The 55th session of the Steel Committee with the Organization for Economic Cooperation and Development (OECD) held discussions on the 1999 events on the global steel market and outlined the major development outlooks for this market in 2000 (see the In Br
STEEL: THE 1999 LANDMARKS, THE 2000 OUTLOOKS
The 55th session of the Steel Committee with the Organization for Economic Cooperation and Development (OECD) held discussions on the 1999 events on the global steel market and outlined the major development outlooks for this market in 2000 (see the In Brief column of the previous issue of Metals Market). Economic strength of the leading countries was given extra special attention as the key factor influencing steel output and consumption worldwide.
world market
It is expected that the US GDP will rise 3.8% in 1999 and will somewhat slow down its upward movement in 2000. During the 7 months of 1999, visible consumption of steel lowered 7.9% against the respective 1998 period in all the economic sectors save for automobile industry. Internal supplies of steel dropped by almost some 4.0%. During the first three quarters of this year, output of crude steel reduced as low as 6.5%, whereas some 80.8% of the available capacities were utilized (back in 1998 this figure amounted to 88.7%).
The Canadian economy will indicate a 3.6% growth in the GDP in 1999 and a 2.8% growth in 2000. The ever-increasing volumes of automobile manufacturing and intensive residential construction keep up the strong demand for steel. Moreover, the volumes of civil engineering works are anticipated to rise by 4%, which, together with increase in oil prices and active boring operations, will also result in greater demands for steel. During the 8 months of 1999, steel supplies went up by 4.3% and crude steel production amounted to 10.7 mln. tons. Steel imports totaled 2.95 mln. tons (20.7% down). Though imports coming from the previous suppliers such as the USA, the CIS, the EU, Japan and Korea went down, steel supplies from the new generation of metal exporters really proliferated, namely:
India boosted metal supplies as high as 2,999.0%;
Malaysia – as high as 2,171.0%;
Philippines – as high as 3,537.0%; and,
Taiwan – as high as 436%.
This situation has truly alarmed the Canadian steel manufacturers; therefore, new antidumping inquiries will soon follow the previous two antidumping sanctions imposed against HR and CR steel in July and September 1999 (both mentioned sanctions infringe on the Russian interests). October 15, 1999 became the date of initiation of a new antidumping inquiry on HR plates (by the way, Ukraine is also on the inquiry list).
Economic recession in the European Union did not hold out for long. Livening up of activities in steel-consuming sectors in 2000 should supersede the meager recovery of the late 1999. In 1999, the GDP volume will increase by 2.1% (2.9% back in 1998), whereas low rate of inflation and high confidence of consumers may result in a 2.7% growth in the GDP in the year 2000. Output of crude steel is expected to hit the level of 156 mln. tons (i.e. 4 mln. tons down from the 1998′ output figure) and may increase to 160 mln. tons in 2000. In 1998, EU member-states boosted imports by 46% as compared to the 1997 level and reduced exports by 20% mainly owing to the effect of Asian countries (imports from Asia soared to 4 mln. tons, whereas the EU exports bound to this region plummeted by some 59%). The first half-year of 1999 witnessed a 13% decrease in import volumes and import supplies are anticipated to reduce further on. It is likely that the improved situation on the Asian markets will allow retaining steel exports at the level of 1998.
In 1999, the Czech Republic will manufacture 6 mln. tons of steel, i.e. 7.7% less than in 1998. Export turnover (especially exports of flat-rolled metal) dropped by 5.4% in the first half-year of 1999. Throughout this period the overall import volume plunged by 12.8%, though imports coming from the EU countries rose 8.2%. Forecasts for economic recovery and for increase in steel output to 6.3 mln. tons are made for the year 2000.
The year of 1999 has become the eighth consecutive year of economic boom in Poland – it is expected that the Polish GDP will increase by 4%. Nevertheless, performance of metallurgic mills and mechanical engineering companies deteriorated. In the first half of 1999, steel output lowered by 20% and visible steel consumption – down by 5%. Export supplies dropped by 12.2%, while import volume increased as high as 17.3%. In October 1999, the Federation of Ferrous Metallurgy made public its plans to submit to the central government the information on ruinous effect of cheap imports. It was pointed out that prices for certain types of Ukrainian and Russian-made rolled metal are 20% below the local rates. In 1999, supplies of HR plates from Kazakstan, Russia, Ukraine, the Czech Republic and Slovakia almost doubled against the 1998 level.
Anti-crisis measures of the Japanese government are starting to pay back. Goods stockpiles have been restructured and internal demand has grown stronger. In the 9 months of 1999, 68.5 mln. tons of crude steel were produced, which is 3.2% down against the respective period of 1998. Nevertheless, it is expected that the overall steel output in 1999 will stick to about the same level as in 1998. In the first half-year of 1999 export turnover amounted to 12.8 mln. tons, 1.4% down from the respective 1998 period. Exports bound to Asia have increased and are expected to increase further on, while exports to the USA have lowered to 1.5 mln. tons (almost halved) and are anticipated to decrease some more. At the same time, import volumes sank to 3.1 mln. tons (16.4% down) including imports from China dropping by 41.1%, from South Korea – by 22.5% and from Taiwan – by 0.8%. The year 2000 will retain the downward behavior of imports.
Since the very beginning of 1999, the South Korean economy has been rapidly recovering. The GDP will increase by 8.8% in 1999 and is expected to rise by some more 6.4% in 2000. Internal demands for steel indicated a 23% increase in the first half of 1999 and keep on increasing (it is anticipated that steel consumption will come to 32 mln. tons in 1999, i.e. 27% up). It is noteworthy that demands for steel sheets are much stronger than demands for long rolled metal. In 1999, steel output will boost to 43 mln. tons, 7.6% up. Due to a considerable reduction in export supplies, output of long rolled metal will drop by 3.6%, whereas the overall imports of rolled metal will hit the level of 3.9 mln. tons by the end of 1999. Steel exports will be limited to 12.7 mln. tons (21% down) owing to stabilization of the national currency and strong domestic demands.
Commonwealth of Independent States
It was mentioned during the session that problems encountered by CIS countries took root in the events of the last decade. Since 1990, the GDPs of CIS member-states (assessed in US dollars on the basis of purchasing power parity of national currencies) have been going down at the average pace of 6.5% per year. By 1996, this figure sank as low as 33%. The year of 1997 saw a period of growth (up by 3%), however, the August 1998 crisis pushed the GDP figures further down by 1.6%. In 1998, visible consumption of steel remained on the same level as in 1997 foremost owing to an 11.6% increase in steel consumption in Russia, which counterbalanced the weakened consumption in Ukraine and other CIS member-countries. Crude steel output hit the record low level of 74.4 mln. tons. Import volume was also extraordinarily low at 3.3 mln. tons (i.e. 33.2% down against the 1997 figure), while exports plummeted to 36.8 mln. tons (15.6% down).
It is forecast that the 1999 results will reveal a 30% increase in demands for steel in the CIS (all the way up to 29.6 mln. tons in terms of end products). Some 85 mln. tons (i.e. a 14% increase) of crude steel will be produced, whereas the net export will be the same as in 1998. Economic upturn in the region may result in domestic demands for steel soaring by 14% in 2000, steel output increasing by 3% and export supplies lowering by 6%.
The GDP figures in Russia plunged by almost some 30% from USD 875.4 bln. in 1990 to USD 613.1 bln. in 1996. Nevertheless, the Russian GDP grew by 2.7% in 1997 (as well due to a 3.2% increment in industrial output). The 1998 crisis resulted in a 3.6% drop in the GDP figure; however, the Russian economy recovered rather easily. The year 1999 is expected to see growth in the GDP mainly owing to success of exporting companies and sectors manufacturing import-substituting goods. Growth tempos in industry have stepped up and July 1999 witnessed the record high growth rate of 12.8%. At the same time, in the first half-year, domestic demand and internal investments were rather weak and trailed behind the figures reported in the respective period of 1998. Specialists believe that industrial output will increase as high as 8% in 1999 (the GDP is expected to go up by 2%). Nonetheless, the forecasts for 2000 are a bit more careful – it is predicted that the subsequent increase will amount to some 1% because the political uncertainties (such as the new Russian parliament and presidential elections) may negatively affect the structural adjustments.
In 1992-1997, visible consumption of steel in Russia plummeted by more than 70% (from 42.6 mln. tons to 12.5 mln. tons) owing to hardships encountered in transition to the market economy. Over this period, output of crude steel lowered by 27.6% (from 67 mln. tons to 48.5 mln. tons per year). The fact that the drop in output volumes was somewhat less that the drop in consumption is explained with boosted exports (from 7.2 mln. tons to 27 mln. tons; the largest portion of exports was bound to Asian states). Demand for steel was expected to recover in 1998; yet, the financial crisis made its negative impact and the increase in demand amounted to only 11.6% (i.e. 1.5 mln. tons up from the 1997 level). This increase was called forth by export supplies lowering by 5.2 mln. tons (19.4% down) and steel output dropping to 43.8 mln. tons (down by 10%). It is expected that in 1999 demands for steel will increase by more than 3 mln. tons (20% up), while output of crude steel will go up to 51 mln. tons (up by 16.2%). Export figures will improve by 2.8% because prior to the drop in 1998 export supplies were redirected to the stronger markets. Steel consumption will further increase by 8% in 2000, though the export figures are anticipated to go down.
Despite a certain progress in stabilizing its economy, Ukraine suffered a 1.7% decrease in the GDP in 1998, though that year had all the prerequisites of becoming the first year of economic upturn after the declaration of Ukrainian independence. Industrial output lowered by 1.5% (the overall volume of industrial output in 1990-1998 plummeted by 58%). According to the latest estimates, in 1999 the GDP will decrease once again, this time down by 2.2% (industrial output is expected to reduce by some 2.5%). It is possible that the GDP figure will increase by some 1% in 2000 and industrial output will slightly go up as well.
In 1998, internal demands for steel suffered a 72% reduction against the 1992 level (6.9 mln. tons). In 1992-1998, production of crude steel sank from 41.8 mln. tons to 24.5 mln. tons (i.e. down by 41.5%). Meanwhile, export supplies rose from 6.8 mln. tons to 11.5 mln. tons (i.e. 69% up). In 1999, visible steel consumption will reach 8.25 mln. tons thus surpassing the last year’s figure by 20%. Output of crude steel will also increase to 26.7 mln. tons (up by 9.0%). In 2000, demands for steel may further increase by 16% (1.6 mln. tons up) and output volumes – by 2%. The OECD experts believe that Ukrainian steel exports will lower considerably (by almost some 10%) in 2000.
In the other CIS countries, the main events of the 90s were very much alike. In 1992-1998, visible consumption of steel reduced from 9 mln. tons to 2 mln. tons (i.e. down by 78.5%). However, steel consumption is expected to rise to 4.4 mln. tons in 1999. This tendency will keep on in 2000 though at slackened growth rates. Steel output will continue increasing in 2000 as well (it is forecast that steel output will grow by 16.4% in 1999).
In 1998, the Kazak GDP went down by 2.5%. It is expected that this figure will further decrease by 2.0% in 1999. Industrial output lowered by 2.1%. In the first half-year of 1999, industrial output in Kazakstan dropped by some 4.1% against the respective period of 1998. Construction sector activities grew by 11% in 1998 (owing to state construction projects launched that year) and decreased by 13% in the first quarter of 1999. Nevertheless, it is believed that the economic crisis will be over in 2000 when the GDP growth rate may come to 2%.
Throughout the recent years, visible consumption of steel in Kazakstan has decreased substantially. In 1995 this figure amounted to only 21% of the 1992 level, whereas in 1997 it further lowered by 80%. At the same time, steel output volumes have been increasing since 1994 and reached the level of 3.9 mln. tons in 1997 (with exports totaling more than 2.9 mln. tons and imports totaling only 0.3 mln. tons). As time went by, Kazakstan has turned into a net exporter of steel owing to Ispat Karmet metallurgic mill (which has the capacity to manufacture 6.3 mln. tons of steel per year).
This huge mill was built in Karaganda back in 1960 and functioned at the full capacity till 1989. After collapse of the Soviet Union, the mill gradually approached the verge of breakdown due to slackened local demand. In November 1995, the government of Kazakstan made a critical step and allowed LHM group (the leader within Ispat company manufacturing steel in 9 countries of the world) to acquire 100% of the mill’s assets. Several reconstruction projects (worth USD 450 mln. and financed via the EBRD) were executed at the mill. Afterwards, commodity output increased by more than 60%.
At the moment, Ispat Karmet exports 97% of its commodities to 65 countries worldwide without any government tampering into its operations (including no subsidies). This company does not employ barter transactions using internal sources of feedstock and utilizes banking financial instruments.
From 1990 till 1995, Belarus was in deep economic depression: the GDP annually reduced by almost 10%. Nonetheless, adherence to strict economic policy and orientation towards exports of goods to Russia resulted in the GDP increasing by 2.8% in 1996, by 10.4% in 1997 and by 8.3% in 1998. At the same time, the growth in industrial output left behind the rise in the GDP figure. The Russian crisis badly battered the Belorussian economy, namely commodity stocks went up and production moved into a recession in early 1999. Nevertheless, it is forecast that the GDP will increase by 4% and industrial output – by 5% in 1999. The year of 1994 was the only time when internal consumption of steel in Belarus lowered. Since then, the steel consumption level has been constantly increasing by 12% per year. Crude steel output commenced growing back in 1996 and in 1998 1.4 mln. tons of crude steel were manufactured. There are no more opportunities for further growth because 100.0% of the available capacities are utilized. The only Belorussian mini metallurgic mill with incomplete production cycle is located in the town of Zhlobin. The mill was constructed by Voest-Alpine, Austria, under the turnkey project. This metallurgic mill engages in manufacturing hi-tech products and ranks among the leading producers of tire cords. Almost 75% (in terms of value) of the manufactured products are exported beyond Belarus; thus, this country is the net importer of steel.
steelmaking capacities
The 55th session of the OECD Steel Committee gave much heed to the situation with productive capacities. During the last two decades, global steel consumption (in terms of end products) increased from 429 mln. tons in 1970 to over 692.0 mln. tons in 1997 (i.e. as high as almost 60%). In 2001, this figure may well equal 700 mln. tons. Steelmaking capacities were also being built up, though rather unevenly. In 1985-1990, steel-smelting capacities were increased by 12.1 mln. tons (at growth rate of 0.3% per year), whereas in 1990-1995 the volume of capacities rose by some more 65.1 mln. tons (up by 1.7% per year). During the period under review, CIS-based capacities were reduced by 23.5 mln. tons and kept on going down. Growth rates in the volume of productive capacities accelerated in the subsequent five years. In 1995-2000, productive capacities will increase by 99.8 mln. tons indicating the average annual growth tempo of 2.4% (the level of 1 bln. tons was surpassed back in 1995). In 1996-2000, productive capacities of OECD member-states will soar by 35.7 mln. tons indicating the annual growth rate of 1.5%. However, after 2001 the growth rate will slow down to 0.5% per year.
In 1970-1977, non-OECD member-states with market economy (Latin American, Middle Eastern, African and Asian states, save for China) almost tripled their visible consumption of steel and consumed 85.5 mln. tons in terms of end products. Naturally, these countries had to create their own steelmaking industries, which could at least partially cover the domestic demands. Indeed, productive capacities rose from 97.1 mln. tons in 1985 to 183.3 mln. tons in 1999 and may reach 217.6 mln. tons in 2000. Traditionally, Brazil has the high level of utilization of productive capacities (over 85%), whereas Argentina and Venezuela utilize only some 60% of the available facilities.
The Middle East has built up even greater capacities (from 5.1 mln. tons in 1985 to 21.2 mln. tons in 1999). This expansion is especially true for Iran (10.5 mln. tons per year), Egypt (5.8 mln. tons per year) and Saudi Arabia (3.6 mln. tons per year). This region enjoys a rather high level of capacities’ utilization (up to 80%).
The crisis led to Asian countries postponing or canceling projects, which were scheduled for 1998-2001. These projects could have resulted in capacities increasing by almost 40 mln. tons. Nevertheless, by 2001 the capacities in the region will go up by 25 mln. tons, although only 50% of the available capacities are utilized in average (which is an extremely poor performance).
By 1999, productive capacities in ASEAN member-countries reached the figure of 24.7 mln. tons. Back in 1998, utilization of the available capacities was on the level of 44.7%, though this figure will probably reduce in 2000. Malaysia and Philippines will complete all the capacity construction projects, which are currently in progress. Thus, these countries will acquire additional capacities for 8.5 mln. tons per year. In the meantime, Indonesia has put off commissioning of mills with annual capacities for 5.0 mln. tons until 2002, while Thailand has completely abandoned most of its projects. Taiwan is the leader among the other Asian countries. By 1999, this country increased its annual steel output to 35.1 mln. tons and enjoyed the exceptionally high level of capacities’ utilization (99.8% in 1997).
Productive capacities in Central and Eastern European countries such as Bulgaria, Romania and Slovakia stick to the level of some 20 mln. tons per year. Some 60% of the available capacities are utilized in this region and the odds for increase in this figure in the upcoming two years are rather low.
As CIS member-states adjust to the market economy, productive capacities in these countries suffered a considerable reduction from 180 mln. tons in 1989 to 141.9 mln. tons in 1999. Regardless the growth in exports, collapse of the domestic demand induced deterioration in capacities’ utilization from 90% in the early 80s to 52.5% in 1998. During the last decade, effective capacities in Russia were lowered by almost 30 mln. tons. Some 59% of the Russian effective capacities are utilized (and only some 43.8% of those in Ukraine). The aftermath of the financial crisis was suspension of large-scale projects of industrial modernization, including the projects, which should have closed down the last remaining open-hearth furnaces in Ukraine.
China keeps aloof on the steel market. The Chinese productive capacities expanded from 53.3 mln. tons in 1985 all the way to 130.7 mln. tons in 1999. The upturn in internal consumption (from 56 mln. tons in 1985 to 106 mln. tons in 1998 in terms of end products) followed the growth in capacities. In 1990-1995, the average growth in productive capacities amounted to 9.5% per year. Noteworthy as it is, but utilization of capacities has been extraordinarily high ever since 1985 (almost always fluctuating in between 87% and 95%).
In 1998, the Chinese government made a decision to modernize its steelmaking industry. It was decided not to pay too much attention to building up additional capacities, but to diversify commodity output, enhance quality and lower costs. Projects envisioning construction of new facilities were postponed and China commenced the process of shutting down small-scale and ineffective manufacturing facilities and merging medium-size companies. Owing to all these efforts, the Chinese productive capacities will increase by no more than 5%, whereas utilization will skyrocket to over 95%. Nonetheless, even in this case China will remain the largest steel importer in the world for a couple more years.
This seems especially interesting in the view of China’s accession to the WTO (the treaty on this accession was signed not long ago). During the last decade, the Chinese economic wonder took shape under stable conditions backed by high isolation of the national economy. During this mighty leap forward, huge disparities in development of selected economic sectors and of the country’s regions have been accumulated. Now, the Chinese government is facing a tremendous challenge of eliminating what has been built up in the last ten years during only some 2-3 years. Without these steps, full-scale integration into the global market can be utterly dangerous. As a matter of fact, the treaty on Chinese accession to the WTO is definitely beneficial for the existing transnational financial and manufacturing companies and for a number of developed countries (foremost for the USA). Undoubtedly, the international community hopes that China’s integration into the market economy will make this superpower become a capacious market for international corporations.
As an outcome, one should expect global productive capacities to annually increase by 63.5 mln. tons in 1999-2001 (i.e. at the rate of 2.5% per year). Difficulties of the last two years further widened the gap between crude steel output and the volume of productive capacities. Utilization of productive capacities fell from the record-high level of 82% in 1982 all the way to 71.0% in 1999. This figure is unlikely to exceed 72% in the upcoming two years.
Conclusions
We believe that in the next year steel consumption will keep on increasing slightly. Only the hard-to-foresee future alterations on the geopolitical scale or outstanding events on the global markets could result in considerable changes in steel consumption. The main such factors embrace further development of the powerful command economies of China and of potentially united Korea for these are the states capable of sacrificing proportional development of all the economic sectors for the sake of progress in steel-consuming industries. It is a possible scenario that Western countries will attempt impeding unification of the two Koreas and will trap development of the Chinese market within the WTO framework. Countries, which trade in steel on the ‘civilized’ basis and which have already established their distribution networks, can build up the global demand on their own by protecting their usual markets with regulative measures. This can be possible because these countries own considerable reserves of facilities, which can rapidly start functioning should the conjuncture change for the better.
Ukraine’s attempts to enter the new market niches can lead to political conflicts with developed countries. Both actively functioning and latent productive capacities of CIS countries, which are something of a free-floater on the world steel market, constantly upset the world metallurgic community. Ukraine and Russia should boost domestic demand, close down obsolete facilities, upgrade the existing facilities to make products with high added value (for instance, stainless steel), redirect their trade flows towards other markets and relieve the global market from cheap low-tech commodities and semis. Discrimination of Ukrainian metallurgy is a way of putting pressure on the state to somehow limit the ‘wild’ export supplies, which undermine the existing balance.
Only after accepting the existing rules of international commerce and executing a specific program of accession to the production and distribution pattern of the steel market, it will be possible to demand the EU, USA and other countries to treat our country more fairly. Even with the current weak financial health, Ukrainian metallurgic mills and metal traders should participate in international conferences, symposia and exhibitions. This is essential in forming the positive industrial and financial image of the Ukrainian metallurgic industry.