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Industry and globalisation

OECD Steel Committee sees favourable outlook for steel demand: the global steel industry faces important challenges

 

Statement by Mr. Risaburo Nezu, Chairman of the OECD Steel Committee at the 62nd meeting of the Steel Committee, Istanbul, Turkey, 17-18 May 2007 

World Steel Markets Enjoying Sixth Year of Strong Growth

Driven by buoyant steel-intensive economic activity including construction and infrastructure building in many developing economies, global apparent consumption of steel has increased at an average pace of more than 7 percent per annum since 2002 to reach a record level of 1.113 billion tonnes last year. To meet this rise in demand, steel production growth has accelerated sharply, reaching 1.24 billion tonnes in 2006, up by as much as 393 million tonnes (or 46%) compared to its level of 850 million tonnes in 2001. This growth in demand for steel is creating a favourable situation for many steelmakers. Steel prices and the prices of some raw materials in some markets are two times higher or more compared to levels prevailing in 2001. Profits of steel companies are, for the most part, strong, and restructuring and consolidation have further strengthened the steel industries of many economies.

Favourable outlook for steel demand

  • China’s apparent crude steel consumption has doubled over the last five years to reach 398 million tonnes in 2006. The economy now accounts for around 32 percent of the world’s apparent steel consumption. The rapid expansion of China’s industrial production and its strong urbanization trend will ensure that steel consumption continues to rise, though growth should moderate slightly in coming years from the double-digit rates observed in recent years.
  • In India, there is enormous potential for growth in steel consumption. Heavy investment in developing the country’s infrastructure, such as railways, ports, and roads will fuel growth in the steel-intensive construction sector. In Russia, steel consumption prospects are favourable, supported by the consumer boom, which is now spreading to automobiles and housing, as well as the replacement of ageing infrastructure. Brazilian demand for steel will continue to be supported in the future by the country’s automotive and construction sectors.
  • Steel consumption in the Middle East is expanding rapidly from a relatively low level of 37 million tonnes. Massive infrastructure and other building activity is driving this development.
  • In NAFTA, housing market problems and a slowdown in manufacturing activity in the U.S. could contribute to a reduction in steel consumption this year from around 155 million tonnes in 2006, while a recovery in demand could take place in 2008 as economic growth reaccelerates. Steel consumption in the EU-27 is expected to stay on a gradual growth path in 2007 and 2008, thanks to the relatively healthy outlook for domestic as well as external demand for products manufactured in steel-using industries.

 

Sharp acceleration in global steel production

  • World production of steel has posted a dramatic acceleration in growth over the last five years. China accounted for more than two-thirds of the increase in world steel production seen over the last five years, i.e., Chinese production surged from 151 million tonnes in 2001 to as much as 423 million tonnes by 2006. As a result, China’s share of world production nearly doubled over the past five years, rising from 17.7 percent in 2001 to 34 percent by 2006.
  • In India, the world’s seventh largest producer of steel, production reached 44 million tonnes in 2006. In the future, Indian steel production capacities and volumes are expected to increase strongly in order to meet demand for steel from a growing industrial sector and expanding infrastructure building. Russian steel production, which grew from 59 million tonnes in 2001 to 71 million tonnes in 2006, is expected to increase steadily over the next few years, supported by growing electric-arc furnace capacity that will gradually replace the outdated open-hearth process.
  • The rest of Asia (excl. China), NAFTA and the EU-25 have seen their shares of world steel production decline over recent years. Supported by strong Chinese demand for high quality steel products, Japanese crude steel production reached 116 million tonnes in 2006, its highest level recorded since the early 1970s. U.S. crude steel production has increased from 90 million tonnes in 2001 to around 99 million tonnes last year driven by electric-arc furnace production. Crude steel production in the EU-25 rose to 198.5 million tonnes last year. Growth has been slightly faster in the new Member States, though from a much lower base.

 

More consolidation to come

Consolidation in the steel industry is likely to continue and is now taking on a global dimension, driven by an increased desire to produce steel near major consuming markets, yet maintaining basic production in low-cost regions near raw materials. Such consolidation may help the steel industry to smooth production cycles and, absent trade and market-distorting practices, could promote the long-term profitability of steel making operations.

 

Global steel industry faces important challenges

Despite the exceptionally favourable market situation, the steel industry faces significant challenges that may affect its long-term viability. Such challenges include:

  • Trade issues. Steelmaking capacity is increasing rapidly in developing economies. If demand slows in these dynamic economies, the risk of heightened trade frictions will increase.
  • Environmental concerns. Steelmakers need to address emissions control and other pressures for environmental protection while ensuring their cost competitiveness. Distortions in international competition will remain a concern.
  • Energy and raw material availability. Rising steelmaking capacity, export restrictions, investment barriers, and infrastructure problems in some raw material markets may exacerbate the scarcity of raw materials and lead to higher prices.
  • Skills. A large share of the labour force of steel industries will be eligible for retirement over the next several years particularly in more advanced economies. Given rapid population ageing in these economies, the available pool of new workers for the industry will be smaller than it is now. Workforce training and development issues will need to be addressed.

For further information about the OECD’s work on steel industry policy, journalists should visit the OECD website at www.oecd.org/sti/steel, or contact the OECD’s Media Division (tel: + 33 1 4524 9700).

 

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