. Investment

in renewable energy capacity, excluding large

hydropower, has stood at twice that of fossil fuel

generation over the last five years. The IEA has

predicted that the share of renewables within

global power generation is expected to rise from

23% in 2014 to 37% by 2040. It is fair to say

that renewable energy is no longer “alternative”

energy but in fact has entered the energy “main-

stream.” This trend can be attributed to the rapid

decline in renewable energy technology costs.

The levelized cost of energy (LCOE)4 of solar pho-

tovoltaic (PV) exceeded USD 100/kWh in 1980,

but plunged to less than 3 cents/kWh in 2016

(Fotowatio Renewable Ventures, Mexico). In ad-

dition, the LCOE of onshore wind also reached

three US cents per kilowatt hour in 2016 (Enel

Green Power, Morocco) and that of offshore

wind recorded 5.3 cents/kWh in 2015 (Vattenfall,

4The levelized cost of energy

(LCOE) refers to a measure for

calculating the lifetime total cost

of an energy source. It includes

initial capital and the discount

rate, as well as the costs of

continuous operation, fuel,

maintenance and scrap

(Source: Wikipedia)

Figure 3. Atmospheric CO² Balance and Historic Concentration Level

1880 1900 1920 1940 1960 1980 2000 2015

40

30

20

10

0

-10

-20

-30

-40

CO

2 flux

(Gt C

O2 /y

r)

Fossil fuelsand industry

Land-use changeLand sink

Atmosphere

Ocean sink

Fossil fuels&Industry

34.1 ± 1.7

Geologicalreservoirs

Atmosphericgrowth

16.4 ± 0.4

Land-usechange

3.5 ± 1.8

Land sink11.5 ± 3.1

Ocean sink9.7 ± 1.8

Source: Global Carbon Project

(2006-2015)

Vol.03 June 2017 29

Denmark). This means that renewable energy

has achieved grid parity, the point at which the

cost of alternative energy becomes equal to or

less than electricity from conventional energy

without subsidies.5

Oil market reaching a new balanceInfluenced by the shale oil revolution, oil prices

have spiraled down due to energy hegemony

competition, unstable political conditions in

the Middle East, and economic slowdowns, but

they seemed to pick up recently thanks to last

year’s OPEC agreement to cut oil production.

However, the boom soon returned to bust as

U.S. shale-oil enterprises rapidly increased pro-

duction following the rise of oil to above USD

50/barrel. Currently, OPEC members, including

Iran, are poised to extend production cuts in

order to support a market recovery. The IEA

has predicted that global oil supply could lag

demand after 2020 due to stalled investment

in oil production over the last few years. On the

other hand, some view this era of low oil prices

as the new balance in the midst of a slow global

economic recovery and slack demand stemming

from increased energy efficiency, enhanced fuel

economy, and the widespread use of EVs. In the

past, oil prices were determined by shifting po-

litical circumstances in oil-producing countries,

but today shale oil production buffers prices as

U.S. companies are able to rapidly increase pro-

duction in response to any oil price in-

crease. Although many uncertainties

have disappeared, the oil market can

still swing at any time given its com-

5“Bloomberg New Energy Finance

Summit”, M. Liebreich, BNEF,

April 25, 2017


Figure 4. Electricity Generation by Fuel Type

Source: World Energy Outlook 2016, IEA

[TWh]

Renewables

Nuclear

Gas

Oil

Coal

Fossil Fuel

Total electricity

2014 2025 2035

68%

11%17%

60% 56%

12%

17%5%

12%

17%

23,226

28,537

34,353

23%

30%

35%

1%3%3%

3%7%4%

10%5%

Figure 5. Non-conventional Energy Resources and Oil Price Balance

Source: Rystad Energy Cost Curve, April 2016

Energy Source Diversification

Non-conventional

ShaleOil

DeepWater

OilSands

Oil Price Balance

Deep-water

Producing Fields(Geopolitical Uncertainty)

30 USD/bbl

Shale Oil Oil Sands

Steel companies must target new markets by

developing innovative steel products for the

micro-grids and energy storage systems which

will grow alongside renewable energy.



plex nature. Furthermore, oil prices are a key

factor for determining the scale of investment

in fossil fuels and have a profound impact on the

automotive market, such as the distribution of

renewable energy and the popularity of SUVs.

Therefore, a careful watch must be kept on fluc-

tuations in oil prices.

Energy investment and steel productsAs seen in Figure 6, energy investment is mainly

made in two sectors: the fossil fuel sector, in-

cluding exploration and production (E&P), trans-

portation, storage, refining, and petrochemical

production; and the power sector that

generates electricity based on coal,

gas, nuclear, and renewable sources.

According to the IEA, cumulative global energy

investment is expected to reach USD 43.6 trillion

during the 2016-2040 period, USD 23.9 trillion

of which will be dedicated to the fossil fuel sector,

and the remaining USD 19.7 trillion to the pow-

er sector. In detail, electricity transmission and

distribution (T&D) takes up the lion’s share (USD

8.1 trillion) of energy investment in the power

sector, half of which is occurring in China due

to its vast land area and continuous demand for

development. As T&D includes renewable energy

grids and energy storage systems, investment

in this category is expected to make up an even

more meaningful share in the future. Renewables

investment in the power sector is projected to

reach USD 7.5 trillion, twice the USD 2.7 trillion

investment in fossil fuel.6

6“World Energy Outlook 2016”,

IEA

Figure 6. Cumulative Energy Investment 2016-2040

[USD trillions]Drilling Rig

Platform

Transportation

Storage

Refining

• Tower• Blades• Rotor

Wind Towers

2016-2040Expected NewPower Capacity2,808 GW

• Frames• Stainless• Backsheet

Solar Panels

• Tower• Structure• Cables

T&D

68%

Other renewables

Wind

Solar PV

Hydro

Nuclear

Fossil Fuel

2.71.4

7.5

8.1

23.9

Source: World Energy Outlook 2016

Fossil fuels (primary)

Fossil fuels (power)

Nuclear

Renewable

T&D

2.71.4

7.5

8.1

23.9

Pipes

Tubing

Casing

Plates

Vessels

Cables

Fossil Fuel Market Power Generation Market

165

649

692

400

127

775

Vol.03 June 2017 31

In the fossil fuel sector, a wide range of steel

products such as pipes, tubes, plates and cables

are used for transportation, including for drilling

rigs, offshore platforms, and LNG ships, as well

as for storage and refining facilities. An offshore

platform has a topside weight of over 20,000 tons

and deep-sea platforms reach a depth greater

than 2,000 meters. To meet the harsh conditions

they must withstand, steel materials for offshore

platforms have developed in terms of both qual-

ity and quantity. The renewable energy sector is

also adopting various types of steel products. The

tube tower, which accounts for 65% of the weight

of a wind turbine, is made mainly of steel, while

thin stainless steel sheets and frames are required

for solar panels. This wide application of steel

products offers additional business opportunities

to steel companies. The T&D sector, including

high-voltage transmission towers, is also tradi-

tionally steel intensive. Steel companies must tar-

get new markets by developing innovative steel

products for the micro-grids and energy storage

systems which will grow alongside renewable en-

ergy.


Table 1. Application of Steel Products for the Development and Production System of Sub-sea Wells for Oil and Gas

Figure 7. Schematic Drawing of Jack-up Rig and Steel Products

Source: Steel Products for Energy Industries, JFE Technical Report, Mar. 2013 Source: Steel Products for Energy Industries, JFE Technical Report, Mar. 2013

Sea surface

Sea bottom

Casing

Drill pipe

Riser pipe

Marine structualmaterials

Drilling RigProcess Equipment/Plant Steel product used

Development Drilling rig Drill pipe Casing, Riser pipe High tensile strength steelplates(Marine structures)

Extraction/Production

Platform Tubing, Casing,Linepipe(Flow lines, Gathering lines)

High tensile strength steel plates(Marine structures)

Transportation Marine transportation Oil tanker Liquefied natural gas(LNG) carrier

Steel products for shipbuilding, Corrosion resistant materials for shipbuilding

Pipeline LinepipePlates for linepipe

Storage Oil tankGas holder

High tensile strength steel plates

Refining Plant Plant pipingHeating furnace piping

Special tubes(Cr-Mo Steel)

Pressure vessel High tensile strength steel platesClad steel plates

Power generation

Superheater piping Special tubes(Cr-Mo Steel)


Future Cities and Changes in Steel Materials

Kim Hoon-sang Senior Principal Researcher, POSCO Research [email protected]

Urbanization, the key driver for the construction industryThe megatrend of urbanization is a key driver

in the development of the global construction

industry. The global proportion of the urban

population increased from a mere 29% in 1950

to surpass that of the rural population in 2007.

By 2050, about 9.5 billion people, or 66% of the

global population, is expected to reside in urban

areas. This means that the number of urban

dwellers will increase by an annual average of 100

million people. Urbanization will further acceler-

ate in the future with rapid industrialization in

developing countries and the shift to a knowledge

economy in advanced countries.

Urbanization aggravates existing urban con-

cerns such as housing, transportation, water

supply and sewage, and electricity provision,

which in turn stimulates investment in con-

struction. Global construction investment stood

at roughly USD 9 trillion in 2015, but is expected

to increase by a CAGR of 2% to USD 13.4 trillion

by 2035. Notably, growth in global construc-


Figure 1. Global Urban and Rural Population

Source: World Urbanization Prospects, United Nations, 2014

1950

1960

1970

1980

1990

2000

2010

2020

2030

2040

2050

7,000

6,000

5,000

4,000

3,000

2,000

1,000

0

(million people) Urban Rural(USD trillions)

Figure 2. Global Construction Investment

1995 2015 2035

2.4 3.3 4.7

4.7

3.0

2.9

2.0

1.81.30.5

6.0

9.0

13.4Plant

Commercial

Infra

Residential

2.6%

1.0%

2.2%

2.4%

1.8%

2.0%

2.5%

1.6%

0.8

1.02.0%

2.0%

Source: POSCO Research Institute based on IHS Markit

Vol.03 June 2017 33

tion investment will vary by sector: investment

in residential, commercial, and infrastructure

construction will soar, while plant construction

investment will lag historical performance, fol-

lowing a shift of focus to new and renewable

energy in response to global warming and envi-

ronmental pollution.

Emerging urban trends—megacities, green cities, and smart citiesWithin the overall shift toward urbanization,

megacities, green cities, and smart cities are

emerging as new trends. In the future, there will

be an increasing number of megacities with 10

million or more inhabitants, smart cities drawing

on the Fourth Industrial Revolution, and green

cities that consume fewer resources and recycle

more.

1 Megacities—Rising higher and furtherThe number of megacities with populations of

more than 10 million is expected to increase by

32.3% from 31 in 2016 to 41 by 2030. Likewise,

the number of cities with more than 500,000

poeple will increase by 31% from 1,063 in 2016

to 1,393 by 2030, according to the World's Cities

in 2016, United Nations.

As the competition paradigm shifts from com-

petition among countries to competition among

cities, many countries are actively crafting poli-

cies to develop their cities as globally competitive

megacities. In April 2016, Saudi Arabia formu-

lated its Long-term Strategy 2030 (Vision 2030)

and released related five-year action plans. Under

this Vision 2030, Saudi Arabia plans to have three

of its cities recognized among the top-ranked 100

cities in the world.1

The rise of megacities through competition

among cities is well reflected in the construction

of landmark skyscrapers. The number

of supertall buildings over 300 meters

tall2 doubled between 2012 and 2016.

Currently, 100 supertall buildings are

under construction around the world.

This figure is expected to double to 200

Figure 3. The Rise of New Urban Trends

Four billion people among the world’s population of 7.3 bil. live in cities (’15)

Smart & Green Cities

IoT connected infrastructure,

Recycle, Reuse

UrbanizationGrowing Cities

Commercial, Infrastructure etc.

Mega CitiesLarge Structures

Buildings & Bridges


1http://www.vision2030.gov.sa/en

2According to the Council on Tall

Buildings and Urban Habitat,

supertall buildings are defined as

buildings of 300 meters or higher.



by 2020.

As of 2017, the world’s tallest building is the

Burj Khalifa in the UAE at 828 meters height and

163 stories. This structure was designed to be the

centerpiece of a large-scale, mixed-used develop-

ment that includes apartments, hotels, offices,

department stores, and shopping centers.

In addition to land use efficiency, global

warming is accelerating the demand for skyscrap-

er construction. Experts warn that if sea levels

rise by just one meter, many major low-lying

coastal cities including Shanghai and Tokyo could

be submerged, suggesting supertalls as a poten-

tial response. The Sky Mile Tower, which has been

proposed for the Tokyo of the future, could reach

as high as 1,700 meters, or twice the height of the

Burj Khalifa. This mega-tall building scheduled to

be constructed by 2045 is viewed as a response

to rising sea levels. It could hold roughly 500,000

people, including 55,000 residential

units, shopping malls, restaurants, ho-

tels, gyms, and medical centers.

Japan has even gone as far as envisioning a

self-contained high-rise city that could house over

one million people—the X-Seed 4000. Currently

there are technical obstacles to constructing such

a mega-tall building reaching a whopping 4,000

meters and 800 stories. If construction technol-

ogies and advanced construction materials are

developed, this structure could become a reality.

This mountain-like building towering thousands

of meters high is imagined as a space isolated

from the ground. Future forecasts predict that

cities in the air, secluded from the land, will loom

large in a mega-tall building boom. Population

increases, urban expansion, rising land prices,

and resource shortages will last until the end of

21st century, eventually driving up the height of

buildings.3

2 Green cities—Go greenerOzone depletion, climate change, and energy and

resource exhaustion can undermine the sustain-

able development of humanity and degrade the

quality of life of urban dwellers. With a growing

sense of obligation to improve the environment,

the paradigm is shifting to eco-friendly cities.

Construction materials will be recycled or

used in smaller quantities, and buildings will be

restored or rebuilt rather than being constructed

from scratch. Leadership in Energy and Environ-

mental Design (LEED), a rating system that is

recognized as an international mark of excellence

for green buildings by the U.S. Green Building

Council, is now being applied to only some new

buildings, but it will soon become more wide-

Source: en.wikipedia.org

Figure 4. The Sky Mile Tower in Tokyo

3plug.hani.co.kr/futures

Vol.03 June 2017 35

spread and provide mandatory standards for all

building designs.

A transition to green cities will provide a wealth

of business opportunities to private enterprises.

Companies will be able to diversify their business-

es to the development of eco-friendly technologies

and construction materials for reducing environ-

mental impact, new and renewable energy devel-

opment, and zero-energy houses, contributing to

the development of greener and safer cities. Public

investment in traditional construction efforts

such as roads and bridges will be reduced, but will

increase for green sectors such as railways, green

energy, and green public construction.

The green city concept is reflected in solar-

City in Linz, Austria. This is an eco-friendly and

energy-efficient residential district designed for

sustainable development under Linz City’s Lokale

Agenda 21. Linz City provides subsidies for solar

installations for heating and power generation

and rainwater harvesting systems. Already, one-

third of heating within solarCity is provided using

solar energy, and the rest comes from renewable

energy generated by waste incineration.4

In addition to eco-friendly residential districts

like solarCity, vertical urban farms are another

interesting example of green city techniques. Ver-

tical farming is the practice of producing food in

vertically stacked layers. As nature has been dev-

astated by the ever-expanding agricultural pro-

duction required by increasing populations and

food shortages, vertical farming is emerging as

an alternative response. Using eco-friendly ener-

gy, vertical farming can achieve high productivity

throughout the year without suffering damage

from climate abnormalities or blights and harm-

ful insects.

3 Smart cities—Cities becoming smarterThe construction industry is a product of integra-

tion and convergence. This field requires the in-

volvement of a great number of backward-linked

industries such as design, engineering, tech-

nology, and equipment to build structures on

demand, and also has high forward-backward

linkage effects. Information Technology (IT) rep-

resents the type of industry from which the con-

struction industry can seek convergence to create

added value and stake an early claim to new mar-

kets. One case in point is smart cities.

A smart city is defined as a city that integrates

IT technology within the operations of

the city to maximize efficiency in urban

functions such as energy use, transpor-

tation, and risk reduction. In the past,


4Urban Renewal Projects in Linz,

Australia, Kim Sang-won, August

2015; Linz Life (www.linz.at/

english/life/3199.asp)

Figure 5. An Example of Vertical Urban Farm

Source: shutterstock.com



the problems of cities were solved by hardware

techniques such as new construction, but smart

cities provide software solutions for urban prob-

lems by collecting big data via sensors on smart

platforms, analyzing big data using AI, and realiz-

ing an optimal distribution of resources.

This integration and convergence taking place

between construction and IT will continue to

progress from the adaptation of new technology to

the transformation of production structures and

systems in construction. For example, 5D Building

Information Modeling (BIM) and 3D printing will

be applied on a commercial scale to construction.

Steel materials will become stronger and lighter,

and even intelligent steel materials equipped with

RFID tag technology will be broadly adopted in the

construction industry.

A smart city has two main characteristics:

digital transformation and energy revolution.

From the digital transformation perspective,

conventional cities can evolve into IoT-based, hy-

per-connected localities, bringing massive trans-

formations to people’s lifestyles. Intelligent infra-

structure and automation design and engineering

will be significantly advanced using AI. In terms of

energy revolution, environmentally-friendly car-

bon-free ecological cities will emerge. Carbon-free,

zero marginal cost cities with a high utilization

of new and renewable energy will be further ex-

panded. In addition, cities will be able to maximize

energy efficiency by using energy storage systems

(ESS) and energy circulation systems.

The concept of a smart city has been evolving

out of the notion of a digital city in the 1990s

and ubiquitous city in the 2000s. With the rising

awareness of IT innovation, energy, and the envi-

ronment, the smart city has become a subject of

tremendous attention. It is clear that smart cities

will be rapidly expanding in the future, fueled by

technological development in platform and data

analysis and rising demand for urban develop-

ment in emerging countries. China has recently

declared the official launch of smart city projects

and is advancing the sophistication of its smart

cities using cutting-edge AI technology based in

Google’s deep learning. India has also announced

Buildings

Human Beings

Cars

Machines

Devices

Other assets

Figure 6. Smart City Construction and ICT

Source: Smart City Concept, Applications and Services, Telecommunications Systems & Management, March 2014

City system:

TransportationWater, energy...Heating, coolingMaterial cycles

Surveillance and securityMaterial cyclesCommunication

DataDatabase Infrastructure

Information and Communication Technology (ICT)

Remote monitoring

Diagnostics and fault detection

Automation solution

Energy grid and power meters

Vol.03 June 2017 37

a plan to construct smart cities to get its “Smart

Cities Mission” on track.

Qualitative and quantitative changes in con-struction steel materialsIn the future, the emerging trends of megacities,

green cities, and smart cities closely interwoven

with the ongoing trend of urbanization will spark

innovation in construction products and technol-

ogies. This will require new steel products for con-

struction as well as new materials.

As societies increasingly require advanced

construction products to suit emerging trends,

construction steel demand will change as follows.

First, conventional steel materials for construc-

tion, such as steel bar and section, will have their

functionality improved to include increased

strength, higher thermal conductivity, and better

sound isolation. To enhance performance, they

will also be developed as composite materials

(i.e. composite materials made of steel bars and

concrete). Second, new materials such as carbon

nanotubes and shape memory alloys will be widely

deployed in construction processes. The utilization

of high-functional new materials in construction

will allow and accelerate megatall, eco-friendly,

and smart construction products.

Under ongoing and emerging trends, con-

struction investment has resulted in a qualitative

diversification of steel construction materials.

However, quantitative demand, or so-called steel

intensity, which refers to steel demand divided by

construction investment, is expected to decline.

Despite urbanization, construction costs exclud-

ing steel, such as labor costs, are rising compared

to the past. High-strength steel materials will

be increasingly used for supertall buildings and

super-long-span bridges in megacities; therefore,

steel content per the unit of construction invest-

ment is expected to decline. Moreover, construc-

tion costs will be redirected to intelligent devices

such as IoT and sensors in smart cities and away

from steel. As a result, steel intensity (Base 2015

= 100) will gradually decline to 91 by 2025 and 84

by 2035.


The emerging trends of megacities, green

cities, and smart cities closely interwoven with

the ongoing trend of urbanization will spark

innovation in construction products

and technologies.

Figure 7. Steel Intensity of Construction Investment

100

91

84

Source: POSCO Research Institute, Note: Steel intensity = Steel demand for construction Construction investment

2015 2025 2035


The Steel Industry over the Next Two Decades

Dr. Hang Cho Senior Principal Researcher POSCO Research [email protected]

Dr. Moon-Kee Kong Senior Principal Researcher POSCO Research [email protected]

This article comprehensively reviews how mega-

trends in the major steel-consuming industries

as explained in the preceding articles will impact

the global steel industry. Fundamentally, the

global steel industry will face the following four

challenges over the next twenty years, driven by

a continuous rise in global steel demand; slowing

steel demand growth due to decreasing steel in-

tensity; a need for more advanced steel products;

upgrading to eco-friendly and smart steelmaking

processes; and changes in manufacturing based

on the Fourth Industrial Revolution.

Slowing steel demand growth with decreasing steel intensityAn industry-wise approach is used to forecast

global steel demand: steel demand in each

steel-consuming industry is projected and then

combined in order to estimate total

steel demand. To this end, production

and steel intensity1 in each of the four

major steel-consuming industries are

projected through 2035 as shown in Table 1. By

multiplying production amount (or investment

amount) by steel intensity, the steel demand for

each industry can be calculated.

In the automobile industry, global produc-

tion is expected to grow at a compound annual

growth rate (CAGR) of 1.6% through 2035, but

steel intensity per vehicle is projected to fall

by about 20% by 2035 compared to 2015. This

means that it will be difficult for steel demand in

the automobile industry to increase. The same

is true for the shipbuilding industry, but steel

demand in this sector is indeed expected to grow

slowly since shipbuilding demand is estimated

to recover starting around 2025 and the decline

in steel intensity will remain around only 10%.

In the case of the construction industry, a steady

increase in global construction investment will

offset the decline of its steel intensity, leading to

a stable overall increase in steel demand. In the

energy sector, there will be only slight changes

in steel intensity and energy investment, so steel

demand will follow suit.

1Steel intensity is defined as the

amount of steel used per unit of

production or investment.


Vol.03 June 2017 39

Table 1. Forecast of Production and Steel Intensity of Steel-Consuming Industries

Note: Steel intensities are normalized (2015 = 100)

Automobile Shipbuilding Construction Energy

Production(mil. unit)

Steel Intensity

New Orders(mil. GT)

Steel Intensity

Investment(USD Tril.)

SteelIntensity

Investment(USD Tril.)

Steel Intensity

2015 92 100 79 100 9.0 100 1.8 100

2025 114 89 61 97 11.5 91 1.7 98

2035 127 80 109 90 13.4 84 1.7 99


Combining all accounts, the global steel de-

mand forecast is shown in Figure 1. With the

emerging trends of global climate action and the

Fourth Industrial Revolution as already described

in other articles, global steel demand will continue

on a path of expansion, although the growth rate

will moderate. From 2016 to 2025, steel demand

will grow at a CAGR of 1.2%, while for the suc-

ceeding decade it is expected to remain at 0.9%. By

industry, the construction industry will be a main

driver for lifting steel demand. Steel demand in

the construction industry will increase rapidly to

reach 920 million tonnes (Mt) in 2035, accounting

for almost 50% of total steel demand. However,

steel demand in the automotive and energy indus-

tries will just be maintained, while steel demand

in shipbuilding will expand moderately after 2025.

Steel demand in other sectors such as machinary

and domestic appliances is not analyzed in detail.

However, as a result of regression analysis using

industrial production index forecast, it should rise

by around 1%. All in all, global steel demand will

reach 1.69 billion tonnes by 2025 and 1.86 billion

tonnes by 2035. Therefore, it can be concluded

that global steel demand has not yet peaked and

will not do so within the next two decades.

A need for more advanced steel productsThe second challenge facing the global steel

industry is how it will properly respond to

steel-consuming industries’ stricter and more

diverse requirements for steel products under the

influence of evolving megatrends. Their needs

will become more sophisticated mainly in three

areas: high strength and high toughness, high

corrosion resistance, and high performance.

These were of course requirements in the past,

but today steel-consuming industries need even

higher-strength and more corrosion resistant

steel with better performance than ever before.

The steel industry will inevitably progress from

the quantitative growth of the past twenty years

to a future of qualitative growth.

The global steel industry must astutely overcome

the challenges.



In the automobile industry, weight reduction

has become a central issue due to demanding en-

vironmental and fuel economy regulations. High-

strength steels are increasingly being adopted

in response to stricter collision regu-

lations. To meet such requirements,

steel companies have developed and

expanded the application of high-

strength steels through joint research

on minimizing the weight of a vehicle’s

body, including the Ultra Light Steel

Auto Body (ULSAB) Program in 1994,

the Ultra Light Steel Auto Body-Ad-

vanced Vehicle Concepts (ULSAB-AVC)

Program in 1999, and the Future Steel

Vehicle (FSV) in 2008.

Auto steel has continuously im-

proved in strength, reaching 450MPa

in ULSAB, 1GPa in ULSAB-AVC, and

1.5 GPa in FSV. GigaPascal steels have

already been adopted in Dual Phase

(DP),2 Complex Phase (CP),3 and

Hot Press Forming (HPF) 4 steels for

the FSV projects currently underway. Moreover,

most flat products used for automobiles are high-

strength flat products. However, the stronger

the steel becomes, the more its formability is re-

duced. POSCO has recently mass produced twin-

ning-induced plasticity steel TWIP 5 to provide

both strength and ductility.

Ensuring corrosion resistance is one of the

ultimate goals of the steel industry. High-resis-

tance stainless steel 409L is used for automotive

exhaust systems, including mufflers, in order to

withstand thermal oxidation. Its application has

recently expanded to exhaust manifolds since the

manifold is close to the engine and thus exposed

to high temperatures. Heat-resistant products

such as 429EM, High Cr, and 310S are being used

for manifolds. In addition, demand is rising for

steel products with more diverse functions, such

as hyper non-oriented (NO) electrical steel for

the motors of electric vehicles and bio-shield and

vibration damping steel for sensors.

In the energy and shipbuilding industries, the

development, production, and transmission of oil

and gas are increasingly being conducted under

extreme conditions such as deep underwater and

in the Arctic. High-strength and high-toughness

steels are required for standing up to such harsh

environments. As offshore structures become

larger, they require ultra-thick steels and high-

strength steels with yield strengths of over 500

MPa. High fracture toughness steel must with-

stand extreme cold weather with temperatures

below -60°C to be used in the polar regions. In

particular, brittle crack-arrest steel is being de-

veloped and used to provide facture toughness in

2DP steels consist of

a ferritic matrix containing a hard

martensitic second phase in the

form of islands. Increasing the

volume fraction of hard second

phases generally increases

strength.

3CP steels contains

small amounts of martensite,

retained austenite and pearlite

within the ferrite/bainite matrix.

In comparison to DP steels,

CP steels show significantly

higher yield strengths at tensile

strengths of 800MPa and greater.

4HPF is the combination of

press-hardening applications

and hardenable steels. In this

process, conventional boron steel

is heated to about 880 to 950° C,

formed hot and then cooled, i.e.

hardened, in the die.

Figure 1. Global Steel Demand Forecast

Source: POSCO Research InstituteNote: 1) Shipbuilding sector includes other transportation,2) Demand for other sectors is forecast using industrial production index

Other

EnergyShipbuildingAutomobile

Construction

2015 2025 2035

CAGR1.2%

CAGR0.9%

[‘16-’35]

711843 920

208

11498

517

2106798

472

19572

102

420

1,501

1,690

1,857 1.1%

1.0%

-0.2%

2.3%

0.3%

1.2%

(Mt)

Vol.03 June 2017 41

Table 2. Requirements for Steel Products by Steel-consuming Industry

Automobile Energy/ Shipbuilding Construction

High strength & high toughness

Expanded application of giga-pascal AHSS for lighter cars DP, CP, HPF, TWIP, etc.

High strength & low-temperature toughness steel for deep-sea & polar exploration BCA, TMCP, etc.

High strength steel for skyscrapers/ super-long span bridges High strength reinforced bar, section, cable

High corrosion resistance

Heat resistant Stainless steels for exhaust systems 429EM, high Cr, 310S

Sour(H2S) resistant steel for extream conditions API steel for linepipe

High corrosion resistant steel for high temperature, high humidity environ. PosMAC, ZAM, Super Dyma, etc

High performanceHighly efficient hyper NO for EV motors, bio-shield steel for sensors, vibration damping steels

Thick plate for offshore wind towers, radiation shield plate for nuclear power plants

High performance steel for interior/exterior building applications Thermal insulation, self-cleaning, anti-bacterial, sound-proof

the welded joints of shipbuilding steel.

Line pipe steel also needs to become stronger to

withstand increasing pressures and reduce the use

of steel; API (American Petroleum Institute) X80

grade steel is consequently being increasingly ad-

opted for line pipes. Furthermore, demand is also

rising for ultra-thick and high-deformability steel

to improve low-temperature toughness (to -20°C)

for the deep-water environment or for resistance

to seismic ground movement. For the shipbuilding

industry, vessels are increasing in scale and ships

such as container ships, tankers, and bulk carriers

require high-strength and ultra-thick steel to hone

shipping efficiency and high-toughness steel to

enhance the safety of structures.

In the meantime, line pipe steel is exposed

to different forms of corrosion as oil or natural

gas is transmitted from production bases to

customers. Particularly in a sour environment

in which hydrogen sulfide (H2S) is present as an

impurity in oil or gas with water, steel materials

become prone to cracking and must be resistant

to Hydrogen-induced Cracking (HIC)

and Sulfide Stress Corrosion Cracking

(SSCC). Radiation shield plates are

used in nuclear power plants, and ul-

tra-thick plates are applied in the wind

turbine towers that account for more

5TWIP (Twinning-Induced

Plasticity) steel is a class of

austenitic steels which can

be deformed by both glide

of individual dislocations and

mechanical twinning.


Figure 2. Lightweight Autobody Projects

UltraLight Steel Autobody UltraLight Steel Autobody-Advanced Vehicle Concepts

Future Steel Vehicle

ULSAB (‘94~’98) ULSAB-AVC (‘99~’02) FSV (‘08~’20)

Developed by 35 steel companies around the world



25% weight reduction using the TWB technique, HSS, and UHSS

CO² 140g/km, 20-30% weight reduction through concept design of entire vehicle

Aims for 35% weight reduction with an optimal structure for application to future vehicles (PHEV, EV, and FCEV)



steel developed by US Steel, often referred to by

the generalized trademark COR-TEN. This mate-

rial is allowed to rust in order to form a protec-

tive coating and improve corrosion resistance.

With no need for painting, it is cost-effective

and provides a pleasing rustic antique appear-

ance. Recently, titanium is also being used for a

coating.

With the rise in the cost of zinc, highly cor-

rosion-resistant but affordable steel materials

are gaining prominence. One case in point is

hot-dip Zn-Mg-Al alloy-coated steels, such as

Nisshin ZAM, NSSMC Superdyma, JFE Ecogal,

and POSCO PosMAC. By adding aluminum and

magnesium to the coating, hot-dip Zn-Mg-Al al-

loy-coated steel achieves the same performance

while using 50-70% less zinc than conventional

hot-dip galvanized steel. It can be widely utilized

in housing components, podiums, cattle sheds,

shutters, and electronics and automobile com-

ponents. In addition, steel products with various

functions, such as thermal insulating, self-clean-

ing, anti-bacterial, and sound-proofing qualities,

than 80% of the components for erecting a wind

turbine. As wind power becomes widespread,

more high-strength and high-toughness steel will

be adopted.

In the construction sector, steel materials

must become stronger and more corrosion-resis-

tant to meet safety concerns and for the reduc-

tion of life-cycle costs. As buildings become high-

er and larger and bridge spans grow longer under

the trend toward megacities, high-strength steel

materials are gaining ground. In the case of South

Korea, 800 MPa high-strength steel was used for

trusses and columns in the 120-story (555-meter)

Lotte World Tower, and 2.1 GPa steel cables were

applied in the Yi Sun-sin Bridge with its main

span length of 1,545 meters.

Cost-saving efforts are being expanded across

the construction industry by developing engi-

neering technologies that simplify construction

design and execution and by selecting optimized

materials able to extend the lifespan of buildings

and structures.

A representative steel material is weathering

Figure 3. Adoption of High Strength Steel in ULSAB, ULSAB-AVC, and FSV

Source: World Auto Steel

270

340

370

400

420

450

500

600

700

800

900

980

1000

1200

1470

1500

1520

100.090.080.070.060.050.040.030.020.010.0

0.0

Bod

y S

truc

ture

MA

ss(k

g)

Tensile Strength (MPa)

ULSAB ULSAB-AVC FSV

4.8

50.7

9.2 1.4 5.716.4 17.8 22.0 22.5

4.312.1

20.9

Table 3. Steel Use Proportion in FSV

Steel type Share

Mild Steel 2.6%

HSLA 450/BH 340 32.7%

Mart 1200 1.3%

DP 500&600 11.8%

DP 800 9.5%

DP 1000 10%

TRIP 980 9.5%

TWIP 980 2.3%

CP 1000-1470 9.3%

HF 1500 11.1%

Vol.03 June 2017 43

are being developed as internal and external

construction materials.

Upgrading to eco-friendly and smart steelmak-ing processesThe rising megatrend of global climate action will

compel steelmaking processes to become more

eco-friendly. In the face of environmental con-

cerns, the steel industry has been attempting to

advance energy-saving and recycling technologies

and develop new steelmaking processes to replace

the conventional blast furnace (BF) operations.

Such efforts will continue in the future.

Various types of energy-saving technologies

are being developed for BF, which consume the

largest share of energy in the steel-making pro-

cess. Hot oxygen injection is a technology in

which oxygen is directly injected into the BF to

improve productivity by 15% compared to a con-

ventional BF. Developed by the U.S. Department

of Energy (DOE), the technology is currently

in the pilot stages. Blast furnace heat recupera-

tion recycles the BF exit gas at a temperature of

250°C into a burner to preheat stove combus-

tion air. This technology reduces fuel costs and

heightens fuel efficiency, although the effects

differ with the scale of the BF. Research into this

technology began in the 1980s and a demonstra-

tion plant has been developed. In addition, plas-

ma blast furnaces apply plasma, which is widely

used in the chemical and metal industries, to the

BF process to minimize metal losses. The tech-

nology was primarily developed by the European

Steel Association and has already completed va-

lidity testing.

One of the major themes of research into

the steelmaking process is recycling slag, dust,

and other surplus oxides generated as waste

materials during steelmaking. The U.S. Depart-

ment of Energy (DOE) and the Massachusetts

Institute of Technology (MIT) have conducted

joint research on methods for increasing the iron

recovery rate from slag. Japan’s JFE Steel has

performed research on technologies for recycling

steelmaking slag into “marine blocks.” These two


Figure 4. The Lotte World Tower and the Yi Sun-sin Bridge in Korea

Source: shutterstock Source: tour.yeosu.go.kr



research on technologies to separate iron and

zinc from the dust generated in a rotary heat fur-

nace. The DOE and Advanced Industrial Science

and Technology (AIST) are developing technol-

ogies to reduce waste oxides in the steelmaking

process and improve the iron recovery rate.

Furthermore, new iron-making technologies

are being developed to replace the conventional

BF, including POSCO’s FINEX, Siemens VAI’s

COREX, the Tecnored process, and Kobelco,s

ITmk3. These processes use fine iron ore or pul-

verized coal to reduce energy use and minimize

hazardous substances such as SOx and NOx.

To address environmental concerns, the steel-

making process must not only adopt energy-sav-

ing and recycling technologies and new alternative

technologies, but also focus on reducing carbon

dioxide emissions. In the short term, carbon di-

oxide capture technologies can be applied to each

process to reduce CO₂ emissions, but for the long

term the steel industry is gearing up to develop

carbon-free technologies such as the hydrogen

reduction process.

Creating value through a smart transformation using IoT, Big Data and AIAnother emerging megatrend is Industry 4.0.

This refers to the Fourth Industrial Revolution,

which succeeds the First Industrial Revolution

triggered by the advent of steam engines in the

18th century, the Second Industrial Revolution

characterized by mass production in the ear-

ly 1900s, and the Third Industrial Revolution

brought about by plant automation in the 1970s.

The key characteristic of the Fourth Industri-

al Revolution is the digitalization of manufactur-

ing using advanced ICT technologies, including

big data and AI. It involves a more gradual evolu-

tion compared to the past industrial revolutions

that brought about more sudden and radical

shifts. The advancement of ICT technologies will

in the future convert steel plants into smart facto-

ries. Smart steel plants collect data on-site using

IoT (smart sensing), analyze and predict the status

of production processes based on big data (smart

analytics), and optimize production while using AI

Figure 5. Development of the Future Steelmaking Process

CarbonCapture

Advanced Direct Reduction with Carbon Capture and Storage (ULCORED) Carbon Capture & Storage Technology

CarbonFree

Hydrogen Reduction Process

Hot Oxygen Injection BF Heat Recuperation Plasma BF BF Slag Heat Recovery

Energy Saving

Basic Oxygen Furnace Slag RHF Dust Recycling Recycling of Waste Oxides

in Steelmaking Furnace

Recycling

FINEX COREX Tecnored ITmk3

New Iron-making Processes


Vol.03 June 2017 45

to automatically control the overall process.

The smartening of the steel industry will be

most effective in three areas: advanced factory

automation, smart manufacturing system, and

internalization of know-how.

• Advanced Factory Automation: Wireless mea-

surement and monitoring, including tempera-

ture measurement using sensors, robot scarfing,

and autonomous cranes using location recogni-

tion sensors and software

• Smart Manufacturing Systems: Prediction of

potential production defects and facility mal-

functions using big data, effective production

scheduling using AI, and integration of facilities

and systems at steel plants via IoT (current

manufacturing execution systems are separately

operated by plants)

• Internalization of Know-How: Converting im-

plicit knowledge into explicit knowledge in the

form of manuals, and improving work styles

through the realization of smart workplaces.

Smart Factories are anticipated to bring about a

great number of benefits: reduction of product

error rates and decision-making time, inventory

minimization, enhancing facility maintenance,

reduced number of accidents, and quicker re-

sponse to errors. Such positive effects will imme-

diately result in cost reductions.

The concept of smart factories in the steel

industry will develop from automation to smart-

ening. Smart factories will have to integrate

each smart process at the enterprise level in

order to maximize efficiency and develop new

profit-making models using smart solutions to

create value for customers. The steel industry will

inevitably progress from the quantitative growth

of the past twenty years to a future of qualitative

growth. To this end, the steel industry needs to

boost capabilities for smart transformations and

continuous product and process innovation; and

build a sound steel ecosystem by strengthening

partnerships with steel-consuming industries

and seeking open innovation in the development

of steel products and solutions. The global steel

industry must astutely overcome the challenges

of the future in order to remain a key industry.

Figure 6. Smart Transformation in the Steel Industry

Connected

SmartSensing SmartAnalytics SmartControl

Automation

Smartization

Smart Solutions

On-site data collection using IoT

Enhanced efficiency in process using computer technology

Improved competitiveness through smartization of all work processes by employing big data & AI

Integrated smart processes to bring transformation and create profits

"New Values"

Improving competitivenessCreating new business value

Analysis & forecast based on big data AI-based optimization and autonomous control of entire processe

Data-driven Intelligent




I N T E R V I E Wwith worldsteel Chairman

Beyond Survival to SuccessJohn J. FerriolaChairman, Chief Executive Officer and President of Nucor Corporation, Chairman of worldsteel

Mr. Ferriola joined Nucor Corporation in 1991. He became President and Chief Operating Officer and a member of

the Board of Directors in January 2011. On November 16, 2012, Nucor announced that its Board of Directors had

elected John to the position of Chief Executive Officer and President, effective January 1, 2013.

Mr. Ferriola currently serves as Chairman of worldsteel and Chairman of the Board of Directors of the American Iron

& Steel Institute (AISI). John also serves on the Board of Directors of the National Association of Manufacturers (NAM).

He has been active in the Association for Iron and Steel Technology (AIST) for over 20 years and previously served

on its board of directors.

John Ferriola (center) with teammates from Nucor Steel Decatur, LLC

Vol.03 June 2017 47

Beyond Survival to Success

Q: Please describe the business, core value,

and vision of Nucor in brief.

A: Nucor Corporation is North America’s

largest steel producer and recycler, with

approximately 200 facilities in the United

States and Canada. We operate 25 scrap-

based steel production mills in 17 U.S.

states. Nucor’s steel mills are among the

most modern and efficient mills in North

America, and have an annual production ca-

pacity of 26 million tons. We lead the indus-

try in tons of steel produced per employee.

Nucor and its divisions produce a com-

prehensive range of products including

carbon and alloy steel in bars, beams, sheet,

and plate; steel joists and joist girders; steel

deck; cold finished steel; steel fasteners; hol-

low structural steel tube; steel electrical con-

duit; and metal building systems. Nucor also

owns the David J. Joseph Company, which

processes scrap metal, and owns and oper-

ates two direct reduced iron (DRI) plants–

one in Louisiana and the other in Trinidad.

Additional companies in the Nucor family

include Skyline Steel, a premier manufac-

turer and supplier of steel foundations, and

Harris Steel, which is North America’s larg-

est rebar fabricator.

Our 24,000 teammates are the company’s

greatest asset. We are all dedicated to taking

care of our customers by being the safest,

highest quality, lowest cost, most productive

and most profitable steel and steel products

company in the world.

At Nucor, we value innovation. We be-

lieve the teams at each mill know their cus-

tomers and their operations best, and we

give them a great deal of freedom to make

decisions about how they should run their

mills. This decision making authority, along

with our pay-for-performance incentive pay

system, helps drive innovation. We have also

never laid off a teammate at one of our steel

mills because of a lack of work. This practice

allows us to keep the experience and knowl-

edge our teammates have acquired while

working for us.

Q: Nucor is an icon of innovation in the steel

industry. Please share the technological

prowess that Nucor has achieved so far.

What was the secret of success?

A: Nucor’s history is one of those that

changed the U.S. steel industry through in-

novation. In 1969, we began operating our

first electric arc furnace (EAF) steel mill in

Darlington, South Carolina. We were the

first company in the U.S. to exclusively use

EAFs to make steel. Many people thought

Nucor’s history is one of those that changed the U.S. steel industry through innovation. In 1969, we began operating our first electric arc furnace steel mill in Darlington, South Carolina. We were the first company in the U.S. to exclusively use EAFs to make steel.


I N T E R V I E W

we would only be able to make the most ba-

sic types of steel by using scrap metal, but

throughout our history we have proved the

skeptics wrong. Today, we are North Amer-

ica’s most vertically-integrated and diversi-

fied steel company.

We continue to push innovation. For the

last few years, we have focused on moving

up the value chain to produce steel prod-

ucts that meet the most demanding quality

specifications. Some of these value-added

products have required us to substitute scrap

metal for other iron units. One of those sub-

stitutes is DRI. It is this need for DRI, and

our desire to control more of our raw mate-

rials supply and cost, that led us to build our

two DRI plants.

A primary market for these value-added

products is the automotive industry, which

needs stronger, lighter steels to achieve

higher fuel economy. In recent years, we

have completed several projects at our mills

geared toward these automotive products,

including making wider sheet steel at one

of our mills in South Carolina and capital

investments at several mills to expand our

production of special bar quality (SBQ)

products. In 2016, we announced plans to

build a specialty cold mill complex at our

sheet mill in Arkansas that will enable us to

make higher-strength steel products that we

currently cannot make. We also announced

plans last year to form a joint venture with

JFE Steel Corporation, a premier supplier

of high-quality steel products to the auto-

motive market, to build a galvanized sheet

steel mill in Mexico to serve their growing

automotive market. All of these investments

serve as examples of the ways Nucor con-

tinually pushes innovation in order to make

higher quality products and move into new

markets.

The secret of our success in continually

innovating is our teammates and our culture.

We empower our teammates to make deci-

sions and they drive many of the ideas for

improving our operations. Our production in-

centive bonuses mean that teams are always

looking for ways to be more efficient, improve

productivity, and develop new products.

Q: Please tell us about the recent status of

the U.S. steel industry? How do you see the

mid-to-long term forecast of the U.S. steel

industry and global steel industry?

A: The U.S. steel market has been under tre-

mendous pressure from imports the last few

years. In 2016, imports were down by 15%

compared to the prior year. Imports cap-

tured 26% market share, which was down

For the last few years, we have focused on moving up the value chain to produce steel products that meet the most demanding quality specifications. Some of these value-added products have required us to substitute scrap metal for other iron units. One of those substitutes is DRI.

Vol.03 June 2017 49


from a record high of 29% in 2015. However,

the average capacity utilization rate in 2016

was 71%, still well below the 87% utilization

rate the industry enjoyed in 2007. U.S. steel

shipments were 86.5 million net tons, essen-

tially the same level of shipments as 2015.

The economic recovery since 2009 has

been uneven. Growth in the U.S. has been

sluggish, but compared to the rest of the

world our economy has been a bright spot.

Our relative economic strength compared to

other countries is the reason the U.S. market

has been such a magnet for steel imports.

We expect the U.S. economy and steel

demand will improve in 2017. Non-residen-

tial construction, a major market for Nucor

products, looks poised to regain momentum.

While we expect automotive steel demand

to level off, auto sales have reached record

levels for the past two years, so even in a

stable environment, demand will remain

strong. With oil prices rising, we could see

energy-related steel demand begin to turn

around. The World Steel Association is pre-

dicting demand growth of nearly 3% in the

U.S. market, but less than 1% growth global-

ly in 2017.

Q: It is generally accepted that the global

steel industry has entered the Ice Age and

it will take a long time for spring to come.

How does Nucor make efforts to overcome

Nucor produces various grades of tubing and pipe. Here, standard pipe awaits shipment.


I N T E R V I E W

Galvanizing line at Nucor Steel Berkeley in South Carolina

Vol.03 June 2017 51


challenges in the steel industry?

A: We are navigating the challenging condi-

tions that have existed in the steel market

since 2009 by executing what we call our

long-term strategy for profitable growth.

This strategy is built around five drivers:

strengthening our position as the low cost

producer; achieving the market leadership

position in each product area where we com-

pete; expanding our capability to produce

higher-margin, value-added products; lever-

aging our downstream channels to market;

and achieving commercial excellence. Since

2009, we have invested USD 7.3 billion in our

existing steel mills and to make acquisitions

in order to expand our product portfolio, es-

pecially our value-added product offerings.

To give one example, last year we spent

nearly USD 900 million to acquire two pro-

ducers of hollow structural section (HSS)

steel tubing and a producer of steel electrical

conduit. Prior to these acquisitions, we did

not have a presence in the pipe and tube

market. Today, we are market leaders in

both HSS steel tubing and steel electrical

conduit. We are already a North America’s

most comprehensive supplier of steel solu-

tions to the construction and infrastructure

markets. Now, we are able to offer an even

wider selection of products to our fabricator

and service center customers, further differ-

entiating ourselves from our competitors.

As I have mentioned, we are also focused

on increasing our presence in the automo-

tive market. In addition to investing in our

mills so we can produce more products for

the automotive market, we’ve also opened

an office in Detroit, Michigan dedicated to

working with automotive customers. Our

automotive shipments have grown by 50%

over the past three years with strong gains

in both our sheet and our engineered bar

businesses.

Automotive and pipe & tube are only

two examples. We are doing this across our

product portfolio. Our strategy is paying off.

We enjoy industry leading returns on capital

and are generating strong cash flow.

Q: Recently the fourth wave of manufacturing

is blowing strongly to the steel industry. Do

you think that advanced technologies, such

as IoT, big data, and 3D printing, have a big

impact on the steel industry? How are you

implementing Industry 4.0 in Nucor?

A: The history of Nucor, and the North

American steel industry, is one of constant

innovation and exploration of new, more

competitive and cleaner ways to make steel.

The need for advanced high-strength steel extends beyond automotive to other markets like construction. We recently completed a project at our Nucor-Yamato mill in Arkansas that makes it the first mill in North America capable of rolling ASTM A913 steel sections.


I N T E R V I E W

Innovation and technology have trans-

formed America’s steel industry into one of

the world’s most competitive, sustainable,

and environmentally progressive industries.

Labor productivity has seen a five-fold in-

crease since the early 1980s. It used to take

an average of 10.1 man-hours to produce

every ton of finished steel. By 2015, that

had dropped to an average of 1.9 man-hours

per finished ton. Steel is the most recycled

material in the world—more than aluminum,

copper, paper, glass and plastic combined. In

North America alone, more than 60 million

tons of steel are recycled or exported for re-

cycling each year.

Like Nucor, much of the industry is fo-

cused on making advanced high-strength

steels to meet the needs of automakers. Ad-

vanced high-strength steel is the only mate-

rial that reduces greenhouse gas emissions in

all phases of an automobile’s life: manufac-

turing, driving, and end-of-life. Since 1990,

the U.S. steel industry has reduced energy

intensity by 31 percent and CO₂ emissions

by 36 percent per ton of steel shipped.

The need for advanced high-strength

steel extends beyond automotive to other

markets like construction. We recently com-

pleted a project at our Nucor-Yamato mill in

Arkansas that makes it the first mill in North

America capable of rolling ASTM A913 steel

sections. The higher strength achieved from

A913 allows lighter foot weights to be spec-

ified, reducing the overall weight and ma-

terial cost for the owner, making steel even

more competitive versus concrete and wood.

Nucor is also using data to better inform

our operations and customer service. We

have grown our product offerings and can

supply customers with most of their steel

needs. To help facilitate that and share infor-

mation across Nucor facilities, we are in the

process of implementing a new information

software system. This new system will help

us support our order management, procure-

ment, and core financial and controlling

process, which will enable us to make better

business decisions, provide customers with

real-time information and make it easier for

our customers to do business with Nucor

across our steelmaking divisions.

Q: What do you think are the current major

issues facing the global steel industry? And

how will you resolve the issues?

A: Steel production overcapacity, and un-

fair foreign trade that results from it, is the

number one issue facing the global steel

industry. Foreign government subsidies and

other market-distorting policies in the steel

We have been working with our international partners to address overcapacity. These efforts are now focused on the Global Forum on Steel Excess Capacity, which has been organized by the G20 nations. The Forum is working to find solutions to the overcapacity problem.

Vol.03 June 2017 53


sector have resulted in massive production

overcapacity. Estimates put overcapacity at

700 million tons per year globally, with more

than 400 million tons of that excess capacity

located in China.

Too much production capacity has result-

ed in a flood of steel imports entering into

the U.S. market, capturing a historically-high

percentage of market share. This has led to

thousands of job losses and numerous plant

closures throughout the steelmaking supply

chain. In addition, China’s steel industry re-

mains government-owned and controlled and

heavily subsidized. China exported a record

112.4 million metric tons of steel in 2015,

more steel than is produced by the U.S., Can-

ada and Mexico combined. Last year, China’s

steel exports remained at historically high

levels–108.5 million metric tons. There is not

a two-way street in steel trade with China.

The U.S. steel industry has been aggres-

sive in pursuing trade cases and we have

scored a number of important victories.

These trade cases have reduced the amount

of unfairly traded imports entering our mar-

ket, but this battle will continue until excess

capacity is removed. Trade enforcement

must be combined with trade diplomacy that

benefits U.S. steelmakers and workers.

We have been working with our inter-

national partners to address overcapacity.

These efforts are now focused on the Global

Forum on Steel Excess Capacity, which has

been organized by the G20 nations. The Fo-

rum is working to find solutions to the over-

capacity problem. One of the outcomes the

Global Forum needs to produce is a timeline

for capacity reductions by China and a mech-

anism to verify that the reductions have ac-

tually occurred.

China claims that it cut excess capacity

by 85 million metric tons last year, exceed-

ing its goal of 45 million metric tons. A new

report suggests, however, that production

capacity in China actually increased last

year. Which one is it? This illustrates why an

independent mechanism to verify capacity

reductions is so important.

HSS A-500 tubing, a product produced by the recently formed Nucor Tubular Products Group(left); Large diameter engineered bars produced at Nucor’s facility in Memphis,TN (right)


Dr. Peter Warrian is a Distinguished Research Fellow with the Munk School of Global Affairs at the University

of Toronto. In 2016 he published A Profile of the Global Steel Industry (Second Edition) and in 2017, with Mike

Smitka, he published A Profile of the Global Auto Industry. Both books are published by Business Expert Press.

Dr. Peter [email protected]

Autosteel and the New Materials Competition

Special Report

Vol.03 June 2017 55


The materials composition of the automobile will

change relatively little between now and 2030.

The dominant material will still be steel, with alu-

minum, plastic, and composites making marginal

gains. The biggest materials shift will be the dis-

placement of mild steels with high strength steel

grades.

The United States government’s Corporate

Average Fuel Economy (CAFE) standards have

become a global reference point for steelmakers.

They also constitute a tipping point for a new

kind of materials competition for the industry.

The focal point will not be the metallurgical prop-

erties themselves, but how they facilitate new

geometries. Leading-edge developments in auto-

steels will then migrate to other industry verti-

cals such as construction applications.

The first challenge for steelmakers is the inter-

nal challenge of keeping up with the accelerated

pace of technical innovation. It will present issues

about the traditional boundaries of a steel compa-

ny. The critical function of the new high strength

steels (HSS), along with other advanced materi-

als, is not only that they are stronger and lighter,

but that they allow new dimensions of design.

This blurs the customary boundaries of design

and manufacturing within which steel companies

have traditionally worked.

The second major challenge will be to the

autosteel customer base, the auto supply chain.

Only a limited number of current customers are

able to effectively deploy and apply new high end

steels. Most of the auto supply chain is comprised

of small and medium-sized enterprises (SMEs)

with limited capital, human resources, and tech-

nical capacities. The industry will only be able to

successfully manage the transition and raise the

games of these firms with the aid of new external

partners.

Current state of the CAFE standardsThe CAFE standards constitute a tipping point

for a qualitatively new materials competition,

both because of the scale of autosteel purchases

and for being a classic case of technology forcing

regulatory change.

There is much speculation about disruptive change in the automotive industry.

What will be disruptive will be the following two factors: first, the changes to the

business model i.e. “mobility” as a service and second, radical changes in how we

manufacture vehicles in the future. This is where materials competition comes in.


Special Report

As most people are aware, the standards apply

to new passenger cars and light-duty trucks for

model years 2012 through 2025. A mid-term

review of the 2022–2025 standards is in process

and will be finished by 2018 at the latest. The

initial determination, supporting the policy, was

released in late November 2016. Assuming the

fleet mix remains unchanged, the standards re-

quire vehicles to meet a combined average fuel

economy of 34.1 miles per gallon (mpg) in model

year 2016, and 49.1 mpg in model year 2025,

which equates to 54.5 mpg as measured in terms

of carbon dioxide emissions with various credits

for additional climate benefits.

The new fuel efficiency targets have turned

lightweighting into the overwhelming goal for

autosteel. Costs are also an issue. A critical criteri-

on for the mid-term review is whether

lightweighting can be achieved within

acceptable manufacturing costs. It now

appears that on this issue the program

is over-achieving. The manufacturing

costs for advanced materials are com-

ing in at only about 30% of the original manufac-

turing cost estimates.

A recent technical paper presents a systematic

review of materials competition and lightweight-

ing technologies under the regulations.1 The key

metric was expressed in terms of total cost as

a function of percent vehicle weight reduction

(composites include plastics, but not carbon fi-

ber). From a manufacturing cost perspective, the

policy objectives appear to be quite attainable.

For steelmakers, the important conclusion is that

increased use of lightweight materials and im-

proved vehicle designs will be limited only by the

speed at which computer design tools improve

and new materials can be brought to the market.

The materials composition of the vehicleSteel has been the primary material used in ve-

hicles for decades. The proportions of plastics

and aluminum have gradually increased over

time, but until recently they were used primarily

for independent components, such as bumpers

(plastics) and engines (aluminum) that had little

1Isenstadt, A. et al, (2016)

“Lightweighting technology

development and trends in US

passenger vehicles,” International

Council of Clean Transportation

(ICCT), Working paper 2016-25.

There are two redesign cycles left before 2025. Given the accelerating pace of

software development and improved materials, it is reasonable that each of these

redesign cycles should achieve at least a 5% weight reduction. Overall, about a 15%

weight reduction should be feasible by 2025.

Vol.03 June 2017 57


impact on safety or noise, vibration, and harsh-

ness (NVH). The latter has also become factors

in evaluating materials decisions.

The most significant mass reduction occurs

during vehicle redesigns, when competitors’ ve-

hicles are benchmarked and all components and

subsystems are considered for weight reduction.

Across a range of vehicles, impressive weight

reductions have been achieved using a multi-ma-

terial approach and updated manufacturing pro-

cesses/computer simulations. No single material

or method dominates the others. However, for

the steel industry, the important point is that

legacy vehicle architectures continue to be mainly

replaced with more mass-efficient advanced high-

strength steel (AHSS) intensive architectures.

This bodes well for the future.

The practical question is how fast tools and

materials improve and the improved designs can

be incorporated into vehicles. The current gener-

ation of vehicle redesigns is routinely achieving

about a 5% weight reduction. There are two rede-

sign cycles left before 2025. Given the accelerat-

ing pace of software development and improved

materials, it is reasonable that each of these re-

design cycles should achieve at least a 5% weight

reduction. Overall, about a 15% weight reduction

should be feasible by 2025.

The merging of steel manufacturing and designIn autosteel, materials manufacturing has al-

ways been linked to design, ever since the all-

steel autobody emerged in the 1920s. This re-

mains the dominant design across the industry.

Until and unless that changes, steel will remain

the dominant material.

Autosteel customers, while focusing on light-

weighting, are also faced with meeting improved

safety performance. For instance, the award-win-

ing 2014 Honda MDX had to meet both emis-

sions and safety standards and has a body using

59% high-strength steel, 36% mild steel, 2% Mg,

and 3% Al. This may be a representative picture

of the trend for near-future vehicles.

The changed role of materials suppliers is

Source: POSCO


Special Report

demonstrated in the Honda MDX Door Ring case.

The existing Honda design, like all other SUV

models, could not simultaneously comply with

both emissions and safety standards. It was the

steel company ArcelorMittal using new Usibor

and Ductibor grades along with a holistic Body in

White (BIW) design that solved the dilemma.

Traditionally, autosteel design parameters were

based on 2G: gauge and grade. The future is 3G:

geometry, gauge and grade. Academics talk about

a shift from traditional Design for Manufacturing

to Manufacturing for Design in the new stage of

advanced materials competition. The above case of

the design of the door ring was only possible be-

cause Arcelor was able to produce the new steels.

Traditionally, Tier 1 suppliers are invited early

into the design process. The auto OEM finalizes

the platform design in year 1 of the traditional

five-year cycle. Tier 1 parts suppliers and lead

stampers are invited into the process in years 2

and 3. Steel companies have not been admitted

until years 4-5, when the product design is al-

ready frozen. Steel companies are now lobbying

for entry in years 2 and 3 so they can have an im-

pact on materials decisions affecting final product

design. They are seeking to play the role of ma-

terials consultants to design teams that include

OEMs and Tier 1 design engineers.

There is a larger process at work here. The

impact of lean production models on the auto

supply chain has been accompanied by the rise of

shared engineering responsibilities, as suppliers

move away from merely producing parts to blue-

prints supplied by their customers. Software and

digital manufacturing capabilities are the bridge

that allows new materials to be brought into a ve-

hicle, but they also pull in other actors across the

supply chain. This will require steel companies to

expand sales engineering staff and locate it much

closer to their customers.

Innovation in the automotive industryAt the highest level, Sergio Marchionne, CEO of

Fiat Chrysler Automobiles (FCA), has recently

argued provocatively that the R&D model of

automotive innovation is bankrupting car com-

Traditionally, autosteel design parameters were based on 2G: gauge and grade.

The future is 3G: geometry, gauge and grade. Academics talk about a shift from

traditional Design for Manufacturing to Manufacturing for Design

in the new stage of advanced materials competition.

Vol.03 June 2017 59


panies and undermining their enterprise value. 2

A new approach is needed. The core argument

he makes is that the automotive industry, with

its product life cycle of four years to recoup R&D

costs, is dramatically out of line with the 17-year

product life cycle of other major manufacturing

industries. His suggestion is that car companies

have to move beyond their current proprietary

product platform strategy.

The nature of innovation in the auto supply

chain itself is changing. The Premier Automotive

Suppliers’ Contribution to Excellence (PACE)

Awards by the Automotive News have become a

global reference point. The analysis by Smitka and

Warrian of the past 15 years of awards identifies

three critical attributes of successful innovative

firms: they are good at materials science, they use

the latest software engineering tools, and they use

technology roadmaps.

Suppliers face three core challenges: The first

is the choice of where to direct their R&D efforts.

The second is how to coordinate those efforts with

their suppliers and customers, as any single com-

ponent is ultimately but one part of a complex

assembled product. Third, they need to manage

these efforts internally.

Regarding internal coordination, in the past,

firms have relied on “roadmapping” to help di-

rect efforts and coordinate with other firms. The

traditional internal coordination mechanism of

firms has been the “gate” system widely used

in the industry for the internal management of

research projects, from ideation through to the

start of production. Companies use these to track

project progress against a standard timeframe,

and to budget additional resources or halt pro-

grams that are not progressing.

In addition to structural components and

body panels, powertrains are another tipping

point in materials competition for steel produc-

ers. An example of successful roadmapping would

be to translate regulatory mandates into expected

engine pressures. In practice, the roadmap would

incorporate additional detail, with R&D projects

coded by the type of solution they are using and

located by the date at which prototypes might be

ready for testing. By combining those from sup-

pliers of the panoply of engine components, an

original equipment manufacturer could use this

to help gauge whether it might be feasible to be-

gin the detailed development of their next engine

generation and to spot places where they might

face hurdles and need to work more aggressively

with potential suppliers.

There is a huge variation among leading firms

in how they deploy roadmapping and IP resourc-

es. A scan of the top three PACE winning com-

panies gives a sense of the breadth and range of

technology management approaches. Delphi has

no roadmap in the public domain, but it is per-

haps the most active in managing its intellectual

asset portfolio with sales or licensing of its IP,

co-ventures and being a partner in new startups.

Federal-Mogul seeks to leverage its previous

innovations, demonstrates a proactive path

dependency in developing its IP, and publishes

its pathways. BorgWarner actively develops suc-

cessive generations of its innovative

products but makes no comprehensive

public roadmap available.

2S. Marchionne, “Confessions of a

Capital Junky”, November 2015.


Special Report

Lower down the chain, SMEs with signifi-

cant technical capacities are the prime future

partnership candidates for autosteel producers.

Unfortunately there are at present only a limited

and insufficient number of qualified firms. The

technical progress at commercializing the latest

steel metallurgy is not matched by the capacities

of the customer base. Interviews with company,

government and academic experts suggest that

at present only about 8-10% of auto supply chain

SMEs have the human and technical capacities to

effectively apply the latest advanced steels.

Open-sourcing proprietary auto product architecturesWhy are cars different from computers? Why has

automotive innovation lagged in the slope of the

innovation curve? The answer is that computing

developed a common industry product architec-

ture around Wintel (Windows + Intel).

As described in the Honda Door Ring case,

Arcelor is a clear leader in the adoption of new

steels through the design process. Their S-in

Motion program is an open-source platform of

technology applications that OEMs now have

available to adopt and adapt.

Valin ArcelorMittal Automotive Steel (VAMA),

Arcelor’s new co-venture in China for production

of Usibor, will extend this new materials/new de-

sign capacity into the Asian autosteel market.

This major step forward, however, faces a

challenge from aluminum. The design choices of

existing autosteel customers are seriously con-

strained by carry-over parts from existing steel

designs where costs and critical pieces are im-

portant. The new-entrant aluminum producers,

Source: automotive.arcelormittal.com

Figure 1. Arcelor S-in-Motion

Vol.03 June 2017 61


because they have all-new designs, do not have

these constraints.

The changing economic geography of autosteelLocation has always been critical for steel com-

panies. In the future of autosteel, the critical

locational variable will not be where the assembly

plants are, but where the engineering is being

done.

Asian steel producers face a particular dilem-

ma. The auto supply chains of the North Ameri-

can Free Trade Agreement (NAFTA) and the EU

have become highly concentrated, particularly

after the 2008-09 financial crisis. The Asian auto

supply chain remains highly fragmented. There

are economies of scale and network effects that

arise from this.

The market for autosteel has become increas-

ingly concentrated geographically. The Auto Alley

within NAFTA and Auto Corridor in the EU in

Figure 2 show the global industry trend. This is

where autosteel producers and processers are

focused. China, by comparison, is an outlier.

Despite its huge market size, there are still 60

domestic car producers distributed across many

provinces. There is as yet no comparable consol-

idation, although there are perhaps some begin-

nings around Shanghai.

This is where the bulk of auto engineering is

taking place and where the partners and codevel-

opers of steel producers are located. A further

consequence is that regional innovation policies

of governments will also have a critical attribute

of “place.”

Figure 2. The Auto Alley within and Auto Corridor in the EU

Kilometers

0 300 600 900

Assembly PlantsSupplier Plants

Kilometers

0 300 600 900

Assembly Plants

North America, 2013 Europe, 2013

73% of region’s assembly 78% of region’s assembly


Special Report

New partnerships and new policiesMost of the auto supply chain is comprised of

SMEs. Overcoming the challenges of change for

such companies will require new perspectives,

new partners, and new public policies. For both

steel companies and automotive OEMs, future

success will critically depend on raising the game

of the SME supplier base. As mentioned above,

the locus of engineering work has changed signifi-

cantly.3 The 2008-09 financial crisis was a seismic

event. For example, in 2011, 70% of US auto sup-

pliers were engaged in engineering design efforts,

compared with 48% in 1989.

In terms of new engineering software, finite

element analysis (FEA) has become a pervasive

new tool and is a good indicator of where supply

chain firms are along the innovation curve. FEA is

the assessment of a component’s suitability for its

operating environment, incorporating scientific

knowledge to evaluate an auto part’s strength and

durability in a given situation, including with-

standing pressure, heat, impact, and other known

environmental stresses. By this measure,

about 25% of firms are in the game.

The engineering intensiveness of

the sector is also reflected in employ-

ment data. In the Helper study, over

20% of auto supply chain firms had

no engineers at all, and nearly one-

third had just one to three engineers

on staff. The picture that emerges is of

a spectrum of firms ranging from low

engineering-intensity and low custom-

er engagement to high engineering-in-

tensity and customer collaboration.

The context is important. Intensified inter-

national competition and cost pressures have

combined with stricter CAFE environmental reg-

ulations and consumer safety standards to drive

innovation further down the automotive supply

chain. The range of technologies that are import-

ant to success in the industry has expanded–from

electronics, to digital platforms, new fuel and

power technologies, and lightweighting materi-

als. The need for more systemic innovations has

led to a process of shifting the locus of innovation

from within a single firm, the OEM, to a wider

range of firms along the supply chain, and also

research institutes and end-users.

The new industrial policy and supply chain network failureMost traditional autosteel producers and their

customers are located in mature industrial re-

gions. Regions in which automotive clusters have

been revitalized, such as the West Midlands, De-

troit, and Baden-Wurttemberg, are characterized

by a strong SME base and coordination initiatives

that have contributed to the utilization of a wide

range of innovation resources. The role of com-

munity colleges and public research infrastruc-

ture has been critical.4

Network failures have been identified as a rea-

son for the lock-in of old industrial regions into

obsolete technological trajectories. Given that

most of the auto supply chain is comprised of

SMEs with limited capital, technical and human

resources, there is an important role for public

policy in managing the transition, particularly

for SMEs. The traditional argument is that gov-

3Helper, Susan & Kuan, Jennifer.

(2016) “What Goes Under the

Hood? How Engineers Innovate

in the Automotive Supply Chain.”

In Freeman, Richard & Salzman,

Hal, eds. Engineering in a Global

Economy. Chicago: University of

Chicago Press.

4Goracinova, E., Warrian, P.

and Wolfe, D. “Challenges of

Coordination: Automotive

Innovation in the Ontario Supply

Chain in Comparative Context,

Canadian Public Policy, (2017)

Spring 2017.

Vol.03 June 2017 63


ernment should only intervene where there is a

clear market failure. The autosteel issue, however,

is more in the nature of a “network failure.” New

and different policies are needed.5

For most liberal democracies in the postwar

period, market failures constitute the only really

indisputable economic rationale for public par-

ticipation in private affairs. The policymaker is

expected to try first to get the prices “right,” to

institute an incentive that will allow the market

to correct itself, such as a tax expenditure, before

weighing in with more aggressive interventions.

Network failures are different. The argument

is that more explicitly collaborative “network”

forms are functionally superior, especially where

some combination of unstable demand, rapidly

changing knowledge, and/or complex interde-

pendencies between component technologies is

present. For the author, this is the case and the

essential challenge in autosteel and the new ma-

terials competition.

It is often observed that the most effective

economic, technology, and industrial policymak-

ing today depends upon settings in which private

and public actors come together to solve problems

in the productive sphere, with each side learning

about the opportunities and constraints faced by

the other. To focus just on standard worries about

“picking winners” is to forget that such settings

are less discovered than constructed.

Public research infrastructureTechnology Readiness Levels (TRLs) have become

pervasive for research and funding agencies as

criteria for successful funding applications, proj-

ect management and evaluation. The author’s

current research is on the role of materials tech-

nology labs in the lightweighting efforts for auto-

motive steels. It seeks to document and describe

the specific mechanisms of knowledge creation

and technology transfer at the differ-

ent stages of the innovation process in

the interaction between the lab and its

industry partners.

A mature automotive region like

Ontario faces unique challenges. Its

Intensified international competition and cost pressures have combined with stricter

CAFE environmental regulations and consumer safety standards to drive innovation

further down the automotive supply chain. The need for more systemic innovations

has led to a process of shifting the locus of innovation from within a single firm, the

OEM, to a wider range of firms along the supply chain, and also research institutes

and end-users.

5Brandt, P. and Whitford, J. (2016)

“Fixing Network Failures? The

contested case of the American

Manufacturing Extension

Partnership”, Socio-Economic

Review, 2016, Vol. 0. No. 0, 1-27


Special Report

supply chain firms, particularly SMEs, tend of

be at the lower end of the value chain and weak-

ly represented in leading-edge technologies like

electronics and materials science. The engineering

culture of even the leading firms like Magna and

Linamar, were built by their founders with an ex-

clusive focus on identifying micro-efficiencies in

parts production. This remains in the DNA of the

technical culture of the firms that steel companies

supply. It is inherently resistant to the disruptive

technological changes and macro-efficiency oppor-

tunities of the materials science revolution.

By contrast, tightly integrated innovation sys-

tems like Baden Wurttemberg or the Midlands

are much more successful, but they face “lock-

in” issues that entrench incrementalism. More

de-centralized systems like the North American

Automotive Alley, may be more open to radical

technological changes, but are heavily dependent

on the disparate capacities of SMEs.

The conclusion is that changes in technologies

allow “places” to open up for enhanced resiliency

or reinvention for supply chain firms, if they take

advantage of them and lead others to stagnate/

fail. As materials suppliers like advanced steel

companies undertake a wider range of innovation

and the role of car companies moves more toward

that of coordinator or integrator, supply chain

firms need to be able to address the interdepen-

dencies of a vehicle as a system. In addition, in-

novations themselves frequently involve an array

of mechanical and electronic features, and are

contingent on developing new methods of man-

ufacturing. Suppliers routinely form teams cross-

ing firm boundaries to meet these challenges.

To understand the role that public research

labs can play, consider the example of HSS steels

and the spring-back problem. The client company

does advanced hydroforming. The new materials

are so strong that conventional stamping and

forming technology results in sub-optimal prod-

ucts because the material springs back from the

original forming design due to resistance in the

material. The problem will only worsen as materi-

als progress in getting stronger and lighter.

In this case, linkage to another government

New business models arise as firms move forward, backwards, and sideways.

The steel company of the future will be different. The industrial economics lesson is

that realization of value will be less and less correlated to the original site of production.

Vol.03 June 2017 65


lab at a nuclear reactor facility became critical.

The nuclear site was used for its specialized test-

ing capacity employing the reactor’s neutron

beam to test for residual tension in the input

materials. The lab discovered that there was also

embedded tension in the input material that

came from the suppling steel company. With data

from the reactor, they built a model of the actual

rolling process of the tubes at the steel mill, as-

sisted by production data from the company. It

was discovered that the steel tubes and the weld-

ing process were the source of the problem. The

lab built a model of the whole steel mill to model

the stresses in the rolling process. This in turn fed

into the manufacturer’s design process.

Disruptive change in the automotive industryThere is much speculation about disruptive

change in the automotive industry with the

emergence of autonomous vehicles (AV) and

electric vehicles (EV). In the author’s view, the

latter will cause incremental, not revolutionary

changes. If all new vehicles were AV by 2020,

then it would be about 2035 before half of the

total NAFTA vehicle fleet would be autonomous

vehicles. The energy density of the batteries still

lags internal combustion engines. What will be

disruptive will be two other factors: first, the

changes to the business model i.e. “mobility” as

a service and second, radical changes in how we

manufacture vehicles in the future. This is where

materials competition comes in and where steel

has the opportunities described above. In fact,

EV’s use proportionally more high-strength steel

than do conventional vehicles.

Steel companies of the future Innovation studies academics see lessons in the

new global economy where digital technologies

contribute to a mobility of production functions

along global value chains. New business models

arise as firms move forward, backwards, and

sideways. The steel company of the future will be

different. The industrial economics lesson is that

realization of value will be less and less correlated

to the original site of production.


Vol.03 June 2017 67

68 The Impact of Sino-Indian Economic Cooperation on the Indian Steel Industry Dr. Imm Jeong-seong

78 Chinese Steel Moves along the One Belt, One Road Dr. Chang-do Kim


China, which has long

perceived itself as ly-

ing at the center of the

world (Zhong gou , or

‘Middle Country), and

India, which is known

to be the “land of gods,”

have been mutually engaged for millennia. These

inheritors of legacies of the Yellow River and In-

dus Valley civilizations have long pursued cultural

and economic exchanges across the deep gorges

of the Eastern and Western Himalayas. Chinese

tea and silk were exported to India over these

passes, while Indian thought such as Buddhism

and academic learning diffused into China. Such

bilateral exchanges took place not only via the Silk

Road, but also along maritime trade routes that

connected China, Southeast Asia, India, and the

Middle East.

After a period in which the two countries

suffered extended hardships and disorder during

the age of imperialism, India became the first

non-socialist country to establish diplomatic ties

with the People’s Republic of China in 1950 and

their long-standing relationship as neighbors was

formalized. However, diplomatic relations were

severed following the Chinese invasion of India in

1962 triggered by Tibetan border issues and the

Dalai Lama being granted asylum by India. Al-

though diplomatic interchanges were resumed in

1979, economic cooperation did not follow suit.

It was only in the mid-2000s that bilateral trade

and investment began to expand.

India’s imports from China increased signifi-

cantly over the ten years from 2005 to 2015, with

a compound average growth rate (CAGR) of 19%.

India mainly imports electrical and electronics

products, machinery, and organic compounds

from China and returns cotton, copper, and ore

as exports. Under this import/export structure,

India’s exports to China could not increase sig-

nificantly, and its trade deficit with China surged

to USD 52.7 billion in 2015.

Meanwhile, India’s foreign direct investment

outflows to China were greater than China’s FDI

outflows to India until 2010, but this reversed in

Long-time neighbors seeking cultural and economic exchanges

The Impact of Sino-Indian Economic Cooperationon the Indian Steel IndustryDr. Imm Jeong-seongSenior Principal Researcher POSCO Research Institute [email protected]

Featured Articles

Vol.03 June 2017 69

2011. In particular, China’s annual FDI in India

surpassed USD 400 million in both 2014 and

2015. However, China ranked only 18th in terms

of accumulated investment in India from 2000 to

2015 (USD 1.358 billion), accounting for a mere

0.47% of total FDI in India. Pointing to this struc-

tural trade imbalance, the Indian government has

been calling on China to increase its FDI in India.

The two countries set a

Line of Actual Control

(LAC) in 1996, but have

still not fully resolved

their territorial issues.

Despite this, why has bi-

lateral cooperation been

expanding? Since China and India are home to

the world’s largest and second-largest populations

countries, each surpassing one billion, and are

the traditional regional powers for Northeast and

South Asia, respectively, their bilateral economic

cooperation has a considerable ripple effect. There

are three primary reasons why Sino-Indian eco-

nomic cooperation will continue to expand.

First, bilateral cooperation has expanded due

to their differences in economic development level

and economic structures. After the introduction

of reform and opening-up policies in 1978 and

a transition to a market economy that began in

1994, China entered the World Trade Organiza-

tion (WTO) in 2002 and underwent rapid eco-

nomic growth. In 2010, China became one of the

so-called ‘G2’ nations. Although China and India

had similar GDP levels in the 1980s, China had be-

come an upper middle-income country according

to the World Bank standard with per capita GDP

of about USD 8,000 in` 2015. India, which re-

mains a lower middle-income country, is presently

attempting to benchmark China’s development

policies and know-how.

China has been pursuing high-speed growth

despite some related sacrifices, focusing on in-

vestment and exports. India, on the other hand,

has been upon its tradition of grass-roots de-

mocracy to seek inclusive growth with a growth

model focused on consumption and domestic de-

Why has bilateral economic cooperation expanded despite territorial disputes?

The Impact of Sino-Indian Economic Cooperation on the Indian Steel Industry

Source: Ministry of Commerce and Industry of India, National Bureau of Statistics of China

(USD millions)Table 1. Trade and FDI between India and China (2005-2015)

2005 2010 2012 2014 2015 ‘05-’15

Export 6,759 14,169 13,535 11,934 9,010 CAGR 2.9%

Import 10,868 43,480 52,248 60,413 61,707 CAGR 19.0%

Trade deficit - 4,109 - 29,311 - 38,713 - 48,479 - 52,696 12.8 times

FDI Outflow 19 49 42 51 65 3.4 times

FDI Inflow 1 2 152 495 461 461 times


mand. China, dubbed the “factory of the world,”

holds a strong position in manufacturing while

India, the “back office of the world,” is prominent

in IT. China has extensive experience with the

construction of infrastructure, including roads,

railways, and power plants. In contrast, India has

an advanced service industry, including finance,

distribution, and culture. After a number of eco-

nomic development trials and errors, the two

countries are trying to learn from each other’s

strengths and hope to spark synergy by linking

their hardware and software capabilities.

Second, their policy needs are mutually con-

gruent. In 2015, China unveiled the “One Belt

Featured Articles

• Consumption goods• Capital goods

• Orders for infrastructure (Facility export & experts)• Massive financial support

• Connected with locally- produced parts

• Knowhow of infrastructure construction & nuturing of industries and urbanization• Spread of Confucius ideology

Figure 1. India and China’s Economic Cooperation Needs

Expanding export marketsto ease oversupply

Improving Infrastructure Make in India Promoting restructuring Benchmarking China’s growth model

Export Increase EPC+F 1) Investment ManufacturingInvestment Soft Power

Transfering economic development knowhow and growth model

Using China’s massive accumulated capital (Foreign exchange reserves: USD 3 tril.)

Taking advantage of China’s success in economic development

Increasing needs to enter India’s fastest growing market

Note: 1) EPC + F = EPC (Engineering, Procurement and Construction) + Financing Source: Compiled by the author

Shift to sustainable economic and industrial structures

One Belt, One Road (+AIIB)

Boosting a stagnant domestic market and raising global status

Vol.03 June 2017 71

One Road (OBOR)” initiative to boost a stagnant

domestic market and raise its global status as a

great power. This strategy aims to take advantage

of China’s massive accumulated capital in order

to enter developing markets with high growth

potential but in need of investment. China hopes

to penetrate such markets and expand exports

by seeking joint entry with major industries cur-

rently in oversupply, such as power generation,

construction, steel, and automotive, through

massive industrial projects. China views India as

an ideal destination in which to implement its

OBOR project since it has a massive market and

lofty growth potential.

India urgently needs to nurture manufactur-

ing in order to create jobs and refurbish urban

and transportation infrastructure in order to en-

sure that its massive 1.3 billion population proves

a blessing rather than a curse. However, the

improvement of power generation and transpor-

tation infrastructure has been delayed by chron-

ic fiscal deficits and political and social issues.

Moreover, India’s manufacturing sector, includ-

ing steel, shows low global competitiveness due

to insufficient technology and poor economies of

scale under the lingering influence of the socialist

economic system of the past. For these reasons,

India hopes to resolve certain chronic internal

problems by taking advantage of external shocks

created by China, which has already succeeded in

its economic development.

The third reason for the expansion of bilat-

eral relations is that the current leaders of the

two countries often apply a utilitarian route of

thinking. Since their respective inaugurations in

2013 and 2014, Chinese President Xi Jinping and

Indian Prime Minister Narendera Modi have set

aside sensitive issues, including border conflicts,

and focused instead on economic cooperation. In

particular, Prime Minister Modi, who has been

attempting to introduce and implement the most

drastic economic reform policies since the coun-

Objective Industry Country Entry strategy

Ease overcapacity until 2020 and create new growth engines

Power generation, construction, steel, machinery, automotive, chemical engineering, shipbuilding, and more

Emerging countries with high growth potential but in need of investment

India is considered one of the ideal destinations

Largest market in terms of both size and growth potential

A bridgehead to South Asia, the Middle East, and Africa under the One Belt One Road initiative

Joint entry with related industries through grand-scale projects ex) Providing Chinese technology, facilities, standards, service, and materials through the development of an industrial complex

Combination of China’s advantages in engineering, procurement and construction (EPC) and capital power ex) ‘Construction works order + Financial support’ or ‘Construction works order + Financial Support + Management’

Development of exclusive Chinese industrial complexes and attraction of Chinese manufacturing companies as tenants

Table 2. The Chinese Government Strategy to Address Oversupply Through Foreign Expansion

Source: State Council of China (2015)



try’s independence, is extending stringent efforts

to attract Chinese companies to India.

India and China are now

moving beyond bilateral

economic cooperation

and into multilateral

economic cooperation

across Asia. The two

countries are imple-

menting the Bangladesh-China-India-Myanmar

(BCIM) economic corridor, which aims to connect

India’s northeast region with China. Further-

more, with a stake of 8.52%, India is the second

largest shareholder after China (30.43%) in the

Chinese-led Asian Infrastructure Investment

Bank (AIIB). Moreover, India has expressed its

willingness to join the Regional Comprehensive

Economic Partnership (RCEP) led by Chinese

President Xi Jinping rather than the Trans-Pacific

Partnership (TPP) supported by former US Presi-

dent Barack Obama.

Meanwhile, the Modi government is using soft

power rather than military force to counter China’s

so-called “String of Pearls” strategy, which aims

to strengthen military alliances with countries in

the Indian Ocean region, including Pakistan, Ban-

gladesh, Myanmar, Sri Lanka, and Nepal through

massive economic assistance. In this regard, India

has launched Project Mausam (mausam being a

Hindi word for seasonal winds) which seeks to

revive the glory of pre-modern times when Indi-

an culture and trade spread and expanded across

Southeast Asia, the Middle East, and East Africa

along the seasonal winds of the Indian Ocean.

Will this economic cooperation between India

and China continue? Clues as to the answer can

be found in India’s Strategic Culture by US ana-

lyst Rodney W. Jones. He points out that Indians

continue to think and act based on philosophical

and mythological factors. They are accustomed

to hierarchical order and consider knowledge of

trust to be the key to power. Historically, India

strengthened ties with world powers such as the

British Empire, the Soviet Union, and the USA.

Today it seeks to expand cooperation with China,

Featured Articles

Will bilateral economic cooperation further expand?

India and China are now moving beyond bilateral economic cooperation

and into multilateral economic cooperation across Asia. The two countries

are implementing the Bangladesh-China-India-Myanmar economic corridor,

which aims to connect India’s northeast region with China.

Vol.03 June 2017 73

one of the world’s two largest economies, and

gain technology and know-how.

Another characteristic of Indian strategic cul-

ture is the concept that “goals are timeless.” This

explains why India has not been actively working

to resolve the Kashmir conflict with Pakistan and

territorial disputes with China. Indians may pre-

fer to bide their time until a situation turns favor-

able to them. India may try to solve its territorial

disputes with China only after its national power

becomes equal or even superior to that of China

through economic cooperation.

However, in the short term, their bilateral

relationship could be impacted by hegemonic

competition in Asia between China and the USA

under the Trump administration. During the

Cold War, Prime Minister Jawaharlal Nehru cre-

ated the Non-Aligned Movement to maximize

the country’s interests between the superpowers,

the USA and the Soviet Union. India is expected

to continue its strategic position between the

USA and China, but this can be perilous. India

may align with the USA on diplomatic and mili-

tary fronts but seek to strike a balance through

cooperation with China on the economic front. In

the face of abrupt changes in Sino-US relations,

India and China’s economic cooperation could de-

teriorate abruptly.

Over the last twenty

years, the Chinese steel

industry has contribut-

ed to the construction of

domestic infrastructure

and the development of

manufacturing indus-

tries, including automo-

tive and shipbuilding, and it will play an import-

ant role in supplying steel materials to the OBOR

project. However, due to the stagnation and

decline of domestic steel demand, the steel in-

dustry has been labeled a representative industry

in oversupply and forced to actively seek foreign

expansion. Therefore, China’s steel industry is at-

tempting to seek joint entry with steel-consum-

ing industries into the Indian market in order to

Heavy inflows of Chinese steel materials pose a threat to the Indian steel industry in the short run


'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15

Source: International Steel Statistics Bureau (ISSB)

1,000

2,000

3,000

4,000

5,000

0

20

30

40

50

70

60

10

Chinese steel imports Share

Figure 2. India’s Finished Steel Imports from China

(1,000 tonnes)(%)

40%

3,813

4,786

38%


increase its exports.

First, for bilateral trade, India’s finished steel

imports from China began to surge in 2005 and

then see-sawed before eventually marking an in-

crease of 130% in 2014 compared to the year ear-

lier. In 2015, the inflow of finished steel imports

reached 5 million tonnes (Mt), including 1.1 Mt

of hot-rolled coil. Chinese products accounted for

nearly 40% of total imports in India. As a result,

iron and steel became China’s fifth-largest export

item to India, and India’s steel trade deficit with

China reached USD 3.336 billion.

This increase in low-cost Chinese finished

steel imports allowed India to reduce its invest-

ment in infrastructure construction and improve

price competitiveness in steel-consuming indus-

tries, but it hit Indian steel companies hard. Not

only small-scale steelmakers, but also larger com-

panies including SAIL, JSW, and JSPL recorded

net losses in FY2015-16. Large steelmakers and

the Indian Steel Association (ISA) have called

for urgent government support, and the govern-

ment has responded with various protectionist

measures: raising tariffs on imported steel three

times after 2015; introducing a Minimum Import

Price (MIP); imposing safeguard and AD duties;

and strengthening rules and application of the

Bureau of Indian Standards (BIS). Thanks to such

efforts, large steelmakers have partially improved

their business performances, but the issue of in-

solvency still lingers across the entire Indian steel

industry. The steel sector, one of the country’s

key industries, has become its largest money-los-

ing industry and even been subject to a warning

from the Reserve Bank of India.

However, the Indian steel industry did not

become insolvent not only due to the increase in

Chinese imports, but also because protectionist

government measures led to a weakening of its

global competitiveness in terms of market size,

technology, and costs. As of March 2016, second-

ary Indian steel mills’ per unit capacity was far

lower than the global standard: 34,000 tonnes for

induction furnace manufacturers, 31,000 tonnes

for long product re-rollers, 161,000 tonnes for

CR re-rollers, 101,000 tonnes for sponge iron

This increase in low-cost Chinese finished steel imports allowed India to

reduce its investment in infrastructure construction and improve price

competitiveness in steel-consuming industries, but it hit Indian steel

companies hard.

Featured Articles

Vol.03 June 2017 75

manufacturers, and 380,000 tonnes for electric

arc furnace (EAF) manufacturers. Even before

the wave of Chinese steel imports, Indian steel

makers had been forced to undergo restructur-

ing as their profit structures were aggravated by

disrupted supply and rising costs of fuels and

raw materials such as iron ore, coal, and gas. In

addition to small companies, major private steel

mills including JSPL, Essar, and Bhushan were

already in decline due to the aftereffects of ag-

gressive new investment and M&As at home and

abroad after the mid-2000s. Although the Indian

steel industry may suffer in the wake of a surge

in cheap Chinese steel imports, it will place itself

in a position to help further boost economic de-

velopment if it takes this as an opportunity for

industrial restructuring.

Second, examining China’s investment trend

in the Indian steel industry, China seems to be

in the second stage of its investment in India.

In the first stage, China turned its eyes to India

as a source of supply for the steel raw materials

needed for the country’s high growth. In 2005,

Sinosteel, a state-owned company for the de-

velopment, processing, and trade of steel raw

materials, became the first Chinese company to

establish an office in India. Other state-owned

steelmakers such as Baosteel, WISCO (Wuhan

Iron and Steel), and Shougang Group, soon fol-

lowed suit. They first established trade offices or

subsidiaries and then participated in joint ven-

tures for processing raw materials with Indian

companies. In 2008, Baosteel acquired a 35%

share of a joint venture with India’s Visa Steel to

make ferrochrome.

This second stage of investment began in

2012-2013 when the Chinese government rec-

ommended that each industry look overseas

to address the burgeoning issue of oversupply.

When Chinese construction companies entered

India to build power plants, heavy electric equip-

ment companies followed, as did steelmakers to

provide steel products. In 2013, WISCO set up a

new silicon steel processing and distribution cen-

ter with an annual capacity of 20,000 tonnes in

order to supply grain-oriented electrical sheet to



an Indian subsidiary of Tebian Electric Apparatus

Stock (TBEA). Baosteel built a processing cen-

ter in India with an annual capacity of 150,000

tonnes to provide auto sheet not only to Fiat In-

dia, but also to Chinese automakers that plan to

enter the market, including Shanghai Automotive

Industry Corporation (SAIC). As the Modi gov-

ernment is actively working to attract FDI from

China, Chinese steelmakers’ eventual penetration

into India will depend on the degree to which

Chinese steel-consuming industries invest in In-

dia. In the future, Chinese steelmakers’ entry into

India will reach a third stage encompassing both

downstream, including galvanized and cold-roll-

ing mills, and upstream production.

If Chinese capital and

technology spur infra-

structure construction

in India within the next

five years and Chinese

companies increase their

investment in India’s

manufacturing sector

Featured Articles

Table 3. Crude Steel Capacity Target under the Draft NSP 2017

FY2015 (actual) FY2020 (F) FY2025 (F) FY2030 (Target)

Draft NSP1) (2017)

Crude steel capacity 122 147 (+25) 236 (+89) 300 (+64)

Crude steel production 89.3 125 200 255

Apparent finished steel use 81.5 111 151 206

WSD (Sept. 2016) Crude steel production 89 109 127 -

worldsteel (Sept. 2015) Apparent finished steel use 80.1 120 177 -

worldsteel (Sept. 2016)2) Apparent finished steel use 80.1 106 147 188*

Note: 1) Draft NSP 2017 assumes GDP growth rate to be 7.5%/y, 2) A figure noted by asterisk (*) is an estimate from worldsteel’s forecast of 241 Mt by 2035Source: Ministry of Steel of India, World Steel Association, World Steel Dynamics

(Mt)

Heavy investment in manufacturing may drive steel demand in India, leading to possible supplyshortages in the medium to long-term

India needs to ensure a more investment-friendly environment

in order to prevent any steel supply shortages that may occur

over the medium-to-long run.

Vol.03 June 2017 77

in response to the OBOR initiative and the Modi

administration’s “Make in India” policy, Japanese

and Korean companies are expected to similarly

expand their investment in the country in an ef-

fort to stake an early claim in the market. If Indian

companies, which have dragged their feet in terms

of investment due to a lack of capital and business

viability, join the manufacturing investment band-

wagon, steel demand is likely to surge. Within the

next five to ten years, India may experience as sim-

ilar surge in steel demand as did China in the early

2000s. According to the draft National Steel Policy

of 2017 (NSP) released by the Indian government,

apparent finished steel use is expected to increase

to 111 Mt by 2020 and 206 Mt by 2030. India

needs to dramatically increase its crude steel ca-

pacity in order to keep steel self-sufficiency in line

with such elevated demand.

The Indian government expects that the coun-

try’s crude steel capacity will increase by 25 Mt by

2020, 89 Mt by 2025 and 64 Mt by 2030 to satisfy

the continuously rising domestic steel demand

and to export some steel products. Considering

that the sponge iron/mini blast furnace/induction

furnace/EAF unit shows inferior global competi-

tiveness with an annual capacity of 20-30 Mt, it

could be driven out of the market; therefore India

needs to invest more upstream. The Indian Minis-

try of Steel estimates that the NSP 2017 calls for

USD 150 billion in capital in order to realize its

goals. However, India’s major private steelmakers,

troubled by managing assets from foreign M&As,

lack the financial capacity to invest in upstream.

Without foreign investment and technology, it

seems challenging to build any advanced integrat-

ed steel mills. Therefore, India needs to ensure a

more investment-friendly environment in order to

prevent any steel supply shortages that may occur

over the medium-to-long run.

While monitoring the status of supply and

demand and import restriction trends in India,

Chinese steelmakers are reportedly also studying

cases of foreign entry into India by global steel-

makers, including Japanese steelmakers, POSCO,

and ArcelorMittal. They are well-aware of the

failures of global steelmakers’ long-term projects

to develop their own mines and build integrat-

ed steel mills in India, despite their global-level

technology and capital, stemming from internal

Indian social and political issues, red tape, and

substandard administration. World Steel Dynam-

ics (WSD) estimates India’s crude steel produc-

tion will reach 127 Mt by 2025, far lower than

the 200 Mt projected in the NSP 2017. In the fall

of 2016, the World Steel Association (worldsteel)

lowered India’s mid-to-long-term growth forecast

for apparent finished steel use from 8% to 6% per

annum. It therefore appears that the Indian gov-

ernment should substantially improve the foreign

investment environment in order to realize the

NSP 2017 goals and actively attract Chinese and

other foreign steelmakers.



Soon after Xi Jinping was sworn in as General

Secretary of the Communist Party of China in

November 2012, he unveiled the vision known

as the “Chinese Dream.” Xi’s Chinese Dream is

characterized by achieving the so-called “Two

100s”: China becoming a moderately well-off so-

ciety with per capita GDP of over USD 10,000 by

2021, the 100th anniversary of the founding of

the Chinese Communist Party, and China becom-

ing a fully developed country by about 2049, the

100th anniversary of the founding of the People’s

Republic of China.

In order to realize this dream, various policies

are being implemented, including the “One Belt,

One Road (OBOR)” initiative, a three-stage plan

to sophisticate China’s industrial structure (Made

in China 2025 Manufacturing giant 2035

Innovation power 2049), and the “Internet Plus”

action plan. OBOR is designed to provide a cat-

alyst for the “reform and opening-up 2.0” being

driven by President Xi.

The “reform and opening-up 1.0” period took

place over the last 30 years. Beginning with four

small special economic zones (SEZ) in southern

China in the late 1970s, then-President Deng Xia-

oping eventually opened 14 coastal cities and the

entire Pearl River Delta to foreign investment in

the 1980s. Deng formulated a three-stage devel-

opment plan which aimed to open a part of China

to all of China (dot line plane). The next Pres-

ident, Jiang Zemin, followed in the footsteps of

his predecessor by developing the Yangtze River

Delta in the 1990s. In the 2000s, President Hu

Jintao implemented the Grand Western Devel-

opment Program, the Northeast Revitalization

Plan, and the Rise of Central China Plan. As these

examples show, China’s reform and opening has

expanded from south to north, and from the

Eastern China to the Western Central China re-

gion.

Unlike his predecessors, who focused on do-

mestic development, President Xi is attempting

to connect the developed eastern coastal regions

and the less-developed central western regions to

the outside world by both land and sea. In doing

so, he is seeking to address regional imbalances,

Chinese Steel Moves along the One Belt, One Road Dr. Chang-do Kim Senior Principal Researcher POSCO Research Institute [email protected]

Featured Articles

Vol.03 June 2017 79

ease overcapacity, and encourage local companies

to expand overseas. While Deng’s reform and

opening-up policies fueled domestic development

introducing advanced foreign technology and

experience, Xi’s OBOR seeks to apply China’s ac-

cumulated know-how in rapid growth to pioneer

overseas markets and expand its clout within the

global community. During this process, China’s

reform and opening policies have been upgraded

in terms of quality.

When President Xi un-

veiled the concept of a

“New Silk Road” during

a visit to Central and

Southeast Asia in Sep-

tember and October

2013, it was generally

accepted as more of a dream than a vision. There

seemed to be a low likelihood of connecting Asia,

Africa, and Europe along the former Silk Road

through an economic belt.

However, Chinese leaders have since pursued

internal measures to create new policies to realize

OBOR, and externally they took advantage of

summit meetings to persuade leaders in other

countries to participate in the initiative. Thank

to such efforts, the Chinese government began

to actualize this “New Silk Road” and announced

OBOR in March 2015. “One Belt” refers to the

land-based “Silk Road Economic Belt” and “One

Road” describes an oceangoing 21st century

“Maritime Silk Road.” The initiative aims to rein-

vigorate the overland Silk Road first established

during the Han Dynasty (BC 206-220) and the

maritime Silk Road that emerged during the

Ming Dynasty (1368-1644) with a view to con-

solidating the development demand in Eurasian

countries and establishing collaborative net-

works.

The OBOR initiative as envisioned by the

Chinese government directly or indirectly con-

nects 65 countries with a combined population

of 4.4 billion people. This accounts for 63% of the

world’s population, and their total economic out-

put of about USD 21 trillion represents roughly

OBOR, the key of “Reform and Opening-up 2.0”for realizing the “Chinese Dream”


Source: Compiled from the Chinese government and media reports

One Road: 21st Century Maritime Silk Road

One Belt: New Silk Road Economic Belt

NetherlandsRussia

Turkey

IranGreece

Kenya

Sri Lank

India

Indonesia

UzbekistanKazakhstan

Reform and Opening 2.0

The concept of “New Silk Road”unveiled by President Xi

(September-October 2013)

Contributing to theSilk Road Fund

(USD 40 billion, December 2014)

The vision of OBOR released bythe Chinese government

(March 2015)

Figure 1. National Development Policies in China and Vision of OBOR Economic Zone

NortheastRevitalization Plan(2003)

Development of Beijing, Tianjin and Bohai Bay (2000s)

Development of Yangtze River Delta (1990s)

Development of the Pearl River Delta (1980s)

Grand WesternDevelopmentProgram (2001)

Rise of CentralChina Plan (2006)


29% of the total global economy. To allow the

economic linkage of this vast area, China has set

five major goals for OBOR: policy coordination,

facility connectivity, unimpeded trade, financial

integration, and people-to-people bonds. These

goals aim to reduce trade and investment barriers

through the development and connection of in-

frastructure in neighboring OBOR countries.

China has contributed USD 40 billion to a

Silk Road Fund to finance OBOR and established

the Asian Infrastructure Investment Bank (AIIB)

with an initial USD 100 billion in capital. The

AIIB welcomed 57 founding members in March

2015, and at the first annual meeting in June

2016 approved USD 509 million in investment in

its first four projects, including highway construc-

tion in Pakistan and Tajikistan. Using this as its

financing method, the OBOR project has become

a more realistic plan.

T he land-based Si lk

Road branches into

three routes: the North

Line which starts in Bei-

jing and crosses Russia

and Germany to reach

Northern Europe; the

Middle Line which ranges from Beijing to XiAn,

Afghanistan, and eventually Paris; and the South

Line which links from Beijing to Pakistan, Iran,

Featured Articles

Linking transnational economic corridors and constructing industrial complexesand new cities

Table 1. OBOR’s Five Major Goals

Goals Details

Policy coordination

Communication Inter-governmental communication regarding respective economic development strategiesMacro-policy exchanges Inter-governmental policy connection; joint formulation of collaboration methodsSupport for cooperation Providing policy support for the implementation of practical cooperation and large-scale projects

Facility connectivity

Transport Linking disconnected roadways; alleviating transport bottlenecks; and improving road network linkagesEnergy Constructing cross-border power supply networks; cooperating on regional power grid upgrade and transformationCommunications Installing cross-border optical communications cables and undersea optical cables to connect continents

Unimpeded trade

Convenience Removing investment and trade barriers; reducing clearance costs; improving customs proceduresBalance Finding new growth engines for trade; promoting balanced trade; expanding the scope of mutual investment Encouragement Encouraging OBOR nations to invest in China and Chinese companies to invest in infrastructure construction in OBOR nations

Financial integration

Currency settlement Expanding the scope and scale of currency swaps and settlementFinancial cooperation Seeking cooperation between related nations through a special financial institution under the Shanghai Cooperation Organization (SCO)Financial funding Jointly establishing the AIIB and the New Development Bank; expediting the creation and operation of the Silk Road FundBonds Issuing yuan-denominated bonds by related countries and by companies with high credit ratings inside China; issuing bonds of Chinese financial institutions and companies in yuan and foreign currencies outside China

People-to-people bonds

Cultural training Annually providing 10,000 government scholarships in countries along OBOR; jointly applying for inscription as UNESCO World Cultural Heritage sites; simplifying visa processes in related OBOR countries; conducting a project for maritime Silk Road cruise linersMedical care Enhancing joint responses to public medical accidents; providing medical relief and aid; expanding cooperation in traditional medicine Science and technology Constructing a joint research center, international technology transfer center, and maritime collaboration center

Source: Vision and Actions on Jointly Building the Silk Road Economic Belt and 21st Century Maritime Silk Road, National Development and Reform Commission (NDRC) of China, Chinese Ministry of Foreign Affairs, and Chinese Ministry of Commerce, March 28, 2015

Vol.03 June 2017 81

Turkey, and finally Spain. By examining its OBOR

policies, China can be seen to have been focusing

on connecting infrastructure facilities along the

land-based Silk Road.

China is currently constructing six trans-

national economic corridors in border areas: a

China-Mongolia-Russia corridor; a new Eurasian

land bridge of freight trains; a China-Central

Asia-West Asia corridor; a China-Pakistan corri-

dor; a Bangladesh-China-India-Myanmar corri-

dor; and a China-Indochina Peninsula corridor.

The Pakistan corridor is particularly meaningful

since it not only connects infrastructure between

the two countries, but also creates industrial

complexes along the route. This example clearly

illustrates how the OBOR infrastructure project

will be followed by the construction of industrial

complexes and new population centers in the

OBOR nations and their vicinities.

On May 14-15, 2017,

the Chinese government

h e l d a m a j o r OB OR

summit in Beijing, par-

ticipated by 29 foreign

heads of states and

governments, to spur

the implementation of the initiative. The AIIB ex-

pects an additional 25 members to join this year.

There are several reasons why OBOR is rapidly

developing both internally and externally.

On the external front, first the US strategy of

The accelerating OBOR project

Figure 2. OBOR’s Six Transnational Economic Corridors

Source: Compiled from the Chinese government and media reports

• Connected with Russia’s “Trans-Eurasian Belt Development (TEPR)” and Mongolia’s

“Steppe Road” projects• Agreed during the trilateral summit among China,

Mongolia, and Russia (September 2014)• Lifted to the international strategic project (January 2015) • NDRC released the “China-Mongolia-Russia Economic

Corridor Plan” and designated seven cooperation areas, including infrastructure consotruction (September 2016)

• A 2,800-km network of roads and railways• Implementation accelerated following President Xi’s

visit to India (September 2014) and Prime Minister Modi’s visit to China (May 2015)

• A 10,900-km railway network to link from Lianyungang in China to Rotterdam in the Netherlands

• Related to about 30 countries

• Aims to expand logistics, financial and information exchanges with countries in the region and boost local cooperation by linking roads and railways

China-Mongolia-Russia Corridor

Bangladesh-China-India-Myanmar Corridor

Construction of New Eurasian Land Bridge

China-Indochina Peninsula Corridor

Moscow Irkutsk

Ulaanbaatar

Gwadar Port

New DelhiKolkatai

Dhaka Hanoi

Bangkok

Singapore

Nanning

Russia

Beijing

Shenzhen

Kunming

Kuala Lumpur

China-Central Asia-West Asia Corridor• An oil and natural gas pipeline connecting

Xinjiang to the Persian Gulf, the Mediterranean coast and the Arabian Peninsula

• Lines A, B and C between China and Central Asia (in operation) and line D between Turkmenistan and Xinjiang Uyghur


China-Pakistan Corridor

• More than 30 MoUs signed during President Xi’s visit to Pakistan (April 20, 2013)

• A USD 46 billion project to build a 3000-km network of roads, railways, pipelines to transport oil and gas, fiber cables, and industrial complexes from Pakistan’s Gwadar Port to Kashgar City in Xinjiang to be scheduled by 2020


a “pivot to Asia” has been suspended. Last Janu-

ary, President Donald Trump signed an executive

order formally halting US participation in the

Trans-Pacific Partnership (TPP) and demonstrat-

ed his intention to focus on domestic issues. The

OBOR project will accelerate in the absence of US

restraints on China.

Next, the countries linked through OBOR

feature high growth potential. More than half of

the 65 countries under the OBOR initiative are

developing countries with a per capita GDP below

USD 10,000 and have been driving rapid growth

in their respective regions. Since the 2000s, the

OBOR countries’ GDP growth rates have sur-

passed the global average. According to the World

Bank, the average GDP growth rate of OBOR

countries from 2000 to 2010 was 6.7%, surpass-

ing the global average by 3.9%p. During this pe-

riod, their annual average growth rates in trade

and FDI were 18.9% and 14.8%, respectively, far

higher than the global means of 1.5% and 9.0%.

Even since 2011, economic development along

the OBOR routes have shown a similar trajectory.

China is clearly attempting to accelerate the imple-

mentation of OBOR in order to reap the benefits

of the high growth potential in these regions.

On the internal front, first the Chinese gov-

ernment hopes to strike a balance in its regional

development by connecting developed eastern

China with less-developed central and western

China, and eventually to areas overseas. In some

eastern provinces, GDP per capita is three times

higher than that recorded in central and western

provinces. The OBOR project needs to be expedit-

ed in order to swiftly address such regional imbal-

ances.

Second, China is helping domestic companies

pursue foreign expansion into neighboring OBOR

countries by linking infrastructure with them.

In doing so, it hopes to address domestic overca-

pacity. The operation rate of Chinese industries

experiencing overcapacity stands at only around

60-70%. It is desperate for them to seek overseas

expansion.

Third, China is attempting to diversify the

routes for the transport of resources through

The Chinese steel industry has begun to search for a way forward

through OBOR for the following reasons. Projections for expanded steel

consumption based on OBOR are impressive; and steel demand should

further expand if OBOR countries expedite related development.

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Vol.03 June 2017 83

OBOR. As the Chinese economy expands, its de-

pendence on oil imports has been growing. About

80% of China’s oil imports pass through the

Strait of Malacca and the South China Sea, which

creates geographic concerns due to its vulnerabil-

ity to a US blockade. Therefore, in order to reduce

its dependence on these routes, China is seeking

to develop alternatives along the OBOR routes,

such as the Myanmar-China pipelines.

As Chinese economic growth slows, the gov-

ernment is working hard to identify new growth

engines. Given the high expectations for OBOR,

the country is expediting investment and de-

velopment in the OBOR region. According to

the Chinese Ministry of Commerce, Chinese

companies had established 56 economic zones

among OBOR countries by the end of 2016, with

an accumulated investment of USD 18.5 billion.

China’s trade with OBOR countries totaled USD

3.1 trillion for the last three years, accounting for

26% of total trade. If infrastructure connectivity

in this region increases, trade will rise as well.

During the initial peri-

od of reform and open-

ing-up (1978-2012), the

Chinese steel industry

grew quickly, bor ne

along by the country’s

rapid economic growth

and local governments’ competing investments.

China’s crude steel production was a mere 37.12

Mt in 1980, but had surged to 101.24 Mt by

1996, 222.34 Mt by 2003 and 512.34 Mt by

2008, finally peaking at 822.7 Mt in 2014. Its

compounded annual growth rate was 9.5% from

1980 to 2014. However, the Chinese steel indus-

try has been suffering severe aftereffects of this

accelerated growth: falling steel consumption

following the economic slowdown that has tak-

en place since 2014; prolonged oversupply with

declining steel prices; and suspension of facility

operations and a rising number of bankruptcies

stemming from the spike in financial, environ-

mental, and labor costs.

Under such circumstances, the Chinese steel

industry has begun to search for a way forward

through OBOR for the following reasons. First,

projections for expanded steel consumption based

on OBOR are impressive. Steel consumption is ex-

Chinese steel moves along the OBOR routes

(1,000 tonnes, kg)

Country Apparent Steel Use1

Apparent Steel Use per Capita2 Exports3 Imports4 Net

Imports

Kazakhstan 2,943 167 1,705 505 -1,200

Russia 44,578 311 29,702 4,364 -25,338

Ukraine 3,823 85 17,721 804 -16,917

Uzbekistan 1,842 62 17 1,160 1,143

Bangladesh 4,209 26 5 3,967 3,962

India 89,353 68 7,563 13,284 5,721

Indonesia 13,656 53 2,003 11,413 9,410

Malaysia 11,629 383 1,823 7,816 5,993

Myanmar 2,605 48 2 2,420 2,418

Pakistan 7,087 38 53 3,411 3,358

Philippines 10,186 101 107 7,282 7,175

Singapore 5,100 910 1,729 5,180 3,451

Sri Lanka 1,028 50 1 951 950

Thailand 19,458 286 1,254 14,628 13,374

Viet Nam 21,226 227 1,512 16,343 14,831

Japan 67,800 536 40,804 5,918 -34,886

South Korea 58,125 1,156 31,173 21,674 -9,499

China 700,350 509 111,556 13,178 -98,378

Table 2. China and OBOR Nations’ Steel Use, Imports, and Exports (2015)

Note: 1) Crude steel equivalent, 2) kg crude steel, 3) & 4) Semi-finished and finished steel productsSource: worldsteel



pected to increase by 30 Mt annually simply for the

transportation and infrastructure projects draw-

ing on central and local government investment.

Moreover, steel demand should further expand if

OBOR countries expedite related development.

Therefore, the Chinese steel industry has been

actively working on rationalizing distribution,

improving competitiveness, and accelerating

foreign investment under the OBOR initiative.

Steelmakers in Western Central China, including

JISCO and Panzhihua Iron and Steel, are finding

themselves playing a greater role and growing in

Featured Articles

Country/Region 2016 2015 2014 2013 2013-2016 CAGR(%)Group Country/Region Export Share (%) Export Share (%)

Major Area Asia 81,944 75.2 79,652 64,471 42,611 68.4 24.4

Europe 7,650 7.0 9,555 7,550 5,066 8.1 14.7

North America 1,894 1.7 3,334 4,512 2,804 4.5 -12.3

Latin America 7,806 7.2 9,574 9,552 6,485 10.4 6.4

Africa 8,844 8.1 9,437 6,912 4,717 7.6 23.3

Oceania 836 0.8 852 793 651 1.0 8.7

World 108,990 100 112,405 93,790 62,340 100 20.5

Asia Taiwan 2,526 2.3 2,502 2,823 1,561 2.5 17.4

India 3,330 3.1 4,762 3,798 1,646 2.6 26.5

Japan 1,263 1.2 1,328 1,567 772 1.2 17.8

Pakistan 2,925 2.7 2,556 1,461 795 1.3 54.4

Korea 14,350 13.2 13,496 12,969 9,724 15.6 13.8

Indonesia 5,839 5.4 5,105 3,402 2,248 3.6 37.5

Malaysia 3,350 3.1 3,312 2,484 1,808 2.9 22.8

Thailand 6,234 5.7 4,730 3,692 2,862 4.6 29.6

Vietnam 11,704 10.7 10,148 6,628 3,867 6.2 44.7

Singapore 2,970 2.7 3,226 3,215 2,935 4.7 0.4

Philippines 6,544 6.0 5,609 4,779 2,446 3.9 38.8

Cambodia 109 0.1 63 56 55 0.1 25.6

Laos 88 0.1 74 64 28 0.0 46.0

Myanmar 2,109 1.9 2,173 1,908 1,078 1.7 25.1

Brunei 145 0.1 136 85 98 0.2 14.1

CIS Russia 717 0.7 634 886 978 1.6 -9.8

Uzbekistan 270 0.2 249 383 457 0.7 -16.1

Ukraine 279 0.3 168 239 327 0.5 -5.2

Kazakhstan 239 0.2 239 308 513 0.8 -22.4

Kyrgyzstan 65 0.1 60 77 80 0.1 -6.8

Eastern Europe/ME/Africa

Turkey 2,104 1.9 3,060 1,283 577 0.9 53.9

Poland 238 0.2 159 161 106 0.2 30.9

Saudi Arabia 3,122 2.9 2,658 2,318 1,255 2.0 35.5

UAE 2,027 1.9 2,354 1,996 1,156 1.9 20.6

Iran 1,539 1.4 2,109 1,490 888 1.4 20.1

Qatar 178 0.2 167 137 83 0.1 28.8

Egypt 1,554 1.4 1,537 1,034 309 0.5 71.3

Source: Compiled by the author based on CEIC data

Table 3. China’s Steel Exports to Neighboring Countries (1,000 tonnes)

Vol.03 June 2017 85

importance since this western central area is the

starting point for the overland Silk Road. It is

crucial to increase the competitiveness of steel-

makers in this area in order to satisfy surging

steel demand in the region and penetrate into

neighboring foreign markets. To this end, the Chi-

nese government is sparing no effort in providing

related policies and funding.

Steelmakers in the Eastern and Northeastern

regions, such as Baowu Steel, Hebei Steel, and

Ansteel, are currently emphasizing strengthening

the competitiveness of steel mills in coastal areas.

By doing so, they are hoping to penetrate into

countries with high growth potential along the

maritime Silk Road. China is especially interested

in nations along this water route with high po-

tential for steel consumption or imports—India,

Thailand, Indonesia, Vietnam, Pakistan, and Ban-

gladesh, among others.

Second, over the recent few years Chinese

steel exports have been focused on the OBOR

nations. Since becoming a net steel exporter with

43 Mt in 2006 (import, 18.51 Mt), China’s steel

exports have continued to grow. Gross exports

hit a record high of 112.41 Mt and net exports

reached 99.37 Mt in 2015. Last year, steel ex-

ports surpassed 100 Mt. The type of steel prod-

ucts exported has been increasingly shifting from

low-grade steel products, such as long products,

to high-grade types, including flat products.

China’s major steel export destinations in-

clude South Korea and Southeast Asia. If the

OBOR project is accelerated and Chinese steel

competitiveness improves, steel exports to other

countries/areas, including India, Pakistan, and

the Middle East, will increase.

Lastly, if infrastructure connectivity with

OBOR nations improves, China is positively con-

sidering investing in nations with high growth

potential for steel. Since 1990, the accumulated

number of Chinese FDI cases in the steel industry

has surpassed 70, including 20 in the last three

years alone. This illustrates how the Chinese steel

industry is ramping up its foreign expansion. The

major current investment destination is South-

east Asia as part of efforts to create export hubs

and build service centers in key markets. The

nation’s foreign expansion still focuses on long

products. Additionally, it aims to address domes-

tic overcapacity and avoid environmental and

financial restrictions.

However, the focus of China’s OBOR expan-

sion will increasingly shift to flat products and

investment in foreign markets. After securing a

bridgehead in foreign markets, China is expected

to expand the value chain. This is line with the

overall OBOR process of constructing infrastruc-

ture in neighboring countries establishing ba-

sic industries creating industrial complexes

building new cities.

Deng Xiaoping initiated

“Reform and Opening up

1.0” in 1978, whereas Xi

Jinping has envisioned

his “Reform and Open-

ing up 2.0” in the form of

the OBOR project. While

this second phase will be implemented over the

next 30 years, the success of the project is directly


How much will OBOR change the future of the Chinese steel industry?


linked to the future of the Chinese steel industry.

For OBOR to thrive, China needs to address

the following issues. First, the OBOR nations in

which China has the greatest interest are for the

most part developing countries with high-risk

business environments, including rampant cor-

ruption, inadequate legal systems, and unclear

policies. Second, advanced countries such as

the USA and European nations will increasingly

seek to rein in China during the implementation

of OBOR. China must work to minimize con-

flicts with these countries. Third, China needs

to reduce OBOR nations’ local antipathy to its

massive exports and investments. If China sim-

ply pursues its own interests without any ap-

parent benefits in the local communities, OBOR

cannot succeed. Fourth, Chinese companies

need to accumulate experience in foreign entry.

It has only been two to three years since China’s

foreign expansion began to take off; therefore,

the country needs to continue to amass know-

how in foreign expansion and strengthen local-

ized management.

If China properly addresses the above issues

and successfully pursues the OBOR project, its

steel industry will face a markedly different future.

Featured Articles

Company Announcement Country of Investment Details of Investment

NISCO Mar. 2014 Indonesia Construction of JV producing wire rod and bar (with Gunung Gahapi)

WISCO Mar. 2014 Indonesia Construction of JV integrated steel mill (US$ 5 bil.)

DeLong Group May 2014 Thailand Investment in HR strip mill (annual capacity of 0.6 Mt)

June 2014 Malaysia Signing of MoU with local company Perak on ISM producing flat products (3 Mt)

Panhua Group June 2014 Philippines Plan to build a pre-painted steel mill

SIPG July 2014 Malaysia Groundbreaking for steel PJT (3.5 Mt)

Kunming Steel Sep. 2014 Vietnam Operation of JV with VN Steel (annual capacity of 0.5 Mt)

WISCO Nov. 2014 India Establishment of electrical sheet service center

Tsingshan Steel Nov. 2014 Indonesia Building of nickel smelter plant JV

June 2015 Indonesia Signing on flat stainless steel project (3 Mt)

Shougang Jan. 2015 Malaysia Completion of first BF (0.7 Mt) of integrated steel mill (ISM) project (Total 3 Mt)

Magang Mar. 2015 Kazakhstan Signing of MoU on steel PJT (1 Mt)

China Venture May 2015 Malaysia Plan to acquire stainless production line (RMB 400 mil.)

Ansteel July 2015 Indonesia Consideration of building new ISM (5 Mt)

Hebei Steel Apr. 2016 Serbia Acquisition of iron ore mine with 270 Mt reserves (‘14); the Hebei Provincial Government approved ISM PJT (5 Mt) using this mine; acquisition of Smederevo mill in Serbia

JISCO July 2016 Jamaica Acquisition of Jamaican aluminum processing plant from Russia’s lUS RUSAL

WenAn Steel Aug. 2016 Malaysia Signing of MoU on building 5 Mt ISM

Source: Compiled from Mysteel and media reports

Table 4. Chinese Steel Investment in OBOR Nations (Including Plans)

Vol.03 June 2017 87

First, China can realign its steel industry

on the domestic and foreign levels through the

OBOR project, leading to maximized efficiency

in raw material procurement, steel production,

and sales. This will allow Chinese steelmakers to

increase their global competitiveness.

Second, the Chinese steel industry will be

able to enhance its overall technology and prod-

uct quality while exploring neighboring OBOR

markets. China is well aware that the project

cannot survive if based on obsolete facilities

and technologies. Experts also advise that the

Chinese steel industry requires advanced facil-

ities and technologies to reduce local antipathy

in the OBOR nations and advance into these

markets. The “Made in China 2025” and “In-

ternet Plus” initiatives aim to sophisticate and

smarten the steel industry. These initiatives will

become an important foundation for exploring

OBOR markets.

Finally, the Chinese steel industry should

boost its eco-friendliness and further reduce

environmental emissions over the process of

developing OBOR. Since China has already

experienced environmental and energy issues

during the rapid growth of its steel industry, it

can be expected to address environmental and

energy issues from the early stages of the OBOR

project. This is what neighboring countries an-

ticipate from China.

In conclusion, China’s OBOR project can

provide additional opportunities for global

steelmakers if it succeeds in increasing China’s

domestic steel demand and nurturing steel in-

dustries along OBOR. However, if the Chinese

steel industry monopolizes neighboring mar-

kets and competition intensifies among global

steelmakers in these regions, disputes could

certainly arise.

Since China holds the lion’s share of the

global steel market and its implementation of

OBOR is accelerating, the country’s impact on

neighboring countries, such as those in South-

east and Central Asia, is becoming increasingly

prominent. Therefore, the Asian steel commu-

nity needs to establish collaboration channels

among OBOR-related countries, companies, and

international organizations in accordance with

changing trends in Chinese policies. In addition,

necessary settlement measures among the Asian

countries should be emplaced before any conflict

or dispute becomes serious. If so, the Asian steel

industry will be able to pursue balanced and

sound development.

The Asian steel community needs to establish collaboration channels

among OBOR-related countries, companies, and international

organizations in accordance with changing trends in Chinese policies.


MEASURING AND FORECASTING STEEL MARKET CONDITIONS WITH THE POSRI STEEL INDEXMarket Trend and Analysis


MEASURING AND FORECASTING STEEL MARKET CONDITIONS WITH THE POSRI STEEL INDEX

Center for Economic Research and Information AnalysisPOSCO Research [email protected]

M A R K E T T R E N D & A N A LY S I S


Vol.03 June 2017 89

MEASURING AND FORECASTING STEEL MARKET CONDITIONS WITH THE POSRI STEEL INDEX



As the quotes above show, steel industry insiders often

describe how steel market conditions are good or bad, or

have improved or declined. However, it is difficult to be cer-

tain precisely what the “market conditions” may be since

meanings and definitions vary according to the speaker. In

some cases, ‘market conditions’ refer to demand and sup-

ply, while in other cases it can mean prices. Sometimes it is

describing all three.

If steel market conditions could be properly defined us-

ing common indicators, it would be useful for determining

the current status of the steel market and predicting its fu-

ture. In reality, however, this is no simple task for a variety of

reasons, such as the difficulty of selecting key indicators, the

complexity of models, and a lack of statistical expertise.

This article examines different conventional means of

measuring and forecasting steel market conditions, and in-

troduces a simple but effective methodology that POSCO

Research Institute (POSRI) has developed and named the

“POSRI Steel Index.”

Signaling the business cycle: Composite economic index

Over the history of the field of economics, a number of at-

tempts have been made at explaining a particular state or

status using indicators. Both officially and casually, people

often discuss how an economy is good or bad, and the me-

dia routinely broadcasts predictions about the global econ-

omy. In such cases, what does ‘market conditions’ mean?

How are they estimated and how can it be determined

whether an economy is doing well or poorly? To answer

these questions, economists have made continuous efforts

to measure changes in market conditions and use them to

predict the future of the economy.

The United States has long led the systematic develop-

ment of econometrics. One representative institution is the

National Bureau of Economic Research (NBER), which was

established in 1919. The NBER has developed a composite

index that measures both the direction and scope of market

changes. In 1968, the U.S. Department of Commerce further

developed this NBER research into a composite econom-

ic index comprised of 26 indicators and began to use it to

measure and predict market fluctuations.

Composite economic indexes are periodically (primarily

on a monthly basis) released by the OECD, the Economic

Cycle Research Institute (ECRI), the Conference Board, and

respective countries’ bureaus of statistics. They are widely

used as a major indicator to measure and predict the econ-

omy. The components of the monthly composite economic

indexes used in the USA, China, and Korea are shown in Ta-

ble 1. Each country includes unique components comprised

of coincident and leading indexes. The composite economic

index is divided into a coincident index as a measure of the

overall performance of the economy and a leading index in-

dicating economic performance in advance.

A composite index features the advantage that changes

in various indicators can be comprehensively reflected in

a single index, while it is hindered by the fact that only ex-

perts can understand the complex processes of calculation

involved. The calculation of a composite index is difficult to

understand since it uses a variety of statistical techniques,

including de-trending, seasonal adjustment, smoothing,

normalization, and principal component analysis. People at

the working level are able to use the index without any need

“Steel market conditions have improved slightly in some regions, but crisis conditions continue to prevail in some economies.

It is uncertain whether the positive momentum observed earlier this year is robust and sustainable.”

(OECD, Steel Market Developments - Q4 2016)

“Conditions in the world steel market have improved over the past year. However, there are indications that this trend may be

temporary.” (Statement by Ronald Lorentzen, Chairman of the OECD Steel Committee, March 2017)


Vol.03 June 2017 91

Coincident Index Leading Index

USA

• Employment on non-agricultural payrolls• Personal income less transfer payments• Industrial production• Manufacturing and trade sales

• Average weekly hours, manufacturing• Average weekly initial claims for unemployment insurance• Manufacturers’ new orders, consumer goods and materials• ISM new order index• Manufacturers’ new orders, non-defense capital goods excluding aircraft• Building permits, new private housing units• Stock valuations, 500 common stocks• Leading credit Index• Interest rate spread, 10-year Treasury bonds less federal funds• Average consumer expectations for business and economic conditions

China

• Industrial production index• Employment at industrial enterprises• Completion of the amount of investment in fixed assets• Total consumer retail sales• Total value of imports and exports at customs• Total profits of industrial enterprises• State tax revenue• Disposable income of urban households

• Market interest rate spread between short-term and medium-term treasury bill• Industrial ratio of sales to output• Total freight traffic• Volume of freight handled in major coastal ports• Hang Seng mainland free float index• Number of investment projects in fixed assets newly started• Area of commercial buildings newly started• Money and quasi-money (M2)• Consumer expectation index

Korea

• Industrial production index (all)• Index of services (excluding wholesale and retail sales)• Value of construction completed (real)• Retail sale index• Domestic shipment index• Imports (real)• Number of employed persons (excluding agriculture, forestry and fishing)

• Inventory circulation indicator• Consumer expectations index• Producer shipment index, machinery for domestic demand (excluding vessels)• Construction orders received (real)• Net barter terms of trade (price)• Opening-to-application ratio• Korea composite stock price index• Interest rate spread, five-year treasury bonds less call rate

Table 1. Components of Composite Economic Indexes

Source: The Conference Board, National Bureau of Statistics of China, and Statistics Korea

to fully understand the calculation process of course, but

the numbers provided by an index can be so abstract as

to make it difficult to intuitively grasp. For example, when a

composite index increases from 100 to 105, is it comprehen-

sible precisely what such a rise implies?

As the concept of economic conditions itself is vague in

the general economy, certain figures in the form of an index

can be meaningful for macroeconomics. In that case, would

it also be useful to apply the composite index to predict par-

ticular industries rather than the general economy? At the

industry level, a business survey index (BSI) of customers

or producers is more widely used than a composite index.

However, a BSI is simply a supplementary indicator that

helps to observe the economy, and on its own it is insuffi-

cient to measure it.

Nevertheless, composite indexes are not widely used at

the industry level. For consumer goods such as automobiles

and home appliances, business conditions can be measured

by certain sales and production indicators, making a com-

posite index superfluous. However, heavy industries such as

steel and shipbuilding are deeply influenced by the overall

economy and by the performance of related industries, so

there has been an increasing demand for the development

of a composite index. This article contains examples of a

composite index used in the steel industry.1

1 For the shipbuilding industry, the Bank of Korea developed its monthly

Shipbuilding Business Index (SBI) in 2012, but it has not been used continu-

ously. The SBI applies 11 indicators: world fleet, world demolition, world

orderbook, newbuilding price, the Baltic Dry Index (BDI), world seaborne

trade, OECD Composite Leading Indicators, Thomson Reuters CRB Index,

oil price (Dubai), US treasury bill rate (10-year), and a Volatility Index (VIX).



Figure 1. Trends of U.S. Steel Industry Indexes

Source: Re-cited from the U.S. Geological SurveyNote: Shaded areas are business cycle recessions. Asterisks (*) signify peaks and troughs in the economic activities reflected by the indexes.

Examples of composite steel index

To understand market conditions in particular industries,

including steel, it is necessary to identify specialized com-

ponent indicators differentiated from those for the general

economy. How do respective countries develop their own

composite steel indexes and what indicators comprise them?

The Steel Industry Index 2 (monthly) developed by the

United States Geological Survey (USGS) is a representative

composite index for the steel industry. As shown in Figure1,

the Steel Industry Index is divided into a coincident index

and a leading index. As of April 2017, the coincident index

stood at 116.4 and the leading index at 114.3. The contin-

uously rising coincident index and slightly falling leading

index signal that steel market conditions will slightly slow.

Table 2 shows what kinds of indicators the USGS used

to compile its Steel Industry Index. The coincident index

includes three indicators: the industrial production index

of iron and steel products, value of iron and steel mill ship-

ments, and total employee hours at iron and steel mills. The

leading index uses nine indicators: average weekly hours

at iron and steel mills, new orders at iron and steel mills,

shipments of household appliances, the S&P stock index

for steel companies, retail sales of U.S. passenger cars and

light trucks, the growth rate of the price of steel scrap, an

index of new private housing units authorized by permit, the

Table 2. Components of U.S. Steel Industry Indexes

Coincident Index

• Industrial production index, iron and steel products• Value of shipments, iron and steel mills• Total employee hours, iron and steel mills

Leading Index

• Average weekly hours, iron and steel mills• New orders, iron and steel mills• Shipments of household appliances• S&P stock index, steel companies• Retail sales of U.S. passenger cars and light trucks• Growth rate of the price of steel scrap• Index of new private housing units authorized by permit• Growth rate of US M2 money supply• PMI

Source: U.S. Geological Survey

1977=100

110

120

100

90

70

80

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

LEADING

COINCIDENT

April

April

110

120

100

90

80

70

2 https://minerals.usgs.gov/minerals/pubs/mii/


Vol.03 June 2017 93

growth rate of U.S. M2 money supply, and the purchasing

managers’ index (PMI).

The Chinese steel industry also has a targeted monthly

composite index: the Steel Industry Sentiment Index3 jointly

developed by the Economic Daily Climate Index by Industry

Research Center and the China Economic Monitoring and

Analysis Center under the National Bureau of Statistics of

China. Table 3 shows ten components of the Steel Industry

Sentiment Index. Considering these elements, the Steel In-

dustry Sentiment Index is deemed a coincident index rather

than a leading index for Chinese steel market conditions.

Although numerous countries have made significant ef-

forts to develop composite steel indexes, it is difficult to find

a globally accepted index, and especially so for a leading

index. One of the reasons for this is the challenge of reach-

ing a consensus on indicators to constitute a composite

steel index. Countries and steelmakers apply different key

indicators that represent their unique steel market conditions

well, so they may prefer to use their own key indicators to

measure market conditions. As stated earlier, however, the

methodology of creating a composite index cannot be eas-

ily utilized by laypersons, so they must depend on indexes

produced by multiple distinct institutions. If it were possible

to make an index that was easy to understand and reflected

well the market conditions by using consistent set of indi-

cators, people at the working level could develop and apply

their own steel indexes.

POSRI Steel Index: A balanced steel scorecard

As a research institute specializing in steel, POSRI has

been conducting research into methodology that would be

able to accurately and astutely predict steel market condi-

tions: the POSRI Steel Index. This monthly index requires

neither specialized statistical analysis nor econometric tech-

niques. It simply emphasizes a balanced viewpoint when

selecting indicators. The POSRI Steel Index aims to cover

a wide range of indicators and avoid bias to any particular

sector.

To achieve this goal, the POSRI Steel Index explicitly

uses four sectors—the economy, steel-consuming indus-

tries, steel demand/supply, and raw materials—to reflect

steel market conditions.4 The USGS’s leading steel index

seems to implicitly consider these four sectors, as depicted

in Table 2. However, the index uses only nine indicators, a

mere one to three indicators per sector. To the contrary, the

POSRI Steel Index uses five indicators each for the four sec-

tors, or twenty in total.

The indicators were selected based on their correlation

to steel prices since POSRI considers steel price to be the

coincident index that best reflects current steel market con-

ditions. For a broad general economy, it is difficult to use

only a single indicator to represent market conditions. Gross

domestic product (GDP) is the most widely used stand-alone

economic indicator, but this index is inappropriate for exam-

ining rapidly-changing conditions since it is estimated only

Table 3. Components of Chinese Steel Industry Sentiment Index

Source: The Economic Daily

• Crude steel production• Steel industry fixed asset investment• Steel mill shipment price index• Steel exports• Steel industry sales• Tax on steel industry• Profit index of steel industry • Employees in steel industry• Current fund for finished products• Steel industry accounts receivable

3 http://www.ce.cn/cysc/ztpd/zszl/index.shtml

4 The idea of examining steel market conditions from a balanced perspective by explicit sector is borrowed from the concept of the Balanced Scorecard (BSC),

which is widely used in business administration. Indicators applied to the POSRI Steel Index are equivalent to the BSC’s key performance indicator (KPI). For

this reason, POSRI’s initial steel index was named the “Balanced Steel Scorecard (BSSC).”



on a quarterly basis. That is why additional composite coin-

cident indexes are required to produce a more useful mea-

sure of economic conditions. In the meantime, companies in

any given industry are mainly interested in sales and profits,

which are primarily determined by price variables. Therefore,

price deserves to be the focus of attention. POSRI presumes

that steel prices alone are sufficient to represent steel mar-

ket conditions. Instead of developing a new coincident steel

index, it has been attempting to identify leading indicators

closely related to steel price fluctuations.

For example, in order to determine the status of the

Chinese steel market, the POSRI Steel Index uses such

indicators as the OECD leading indicator, manufacturing

PMI, automobile production, crude steel production, steel

mill shipments, and iron ore imports. The process of calcu-

lating the steel index using these indicators is simple. First,

changes in indicators year-on-year (YoY) or month-on-month

(MoM) are measured and scores are assigned to the indica-

tors according to the direction. If an indicator rises YoY or

MoM, +1 is added to the indicator score. If it falls, one point

is taken away. Finally, the scores from indicators for each

sector are combined to calculate the sector score. 5 The

maximum value for sector scores is +5 (if all five indicators

rise) and the minimum value is -5 (if all five indicators fall).

The combined total of the scores from the four sectors is the

POSRI Steel Index. It has a maximum total score of +20 and

a minimum total score of -20 (See Table 4).

Using the changes in the total scores, the POSRI Steel

Index can predict steel market conditions, especially prices.

The primary advantage of the POSRI Steel Index is that it

Table 4. Changes in Chinese Steel Indicators and Calculation Methodology for the POSRI Steel Index (Example)

Note: The detailed definitions of the indicators are not disclosed here in accordance with POSCO’s information protection regulations.

Sector Indicator 2016 2017December January February March April

Economy

Indicator 1 + + + + +Indicator 2 + – + + +Indicator 3 + + + + +Indicator 4 + + + + +Indicator 5 + + + + +

Sector Score +5 +3 +5 +5 +5

Steel-Consuming Industry

Indicator 6 + – + + –Indicator 7 + + + + +Indicator 8 + + + + +Indicator 9 – – – – –

Indicator 10 + + + + +Sector Score +3 +1 +3 +3 +1

Steel Demand/Supply

Indicator 11 + + + + +Indicator 12 + + + – +Indicator 13 + – + – –Indicator 14 + + + – –Indicator 15 + + + + +

Sector Score +5 +3 +5 -1 +1

Raw Materials

Indicator 16 + 0 + + +Indicator 17 + – – – –Indicator 18 – + + + –Indicator 19 + + + + +Indicator 20 + + + + +

Sector Score +3 +2 +3 +3 +1

Total Score +16 +9 +16 +10 +8

5 If there is a rare case of no change in indicators, ‘0’ is assigned to the indicator.


Vol.03 June 2017 95

can be intuitively visualized through a comparison of chang-

es in indicators and scores among sectors. (This is because

the POSRI Steel Index is produced through a simple calcula-

tion of +1, -1, or 0.) As shown in Table 4, which examines key

indicators for the four sectors in the first half of 2017, only

two indicators had a negative impact on Chinese steel prices

in February, but the number increases visually after March.

This intuitively indicates that the Chinese steel market is like-

ly to slow gradually in the next quarter.

The POSRI Steel Index is so simple to calculate that

some might doubt its accuracy in predicting steel market

conditions. In the comparison between the POSRI Steel In-

dex and actual steel price fluctuations illustrated in Figure 2,

the POSRI Steel Index moves closely with steel prices, lead-

ing by three to four months. (The cross-correlation coefficient

between the two series is about 0.7.) Notably, the movement

of the POSRI Steel Index from the end of 2016 to April 2017

shows that it continued to fall after peaking in December

2016 (3-month moving average), foretelling the continuous

price decline that took place in China after March 2017.

Considering the simplicity of the model, this is a sub-

stantially impressive result. If it were to undergo a complex

and sophisticated process like the OECD composite index,

it would achieve better results. However, taking into account

the advantage of the POSRI Steel Index that even layper-

sons can easily calculate and instantly utilize it, time- and

money-intensive technical analysis would actually not bring

about significant improvements.

As emphasized earlier, the most important characteristic

and key advantage of the POSRI Steel Index is that it offers a

balanced perspective on the indicators for the four sectors.

By transforming sector scores into radar charts, the POSRI

Steel Index makes it easy to compare economic imbalances

and intuitively grasp market conditions. For example, score

changes for the four sectors in the first half of 2017 are illus-

trated in Figure 3. Compared to January 2017, the score for

Source: POSCO Research Institute, MysteelNote: POSRI Steel Index is a 3-months average

‘05.1 ‘06.1 ‘07.1 ‘08.1 ‘09.1 ‘10.1 ‘11.1 ‘12.1 ‘13.1 ‘14.1 ‘15.1 ‘16.1 ‘17.1

80 20

40 10

60 15

20 5

0 0

-40 --10

-60 --15

-20 --5

-80 --20

(%) (P)

Figure 2. Changes in Chinese Steel Price (YoY) vs. POSRI Steel Index

POSRI Steel Index ( ) Changes in Steel Price ( )



the economy sector increased in April 2017, while scores

for steel supply and demand and raw materials sectors de-

clined. This reflects how the demand and supply balance

in the Chinese economy was recently aggravated by high

mill inventory and falling exports, and coke spot prices con-

tinued to decline. This outcome suggests that the Chinese

steel market is highly likely to slow after the third quarter.

However, with robust scores in the economy and steel-con-

suming industry sectors, a sudden fall is unlikely to occur in

the second half of 2017.

As explained, the POSRI Steel Index methodology is

differentiated from other composite steel indexes in that it is

able to track and manage indicators for the four component

sectors in a balanced manner. Without the need for special-

ized analytical techniques, this methodology can be easily

adopted in other industries. Moreover, with proper indicators

in place, anyone can construct their own index. Therefore,

the POSRI Steel Index may be applicable not only in the

steel industry, but in other areas as well.

A need for a high-frequency index

The most important factor for improving the predictability of

the POSRI steel index is finding the most appropriate indi-

Figure 3. Radar Chart from the POSRI Steel Index (Example)

Raw materials

Economy

Steel- consumingindustry

Steel demand/supply

January 2017

Steel demand/supply

April 2017

Raw materials

Economy

Steel- consumingindustry

cators to effectively reflect the economy. In reality, however,

appropriate indicators do not guarantee high predictability,

since any and all indicators include an inherent time lag. Due

to the time differences in the collection of the statistics, indi-

cators used to calculate the index are only publicly released

one to two months later. Simply put, assuming that one is

predicting the economy for July in June, indicators from April

have to be used. This time lag is the main factor that hinders

the predictability of the steel index, since it is difficult to pre-

dict what sudden changes might occur in the market over

these two months.

To solve this problem, higher frequency data should be

used rather than monthly data as a means to enhance pre-

dictability. For example, if the POSRI Steel Index’s indicators

for the four sectors used weekly data, the time lag could

be better mitigated and current market conditions could be

better reflected in a timely manner. In reality, however, the

amount of weekly data available is considerably less than

that of monthly data. Given the importance of predicting

the steel market, both monthly indexes and weekly indexes

should be used complementarily to enhance predictability.

This would not only improve predictability, but also boost

understanding of the steel market through a multi-faceted

and detailed examination of market conditions.

Note: The center of the radar chart represents -5 and the four apexes indicate +5. The larger the square, the better the economy becomes.

The information, opinions, and analyses herein belong to the authors and do not necessarily represent the official views of POSCO Research Institute

(POSRI). To the best of our knowledge, the information contained herein is accurate and reliable as of the date of publication; however, we do not as-

sume any liability whatsoever for the accuracy and completeness of the information, opinions, or analysis.

We believe the information used in the preparation of this publication to be reliable; however, the reliability of this information cannot be guaranteed.

Although this publication has been made with all possible care and diligence, POSRI cannot guarantee the accuracy, completeness, or correctness of

any information included. This publication is intended for general information and is not intended to be relied upon by readers in making any specific

investment or decision.

POSRI shall not be responsible for any errors or omissions, or any loss, damage, or expenses incurred by reliance on any information or statement

contained herein. For more information, please contact POSCO Research Institute at [email protected], or 82 2 3457 8000.

Disclaimer

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03 - POSRI · 2017-06-30 · industrialization. First, urbanization is the most important construction trend impacting the steel industry. Closely intertwined with rising popula-tion