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5 June, 2001Global steelmaking capacity was estimated at 1,062 million tonnes at the end of 2,000, and is expected to increase, as a result of the establishment of new steelplants or through the refurbishment or up-dating of established steelplants.
By some 33 million tonnes, representing around 3% of existing capacity or 4% of current production levels, over the next three of four years.
However, data collected by the OECD suggests that capacity closures could exceed 57 million tonnes in the same period, with the loss of some 35 million tonnes in the former Comecon bloc of countries; 9.4 million tonnes in North and South America; 6 million tonnes in China; 4.5 million tonnes in Western Europe; plus a further 8 million tonnes elsewhere in the world.
This would result in total steelmaking capacity falling by some 24 million tonnes (2.3%) to 1,038 million tonnes by 2,005. Even so, this would still represent a surplus of steelmaking capacity close to 20% on the basis of forecast levels of steel consumption.
World Steel Production and Capacity Utilisation Levels
With world crude steel production amounting to 842 million tonnes and a total steelmaking capacity of 1,062 million tonnes in 2,000, this represented an average capacity-utilisation rate of 79.3%. However, there were some significant variations between the different companies, countries and regions. Despite the lack-lustre performance of the UK steel industry and the UK-based Corus plants in particular, which resulted in the level of crude steel production in the UK falling by 2.2mt (16.3%) in the last two years, the EU as a whole increased its output by 7.6mt (4.9%) in 2,000, to 163.1mt, with an average capacity utilisation rate of 80.1%. Steel production in Other Europe, which includes, as the main steel producing countries, Turkey, Poland, the Czech Republic and Romainia, rose by 3.7mt (8.9%) to 45.3mt, representing an average capacity utilisation rate of just under 76%. Steel output in the CIS countries increased by 13.3mt (16%) to 96.4mt, with a capacity utilisation rate below 70%. The NAFTA countries benefitted from a strong level of domestic demand in 2,000, with steel production increaseing by 5.8mt (4.5%) to 133.5mg. This represented a capacity utilisation rate of 97.1%, which should have augered well for the North American steel industry, but the increase in import levels and the intense price competition resulted in a number of the major steel companies incurring losses with twelve steelplants having to seek bankruptcy protection through Chapter 11 in recent months. The Latin American region also benefitted from strong levels of demand in 2,000, with steel consumption levels increasing faster than increases in output. Steel production in this region rose by 4.4mt (12.7%) to 39mt, with a capacity utilisation level of 85.2%. Reflecting the lower levels of economic activity in this region, steel production in Africa rose by just 0.5mt (4.4%) to 11.4mt, resulting in a capacity utilisation level of 77.6%. With an increase of 1mt (10.7%) steel production in the Middle East rose to 10.3mt in 2,000. This represented a capacity utilisation rate of just over 50%. Steel production in the Asian region rose by 20.5mt (6.9%) with an average capacity utilisation rate of just under 77%. However, there were some significant variations around this average figure, with South Korea raising steel output by 2.1mt (5.1%) to 43.1mt, providing a capacity utilisation level of 88.5%, while Japan increased steel production by 12.3mt (13%) to 101mt, resulting in a capacity utilisation rate of just 72.5%. And while China increased its crude steel production by 2.2mt (1.7%) to 125.8mt, resulting in a capacity utilisation rate of 88.6%, steel output in India rose by 2.7mt (10.9%) to 26.9mt, providing a capacity utilisation rate of 91.3%. The Oceania region saw its steel production rise by 330,000t (3.7%) to 9.3mt in 2,000, resulting in a capacity utilisation level of 94.6. One of the major problems confronting the world steel industy is the very fragmented nature of ownership, which places steel producers in a very weak position, vis-à-vis the largest steel consuming sectors in the global economy. However, the position is beginning to improve, through the processes of acquisitions and mergers. In 1999 there were only twelve steel companies capable of producing more than ten million tonnes of crude steel in one year. However, in 2,000 this number increased to seventeen. Furthermore, Nucor, using the so-called Mini-Mill technology, also joined the ranks of the ten-million plus companies in 2,000, and claimed to be the largest USA-based steel company. The initial agreement between NKK, Sumitomo and Hitachi Zosen, to establish a new company to havdle all of their sales and purchases has, in the space of a few days, been followed by the announcement that NKK and Sumitomo are going to merge their steelmaking operations into one single company. At the present time this would create the second largest steel company, with an annual output of more than 33mt, based on production levels achieved in 2,000. Prior to the proposed formation of NewCo, Nippon Steel is the largest single steel producing company, having been responsible, when its share of output from the various part-owned subsidiary companies is taken into account, for the production of just over 29 million tonnes in 2,000. To put this into its proper perspective, this represented just under 3.5% of global steel production in 2,000. And even if the merger between Usinor and Arbed/Aceralia is allowed to proceed, this would only account for a little over 5% of steel production. In contrast many other sectors of industry such as aluminium, auto and the white goods for example, have very much higher levels of concentration, and this provides them with a significant advantage in tems of both their buying and selling power. Apparent Steel Consumption World apparent consumption (ASC) of finished steel products rose by 50.6 million tonnes (7.4%) from 683.9 million tonnes in 1999 to 734.5 million tonnes in 2,000, some 41.6 million tonnes (6.0%) above the previous record level established in 1997 prior to the world economic crisis. ASC in the OECD Member States rose by 31.8 million tonnes (7.8%), from 407.8 million tonnes in 1999 to 439.6 million tonnes in 2,000, while ASC in the non-OECD region increased by 18.8 million tonnes (6.8%), from 276.1 million tonnes in 1999, to 294.9 million tonnes in 2,000. While ASC in the USA rose by 5.5mt (5.0%) to 116.6mt and production by 4.79mt (5.0%) to 101.0mt in 2,000, US imports rose by 1.9mt (5.7%) to 35mt, representing 30.0% of ASC, resulting in a deficit in steel trade of 28.9mt. Canada also enjoyed an increase in ASC, up by 2.1mt (13.2%) to 14.1mt, while production increased by 0.36mt (2.2%) to 16.6mt. With imports rising by 2.3mt (36.5%) to 8.6mt, this represented 47.8% of ASC and a trade deficit of 3.9mt in 2000 in contrast with just 1.9mt in 1999. In contrast, Japan saw its ASC rise by 9.4mt (14.2%), with production increasing by 12.24mt (13.0%) to 106.4 mt, while imports rose by 0.4mt (8.3%) to 5.2mt and exports by 2.5mt (9.5%) to 28.8 mt, representing 29.0% of finished steel production and a surplus in steel trade of 23.6mt. ASC rose by 4.2mt (12.5%) to 37.7mt in South Korea, with production increasing by 2.1mt (9.4%) to 43.1mt. And while exports remained unchanged at 13.7mt, representing 34.3% of finished steel production, imports increased by 2.6mt (29.2%) to 11.5mt, reducing the trade surplus in steel from 4.8mt in 1999 to 2.2mt in 2000. ASC in Russia rose by 4.0mt (24.2%) from 16.5mt in 1999 to 20.5mt in 2000. With an increase of 2.1mt (9.4%) in exports, which rose to 24.5mt, the equivalent of 56.2% of finished steel production, which rose by 5.9mt (15.7%) to 43.6mt. In the Ukraine ASC rose by 2.5mt (357%) from 700,000t in 1999, to 3.2mt in 2,000, while finished steel production rose by 3.4mt (17.2%) to 23.2mt, with exports increasing by 1.0 at (5.2%) to 20.2mt, representing 87.1% of finished steel production. Other major exporting countries included Brazil, which had a trade deficit of 8.7mt and exported the equivalent of 39.6% of its finished steel production, representing 61.4% of its ASC, and Mexico, with a deficit of 3.5mt, whose exports represented 45.2% of its finished steel production and 61.0% of its ASC. Steel Prices
The average price of hot-rolled coil (HRC) during the last ten years was $346 per tonne. And while fluctuating by some $100 per tonne during this time during periods of recession or growth, HRC prices have declined by an average of 2.8% per annum. In the three years from 1998 to 2,000, the average price of hot-rolled sheets fell by $65/t (21.3%), falling from $305/t in 1998 to $240/t in 2,000. While some of this fall reflects the cost reductions made possible from the development of new technologies and iron and steelmaking processes along with the impact of an increasingly globalised market, and the restructuring and intensification of competition that has taken place, to a significant degree it is a reflection of the fragmented structure of the steel industry and the relative weakness of stee companies in terms of their purchasing and selling power. From April until June of 2,000, the average list price for European HRC for export was $335/t, but fell in July by $20/t (6.0%) to $315/t,then continued to fall each month until November 2,000, by which time it had fallen by a further $110/t (35.0%) to just over $200/t. In the last five months average European HRC export prices have fluctuated around the $210/t level. Published USA import data supports a similar if marginally less drastic decline, dropping from $330 per short ton (st) ($2997t) in April and May 2,000, to $220/st ($199.5/t) in February 2,001. International spot prices for slabs and billets have also followed a similar trend. Slabs from European steelmekers fell from $245/t in September 2,000, to just under $200/t in October and November, and has since remained at that level, while those originating from Latin America fell by $55/t (25%) from $218/t in April 2,000, to $163/t by March 2,001. Billets exported from Europe fell by $20/t (10.3%) from $195/t in June, to $175/t in July, and have since remained at that level, while billets exported from Latin American countries remained at the $195/t level until September 2,000, before falling to $180/t in November and then to $170/t in January 2,001, representing a fall of $25/t (12.8%). During this time, stainless steel prices have fallen by just over $600/t (32.4%), from $1,900/t to $1,280/t. The current problems reflect a combination of surplus capacity and very high inventories, and while the relatively strong level of demand helped to sustain high capacity utilisation rates in many countries, the excess of production over consumption prevented any possibility of stock levels being reduced to more sustainable levels. However, the cause of the problems is the desire by steel producers to operate as near as possible to optimum capacity levels, irrespective of whether the market is able to absorb the quantities of steel that are being produced. In Western Europe for example, steel demand rose by 4% in 2,000, but production increased by 10%. Consequently we are unlikely to see any significant improvement in prices until output levels are reduced, and it has been suggested that the necessary actions to reduce production are not likely to take place until price levels fall to 15% below the costs of production for 75% of the steel industry.
With world crude steel production amounting to 842 million tonnes and a total steelmaking capacity of 1,062 million tonnes in 2,000, this represented an average capacity-utilisation rate of 79.3%. However, there were some significant variations between the different companies, countries and regions. Despite the lack-lustre performance of the UK steel industry and the UK-based Corus plants in particular, which resulted in the level of crude steel production in the UK falling by 2.2mt (16.3%) in the last two years, the EU as a whole increased its output by 7.6mt (4.9%) in 2,000, to 163.1mt, with an average capacity utilisation rate of 80.1%. Steel production in Other Europe, which includes, as the main steel producing countries, Turkey, Poland, the Czech Republic and Romainia, rose by 3.7mt (8.9%) to 45.3mt, representing an average capacity utilisation rate of just under 76%. Steel output in the CIS countries increased by 13.3mt (16%) to 96.4mt, with a capacity utilisation rate below 70%. The NAFTA countries benefitted from a strong level of domestic demand in 2,000, with steel production increaseing by 5.8mt (4.5%) to 133.5mg. This represented a capacity utilisation rate of 97.1%, which should have augered well for the North American steel industry, but the increase in import levels and the intense price competition resulted in a number of the major steel companies incurring losses with twelve steelplants having to seek bankruptcy protection through Chapter 11 in recent months. The Latin American region also benefitted from strong levels of demand in 2,000, with steel consumption levels increasing faster than increases in output. Steel production in this region rose by 4.4mt (12.7%) to 39mt, with a capacity utilisation level of 85.2%. Reflecting the lower levels of economic activity in this region, steel production in Africa rose by just 0.5mt (4.4%) to 11.4mt, resulting in a capacity utilisation level of 77.6%. With an increase of 1mt (10.7%) steel production in the Middle East rose to 10.3mt in 2,000. This represented a capacity utilisation rate of just over 50%. Steel production in the Asian region rose by 20.5mt (6.9%) with an average capacity utilisation rate of just under 77%. However, there were some significant variations around this average figure, with South Korea raising steel output by 2.1mt (5.1%) to 43.1mt, providing a capacity utilisation level of 88.5%, while Japan increased steel production by 12.3mt (13%) to 101mt, resulting in a capacity utilisation rate of just 72.5%. And while China increased its crude steel production by 2.2mt (1.7%) to 125.8mt, resulting in a capacity utilisation rate of 88.6%, steel output in India rose by 2.7mt (10.9%) to 26.9mt, providing a capacity utilisation rate of 91.3%. The Oceania region saw its steel production rise by 330,000t (3.7%) to 9.3mt in 2,000, resulting in a capacity utilisation level of 94.6. One of the major problems confronting the world steel industy is the very fragmented nature of ownership, which places steel producers in a very weak position, vis-à-vis the largest steel consuming sectors in the global economy. However, the position is beginning to improve, through the processes of acquisitions and mergers. In 1999 there were only twelve steel companies capable of producing more than ten million tonnes of crude steel in one year. However, in 2,000 this number increased to seventeen. Furthermore, Nucor, using the so-called Mini-Mill technology, also joined the ranks of the ten-million plus companies in 2,000, and claimed to be the largest USA-based steel company. The initial agreement between NKK, Sumitomo and Hitachi Zosen, to establish a new company to havdle all of their sales and purchases has, in the space of a few days, been followed by the announcement that NKK and Sumitomo are going to merge their steelmaking operations into one single company. At the present time this would create the second largest steel company, with an annual output of more than 33mt, based on production levels achieved in 2,000. Prior to the proposed formation of NewCo, Nippon Steel is the largest single steel producing company, having been responsible, when its share of output from the various part-owned subsidiary companies is taken into account, for the production of just over 29 million tonnes in 2,000. To put this into its proper perspective, this represented just under 3.5% of global steel production in 2,000. And even if the merger between Usinor and Arbed/Aceralia is allowed to proceed, this would only account for a little over 5% of steel production. In contrast many other sectors of industry such as aluminium, auto and the white goods for example, have very much higher levels of concentration, and this provides them with a significant advantage in tems of both their buying and selling power. Apparent Steel Consumption World apparent consumption (ASC) of finished steel products rose by 50.6 million tonnes (7.4%) from 683.9 million tonnes in 1999 to 734.5 million tonnes in 2,000, some 41.6 million tonnes (6.0%) above the previous record level established in 1997 prior to the world economic crisis. ASC in the OECD Member States rose by 31.8 million tonnes (7.8%), from 407.8 million tonnes in 1999 to 439.6 million tonnes in 2,000, while ASC in the non-OECD region increased by 18.8 million tonnes (6.8%), from 276.1 million tonnes in 1999, to 294.9 million tonnes in 2,000. While ASC in the USA rose by 5.5mt (5.0%) to 116.6mt and production by 4.79mt (5.0%) to 101.0mt in 2,000, US imports rose by 1.9mt (5.7%) to 35mt, representing 30.0% of ASC, resulting in a deficit in steel trade of 28.9mt. Canada also enjoyed an increase in ASC, up by 2.1mt (13.2%) to 14.1mt, while production increased by 0.36mt (2.2%) to 16.6mt. With imports rising by 2.3mt (36.5%) to 8.6mt, this represented 47.8% of ASC and a trade deficit of 3.9mt in 2000 in contrast with just 1.9mt in 1999. In contrast, Japan saw its ASC rise by 9.4mt (14.2%), with production increasing by 12.24mt (13.0%) to 106.4 mt, while imports rose by 0.4mt (8.3%) to 5.2mt and exports by 2.5mt (9.5%) to 28.8 mt, representing 29.0% of finished steel production and a surplus in steel trade of 23.6mt. ASC rose by 4.2mt (12.5%) to 37.7mt in South Korea, with production increasing by 2.1mt (9.4%) to 43.1mt. And while exports remained unchanged at 13.7mt, representing 34.3% of finished steel production, imports increased by 2.6mt (29.2%) to 11.5mt, reducing the trade surplus in steel from 4.8mt in 1999 to 2.2mt in 2000. ASC in Russia rose by 4.0mt (24.2%) from 16.5mt in 1999 to 20.5mt in 2000. With an increase of 2.1mt (9.4%) in exports, which rose to 24.5mt, the equivalent of 56.2% of finished steel production, which rose by 5.9mt (15.7%) to 43.6mt. In the Ukraine ASC rose by 2.5mt (357%) from 700,000t in 1999, to 3.2mt in 2,000, while finished steel production rose by 3.4mt (17.2%) to 23.2mt, with exports increasing by 1.0 at (5.2%) to 20.2mt, representing 87.1% of finished steel production. Other major exporting countries included Brazil, which had a trade deficit of 8.7mt and exported the equivalent of 39.6% of its finished steel production, representing 61.4% of its ASC, and Mexico, with a deficit of 3.5mt, whose exports represented 45.2% of its finished steel production and 61.0% of its ASC. Steel Prices
The average price of hot-rolled coil (HRC) during the last ten years was $346 per tonne. And while fluctuating by some $100 per tonne during this time during periods of recession or growth, HRC prices have declined by an average of 2.8% per annum. In the three years from 1998 to 2,000, the average price of hot-rolled sheets fell by $65/t (21.3%), falling from $305/t in 1998 to $240/t in 2,000. While some of this fall reflects the cost reductions made possible from the development of new technologies and iron and steelmaking processes along with the impact of an increasingly globalised market, and the restructuring and intensification of competition that has taken place, to a significant degree it is a reflection of the fragmented structure of the steel industry and the relative weakness of stee companies in terms of their purchasing and selling power. From April until June of 2,000, the average list price for European HRC for export was $335/t, but fell in July by $20/t (6.0%) to $315/t,then continued to fall each month until November 2,000, by which time it had fallen by a further $110/t (35.0%) to just over $200/t. In the last five months average European HRC export prices have fluctuated around the $210/t level. Published USA import data supports a similar if marginally less drastic decline, dropping from $330 per short ton (st) ($2997t) in April and May 2,000, to $220/st ($199.5/t) in February 2,001. International spot prices for slabs and billets have also followed a similar trend. Slabs from European steelmekers fell from $245/t in September 2,000, to just under $200/t in October and November, and has since remained at that level, while those originating from Latin America fell by $55/t (25%) from $218/t in April 2,000, to $163/t by March 2,001. Billets exported from Europe fell by $20/t (10.3%) from $195/t in June, to $175/t in July, and have since remained at that level, while billets exported from Latin American countries remained at the $195/t level until September 2,000, before falling to $180/t in November and then to $170/t in January 2,001, representing a fall of $25/t (12.8%). During this time, stainless steel prices have fallen by just over $600/t (32.4%), from $1,900/t to $1,280/t. The current problems reflect a combination of surplus capacity and very high inventories, and while the relatively strong level of demand helped to sustain high capacity utilisation rates in many countries, the excess of production over consumption prevented any possibility of stock levels being reduced to more sustainable levels. However, the cause of the problems is the desire by steel producers to operate as near as possible to optimum capacity levels, irrespective of whether the market is able to absorb the quantities of steel that are being produced. In Western Europe for example, steel demand rose by 4% in 2,000, but production increased by 10%. Consequently we are unlikely to see any significant improvement in prices until output levels are reduced, and it has been suggested that the necessary actions to reduce production are not likely to take place until price levels fall to 15% below the costs of production for 75% of the steel industry.