09/06/2009 - The gobal economic crisis has led to a sharp contraction in steel production, consumption, prices and jobs. According to industry and government officials at the OECD’s Steel Committee meeting in Paris on 8-9 June 2009, conditions for a recovery in demand could begin to be seen towards the end of 2009, although they stressed the uncertainty of the outlook.
Statement from Risaburo Nezu (Japan) , Chairman of the OECD Steel Committee
The OECD Steel Committee discussed the impact of the global economic crisis on industrial sectors and, in particular, on the steel sector, government responses to the crisis and their effects on steel, and the recent rise in trade-related measures. It concluded:
In virtually all economies, the global economic crisis has led to a sharp contraction in steel production, consumption, prices, trade and employment.
To counter the effects of the economic downturn, many governments have initiated economic stimulus packages, most of which indirectly affect the steel industry through support for infrastructure and construction, the automobile industry, and measures promoting other steel-using industries; It is not possible, however, to quantify exactly the impact that these measures will have on the steel industry.
Trade in steel has also declined sharply, with governments relying on various trade measures in response. Governments stressed the importance of increasing the transparency of these measures in managing the present crisis.
There is considerable uncertainty as to the timing of the steel industry recovery. A moderate upturn might occur in some economies towards the end of 2009, but could well be delayed into 2010.
Participants agreed that the current economic situation should not affect government efforts to reduce CO2 emissions both in steel production and in applications of steel products.
The steel industry has been hit hard in the current recession
The world economic recession has put an abrupt end to the steel market upturn that began in 2002. The recession currently affecting steel is nevertheless quite different from past downturns. Today, the downturn is not steel-specific, but instead is being caused by a general global economic recession, of a magnitude and scope not seen for decades. However, today the industry is better positioned to respond to the downturn, reflecting the consolidation and restructuring of the past years.
Most steel-using sectors have experienced sharp output contractions over past months, especially the automotive sector, pushing world steel demand to its lowest level in decades. Demand for steel is particularly weak in North America, Europe, the CIS, and Japan, but is showing more stability in emerging economies such as China, India and Brazil.
Virtually all countries have experienced a sharp contraction in crude steel production. In the final quarter of 2008, world production fell by 21 percent in year-on-year terms, with some countries experiencing declines of 50 percent or more. For most countries, the rate of decline in production accelerated in the first quarter of 2009. Several developing economies, however, experienced more moderate rates of decline in the first quarter of 2009, while China enjoyed a turnaround in production towards slightly positive growth.
In a number of countries, capacity utilization rates have fallen precipitously, reaching historic lows in some cases. For example, in the United States, the industry operated at as much as 90 percent of capacity through August 2008. By the end of 2008, the utilisation rate had fallen to approximately 40 percent, the lowest level since 1982. Some countries noted that production tendencies would remain weak for the remainder of 2009, reflecting the negative outlook for steel-using industries.
With demand for steel falling sharply in virtually all regions of the world, domestic and export prices of steel (hot-rolled coil) declined in the second half of 2008. By December, some European countries had registered price declines of 20-50 percent.
Global trade in steel has contracted sharply since the economic crisis began, resulting from the substantial decline in worldwide demand for steel and production cuts in most countries. Cross-border shipments of steel declined to 49 million tonnes in the fourth quarter of 2008, down 30 percent from the previous quarter and 20 percent from a year earlier. Trade volumes continued to decline at a rapid pace in the first few months of 2009, with some major exporting countries registering annual export declines of 25-50 percent and China’s exports declining by 60 per cent.
Falling production and weaker market prospects have led to major layoffs in many regions of the world. North America, in particular, has experienced significant employment declines. In Europe, employment has declined more gradually, although workers have been temporarily unemployed at times as production was reduced.
Government fiscal stimulus plans will support steel demand
Most governments have announced large economic stimulus packages to stimulate demand and create or save jobs through tax cuts and increased government spending. Steel Committee participants discussed these packages and noted that few countries have included direct steel-specific provisions in these packages. Some participants noted the possible trade-distorting effects of some stimulus provisions that are related to steel.
The steel industry is expected to benefit indirectly from the significant and widespread government support to key steel-using sectors, mainly infrastructure, construction and automotive, planned in most stimulus packages. There was agreement that it was not possible to quantify exactly the effects of these packages upon the industry. Emerging and developing countries, whose economies rely heavily on fixed investment and where the level of infrastructure is relatively low, appear to be investing more in infrastructure, and may see steel demand recover earlier than advanced countries.
The rise in trade measures is causing some concern
As a result of the weakened demand situation, some governments have introduced trade measures in a variety of forms. This is evidenced in the large number of tariff increases on steel products seen since October 2008 and the introduction of numerous non-tariff barriers, such as restrictive import licensing requirements and tightened product quality standards, as well as measures to support exports of steel products. In managing the present crisis, governments noted the importance of increasing the transparency of potentially trade-distorting measures as this will lead to a better understanding of the underlying reasons for governmental interventions and, possibly, help mitigate trade frictions. Participants agreed to continue to discuss measures taken by governments to overcome the present crisis in the steel industry to foster a better understanding about mutually acceptable/advisable ways out of the present situation while respecting the economic interests of all concerned.
When will the steel market recover?
Participants generally expect steel demand conditions to begin improving towards the end of 2009 when world industrial production is expected to recover, although there was considerable uncertainty. Certain participants even thought that such recovery might occur as late as autumn 2010. There was agreement that despite short-term uncertainties related to the speed and sustainability of the economic recovery, growth in steel demand will resume over the long term, supported by domestic-led growth in many emerging economies. It was also pointed out that such a recovery might well be accompanied by significant structural changes in the industry worldwide. Global steel consumption is not expected to recover to 2007 levels until 2012.
The economic crisis has led to the cancellation or review of many planned investments in capacity expansions in the steel industry. However, since many expansion projects continue to advance in some emerging economies, where the steel market is relatively more stable compared to other regions, world steelmaking capacity is still expected to maintain an upward trend into 2010, which will well exceed future demand levels. This imbalance between capacity and demand is likely to hasten retirement of inefficient, more environmentally polluting, or higher cost capacity in certain countries, further affecting industry employment.
The meeting was attended by representatives from OECD countries as well as Argentina, Brazil, China, Russia, Malaysia, Romania, Slovenia, Chinese Taipei and Ukraine.
For further information about the work of the OECD Steel Committee, journalists are invited to contact Anthony de Carvalho of the OECD’s Science, Industry and Technology Directorate (Anthony.firstname.lastname@example.org).
For more information visit the OECD site on steel - www.oecd.org/sti/steel