Key 2012 commercial and market highlights
- In 2012, NAFTA light flat rolled steel demand growth was moderate, at an estimated 5.3% from 65.7 million tonnes in 2011 to 69.2 million tonnes in 2012. According to industry experts, 2013 is expected to remain stable with an increase of 2.1% forecast.
- US capacity utilisation was 75.7% in 2012, slightly higher than the 74.4% in 2011. The market suffered from overcapacity and imports, which had a negative impact on steel prices, and both volume and capacity utilisation declined throughout most of the year. Including preliminary census data, flat rolled imports finished the year 16.9% higher than 2011.
- Severstal shipped 4.5 million tonnes in 2012, or a market share of 6.5% of NAFTA shipments. As a result of the ramp-up of new capacity, primarily in Columbus, we increased annual shipments by 17% compared to 2011. As we continue to ramp-up our new capacities, market share will continue to increase until we reach capacity. Severstal’s utilisation rate is approximately 80%, above the industry’s 2012 average of 75.7%.
- Severstal’s key market sectors are automotive, energy (oil & gas) and service centres. Dearborn shipments are heavily focused on automotive, and total Severstal shipments to the automotive segment reached 1.4 million tonnes in 2012.
- Production of light vehicles finished strongly in 2012, with NAFTA production up 17.4% to 15.4 million units, led by gains of 19.3% in the US, 15.5% in Canada and 12.8% in Mexico. 2013 NAFTA auto production is projected to increase by 3.2% over 2012 to 15.9 million units.
- Overall construction spending in 2012 finished the year 9.2% higher than 2011, with residential construction increasing 15% and non-residential increasing 6%. The AIA (American Institute of Architects) architecture billings index finished 2012 with an average of 50.1 and was above 50 for eight months out of the year; indicating future construction growth. As residential activity in the US continues to improve, we expect to see increased demand in this segment.
- The energy market has levelled off, but the impact of shale exploration will be favourable, once governmental and environmental issues are addressed. There are signs of renewal as 2013 drilling programmes begin and new pipeline projects have been announced.
- Industry steel selling prices declined by 11.2% in 2012 with CRU hot band prices averaging $723/t for the year. Prices declined throughout the first half of 2012 with some recovery by year end. Steel selling prices are expected to remain relatively flat given the global market environment, combined with the low utilisation levels in the US. Even with average steel prices remaining flat in 2013 compared to 2012, as we gain market share in high value-added products, revenue will increase.
- Our shipments continue to be focused on the US with only Mexico accounting for any significant export shipments. Our mini-mill in Columbus, Mississippi, is benefiting from increasing industrial activity in the region of Mexico, and Columbus continues to obtain auto quality compliance certificates, granting access to a wider range of automotive customers.
- In 2012, our strategy in the US was to complete modernisation at both steel plants to ensure they are fully prepared to benefit from the continuing recovery from the US’s 2009-2010 recession and expected US industrial and infrastructure revitalisation. In total, for the cycle and by the end of 2012, we spent US$3.1 billion on expansion and modernisation programmes. With these investments now complete, our annual maintenance capex in Severstal International is expected to be minimal.
- Our priority for 2013 is to focus on increasing efficiency of our operations. We are now analysing our sales and purchasing practices to reduce costs and optimise margins, in addition to increasing our sales of high value-added products.
Dynamics of Severstal International’s sales volumes in 2012, (in thousand tonnes)
Dynamics of Severstal International’s average steel price* in 2012, $/T
* Steel price includes all steel products, based on mixed price terms, resulting ex works.