It was only yesterday when everything appeared to be hunky-dory for the steel industry. The industry was boasting of high growth in production and consumption, high prices and equally high profits. Steel producers all over the world were caught in a frenzy to expand capacity through greenfield investments and consolidate through mergers and acquisitions. However, the ongoing global economic crisis has taken its toll. Steel demand, prices and production have all plunged and some layoffs have also been announced by steel firms. The demand for steel in a country is mainly linked to fixed capital investment, which in turn is dependent on availability of capital. Global financial crisis and resulting tighter credit conditions have seen a sharp decline in construction and other related activities especially in developed economies and also in emerging economies. Besides, lower availability of consumer loans, rising unemployment and lower consumer confidence have significantly affected the spending on durables such as automobiles, household appliances and other steel intensive goods. Due to the weakening demand from major steel consuming sectors and the already piled up large inventories by major steel firms worldwide, steel prices have plummeted by almost 40 percent for various categories of steel products in most regions after reaching record highs in early June last year. With every passing day, steel companies across the world have been announcing production cuts. (See chart and table )
Source- World Steel Association
In India, although steel output has grown by 3.7 percent in 2008 as compared to 2007, the increase is much less than what was previously expected, reflecting delayed greenfield projects due to the credit crunch as well as weaker demand conditions.
Region 2008 2007 Growth Country 2008 2007 Growth
( in mt) (in %) ( in mt) (in %)
World 1329.7 1345.4 -1.2 China 502.0 489.2 2.6
Asia 770.0 756.3 1.8 Japan 118.7 120.2 -1.2
EU (27) 198.6 209.6 -5.3 US 91.5 98.2 -6.8
EU (15) 168.3 175.2 -3.9 Russia 68.5 72.4 -5.4
North America 125.4 132.7 -5.5 India 55.1 53.1 3.7
C.I.S. 114.0 124.2 -8.2 South Korea 53.5 51.5 3.9
South America 47.6 48.2 -1.3 Germany 45.8 48.6 -5.7
Africa 17.0 18.8 -9.5 Ukraine 37.1 42.8 -13.3
Middle East 16.0 16.5 -2.8 Brazil 33.7 33.8 -0.3
Oceania 8.4 8.8 -4.5 Italy 30.5 31.5 -3.2
Source- World Steel Association
However, steel is a cyclical industry and regularly experiences many ups and downs. Today�s downturn in the steel industry has come after a long period and how bad it would get is difficult to predict. However, as the worst possible scenario, some industry experts believe that steel production would decline by almost 10 percent in 2009 and would take 4-5 years or more for the industry to rebound to the production level achieved in 2007.
The revival of global steel demand since 2000 was due to expanding emerging economies particularly China. Most likely investment on infrastructure in these emerging countries especially BRIC countries would continue since these economies have tremendous potential for growth (BRIC accounted for around 50% of global steel demand in 2007). For instance, construction activity in China alone is estimated to contribute slightly less than a fourth of global steel demand and although its growth has slowed down in the fourth quarter of 2008, it is still expanding. Moreover, consumption of steel is expected to remain steady in India, given the already low consumption level of steel in the country (apparent consumption of crude steel per capita was just 42 kg in India compared to China�s 296 kg and world average of 202 kg in 2006) and other emerging economies have also very low steel consumption. In fact, world steel production has increased by 4.5 percent in January 2009 compared to December, 2008 mainly because of 9.9 percent increase in Chinese steel production. Indian steel production has also witnessed an increase of 1.6 percent in January 2009 as demand for steel products in the construction sector rose slightly. This is mainly attributed to economic stimulus packages and increased spending on infrastructure in India. Thus, with countries resorting to macroeconomic measures to stimulate economic growth and expand domestic demand, the global steel industry is already beginning to pick up, and it is quite possible that global steel output could revive in a year so and it may not see any prolonged downturn.