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Demand
shrinkage, oversupply mar steel sector in ’01
AS
Firoz
During 2001, the steel industry waited in vain for miracles.
It was a year that started with scant hopes for the steel industry
in the world and the international market remained flooded with
steel from all over the globe lowering prices and thereby pushing
the industry into crisis. It was never so bad for steel.
In the previous years, the industry was only facing the problems
of plenty. Steel consumption was relatively high and was increasing
albeit at a modest pace. But, in 2001, it was the demand shrinkage
that was responsible for the turmoil in the industry. As expected,
barring in few places - more evidently in North America, European
Union, South America and Japan - steel production did not show
any drop in the face of a demand recession. If a company somewhere
cut production, a new capacity sprung up elsewhere or the more
efficient of them increased production thereby blocking any
effective reduction in supply. In any case, those involved in
production cuts were fewer in number.
China remained the only hope amidst the widespread global downturn.
Steel consumption in China has certainly increased by a large
margin, although the final estimates are not yet available.
The country’s steel production picked up and imports reached
nearly 20 million tonne. But due to the global downturn, the
country started facing a slowdown in production towards the
end of the year. The year saw the US administration taking strong
steps to protect its steel industry. After a safeguard case
investigation under Section 201 of the US Trade Act, the US
International Trade Commission (USITC) recommended a set of
measures to limit steel flows into the country by imposing tariff
and quantity restrictions. This has evoked strong protests from
countries having large stakes in the US steel market. The measures
proposed to restrict imports of semis have also been opposed
by a large section of the US steel industry. The US has also
taken the initiative to open talks on global steel capacity
cut under the aegis of the Organisation for Economic Cooperation
and Development (OECD).
Although progress has been reported from the several rounds
of discussion that had taken place, nothing concrete has been
achieved. It will not be easy for any country to agree to a
given capacity cut formula. After all, conflicts cannot be resolved
so easily in business.
What is important, however, is the fact that at least the problem
of excess capacity in the global steel mart has been discussed
at the appropriate levels. This issue will gain strength in
2002. Conflicts in global steel trade have not come down. Apart
from the slowdown in demand, heightened trade conflicts have
contributed to the overall shrinkage in international steel
trade. The industry, almost everywhere, has been more domestic-focussed.
This is perhaps going to be the trend in the coming days too
as the global market has become excessively and uncomfortably
volatile and competitive.
There is need to act for stability. This is but easier said
than done.
The year 2001 also saw a large degree of consolidation in the
industry. This was the trend in the steel raw materials segments
and among steel trading companies around the world. The results
from the mergers and acquisitions are yet to be seen. Corus,
formed earlier with the merger of British Steel and Hoogovens,
has not been a happy experience. It is yet to be seen how the
mega company (Newco) formed out of Usinor, Arbed and Acerelia
will perform. The mergers, acquisitions, strategic alliances
and business relationships of other kinds that is crisscrossing
the steel world are likely to change the contours of competition
in the market. Although nothing much has been seen so far, these
companies will certainly be better placed in the financial market
when it comes to mobilising resources for investment. The year
2002 is expected to be a better one for the industry. The worst
is perhaps over and if there is a turnaround in the global economy,
steel demand will rise. However, the scenario projected for
prices remains gloomy, although some price increases have been
reported from the US. This may be a local affair. The Indian
steel industry is, certainly, down but not out. The recent statistics
have shown only a mild decline in steel consumption so far in
this fiscal. The prices have been a matter of worry for all.
Exports are on the decline (as also imports) although the players
have identified new markets. Cost cutting is to be the mantra
for survival. Unless steel exports are increased, the domestic
market will remain under pressure.
The author is chief economist at the Economic Research unit
, JPC , Ministry of steel. Views expressed here are personal
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