Annual Review 2016Sustainable progress
2016 was a year of important progress for ArcelorMittal.
Action 2020 is ArcelorMittal's commitment to structurally improving profitability and cash flow generation.
Good corporate governance is about compliance, continuous stakeholder dialogue and being a good corporate citizen.
Details of our steel and mining operations, financials, production facilities and shareholder information.
2016 global GDP growth
Global GDP growth in 2016 was estimated at 2.2%, the lowest since the 2008 economic crisis, with political uncertainty contributing to a difficult year for much of the world economy. Growth slowed in our two biggest markets, Europe and the US, while growth in China is estimated to have slightly decelerated to 6.7%. Brazil and Russia suffered a second year of recession. Nonetheless, 2016 ended with steel demand and production both growing, and steel spreads returned to comparatively healthy levels after the unsustainably low prices experienced during the latter half of 2015 and early part of 2016.
Long-term stakeholder trends, such as increasing customer interest in both more sustainable products and supply chain assurance, continued to gather momentum. The question of how business as a whole, and steel in particular, can contribute to a lower-carbon future was a priority for policy makers, business leaders and wider society. Growing expectations that businesses should record and transparently report their non-financial performance were reflected in new or expanded reporting requirements.
Read more about the steel market and stakeholder context in each of our business segments.
Read more about how we report non-financial performance in outcome 10: Our contribution to society measured, shared and valued.
Read more about how we're addressing the carbon challenge in outcome 6: Responsible energy user that helps create a lower-carbon future.
2016 global ASC
Global apparent steel consumption returned to growth in 2016, rising 1% after a year of decline in 2015. It fell in the first quarter of 2016, before building gradual momentum and then accelerating in the fourth quarter of the year.
Regional differences saw demand in China grow against general expectations by between 1% to 1.5%, in the EU by almost 2%, in Asia (excluding China) by 4%, and in the Middle East by 3%. These offset a small decline in NAFTA caused by continued destocking and a significant fall in energy pipe demand, a 4% fall in CIS, and a larger 11% decline in Latin America, with Brazil declining 12.5% to 13.5%.
The overall picture at the start of 2017 is one of accelerating demand.
Steel output continued to decline in most major steel-producing regions during the first half of 2016, but the second half of 2016 saw steel production volumes grow year-on-year in both China (3.7%) and the world excluding China (2.9%) as underlying demand improved and destocking waned. Overall, global production grew 0.8% year-on-year.
Steel spreads – the difference between the basket of raw materials (iron ore, coal and scrap) used to make steel, and steel selling prices – were at unsustainably low levels at the start of 2016, with international steel prices being affected by the very low domestic and export price of Chinese steel. Spreads improved throughout the year, in-line with our expectations, and are at reasonably healthy levels as we entered 2017.
tonnes Chinese exports
The recent history of the steel market has been dominated by fluctuations in Chinese domestic steel demand, a trend that continued in 2016.
As a result of weaker real estate, construction and machinery production in China, declining domestic demand led to Chinese steel exports more than doubling between 2012 and 2015. This increase in Chinese exports was greater than the growth in world steel demand over the same period, and had a dramatic effect on steel prices and therefore production outside China.
Chinese exports continued to be at elevated levels, exceeding 100 million tonnes for the second successive year, as the Chinese steel industry continued to be characterized by significant overcapacity and low utilisation rates. Trade action against unfairly priced imports, particularly in the US and Europe, did however provide an element of support to steel spreads in 2016. Nonetheless, the dynamics of Chinese steel production and export are likely to continue to be a material influence on market conditions in the future.
In 2016, stakeholders including investors, customers and consumers increased their expectation for companies to be transparent about the carbon they emit, how their products and supply chain perform, and their future carbon strategy.
This was part of a wider trend which continued the momentum of the Paris Agreement, adopted in December 2015, which included a commitment from each participating country to set an emissions reduction target. In 2016 the EU was developing more ambitious targets for Phase 4 of the Emissions Trading Scheme (ETS), which runs from 2021 to 2030; new regulatory initiatives came into force in Kazakhstan and Quebec, Canada; and new instruments were under development in China, Brazil, Mexico and South Africa. In the US, the Environmental Protection Agency took steps towards implementing a comprehensive greenhouse gas policy, though the future of this is now uncertain.
Within Europe, both leaders and workers across the steel industry, including from ArcelorMittal, raised concerns about the proposed changes to the ETS, because it would have no effect on CO2 emissions from the global steel industry while damaging the competitiveness of European steel and leading to increased imports from producers not subject to any carbon scheme.
Stakeholder interest in the contribution of the private sector to a sustainable future has matured in the past two years. In order to ensure nine billion people can lead quality lives from the resources of just one planet, governments, business leaders and civil society are increasingly expected to work together constructively and creatively for mutual benefit. The multi-stakeholder collaboration behind the Paris agreement and the UN Sustainable Development Goals in 2015 was echoed by the speed with which governments ratified the Paris agreement in 2016. There is no doubt that the trend in the private sector to voluntarily adopt long-term sustainability strategies and targets is gathering momentum.
Two other trends continue to grow. The drive for transparency is enshrined in the EU Directive on non-financial reporting and in a more focused way in the EU Transparency Act. As non-financial reporting becomes the norm, the International Integrated Reporting Council, which ArcelorMittal joined at the end of 2016, neared the end of its pilot phase. Integrated reporting is the emerging proposition as a means of embedding sustainable development thinking into the way companies do business.
At the same time, there is a continuing trend of sustainability-themed legislative change that continues to build stakeholder expectations of company directors to act responsibly to uphold international standards. This is increasingly driving large companies to implement systems of due diligence, to ensure not only that they fulfil their direct responsibilities but those of their suppliers as well.
In reflection of this trend, expectations among our customers of sustainability standards in the steel industry and its raw materials supply chain continued to grow in 2016. In September, for example, some of the biggest names in the European automotive industry joined forces to form the European Automotive Working Group on Supply Chain Sustainability; more generally, steel customers are being driven by their own sustainability ambitions, their assessment of risk, and their regulatory environment to seek assurance on social, ethical and environmental issues. Consumer interest in these issues is also growing.