THE STEEL MARKET IN 1996 AND PROSPECTS FOR 1997
8 November 1996
The sixth annual session of the Working Party on Steel of the United Nations Economic
Commission for Europe (UN/ECE) was held on 23-25 October 1996 in Geneva. Delegates
informed the meeting of the following developments of their steel markets in 1996 and
prospects for 1997.
The steel market in the major EU countries and in Japan had deteriorated since the latter half
of 1995. The general economic slowdown had exacerbated problems in the steel market,
particularly at the end of 1995 and the beginning of 1996, accompanying sharp falls in prices
of both flat and long products. Excessive inventory build-ups had affected steel prices
negatively. However, in recent months, there were some signs that the existing over-supply
situation had been gradually receding and would cease by the end of the year or the beginning
of next year, although some efforts were still necessary to reduce stock levels. Supported by
reductions in steel production in the past several months, particularly in the EU and Japan, steel
prices were likely to have reached their bottom, and in Japan steel prices had even started
rising.
Lower interest rates and falling inflation were expected to accelerate economic activity and
strengthen business confidence towards the end of 1996, albeit slowly and gradually. On the
other hand, restrictive budget austerity programmes and high unemployment would continue
to restrain governmental expenditures and private consumption. It would still take some time
to see whether the current economic climate gave grounds for genuine optimism. In contrast
to the EU and Japan, in the United States and the central European transition countries as a
group, economic conditions continued to be favourable.
Crude steel production in ECE member countries in the first half of 1996 declined by about 6
per cent from the same period of 1995. This decline was attributable mainly to stock
reductions and weakening activity in the steel consuming sectors in the EU, and a decline in
steel exports in the central European transition countries.
In the United States, the economic boom continued, the third longest in history. Following
growth of 2 per cent in 1995, GDP growth for 1996 as a whole was expected to expand by
between 2.3 and 2.7 per cent and by between 2 and 2.5 per cent for 1997. The driving forces
were almost all components except net exports and non-residential construction. Residential
construction in particular showed very strong growth, gaining 16 per cent in the second quarter
of 1996. Private consumption also accelerated, rising by 3.5 in the first quarter and 3.4 per
cent in the second.
Supported by buoyant economic activity, the steel market remained strong. Apparent steel
consumption in the first seven months of 1996 rose by 1.8 per cent from year earlier levels to
63 million tonnes, the highest level for this period since 1972. Demand from the construction
sector was very strong, showing an increase of 10.3 per cent from January to July 1996. The
automobile sector increased by 2 per cent in the first seven months of 1996. On the other
hand, general machinery and electrical equipment suffered a significant setback with declines
of 12.9 per cent and 4.6 per cent, respectively, for 1996. Apparent steel consumption for
1997 was projected at almost the same level as in 1996. Steel prices bottomed out in April
this year and since then, they were on a rising trend, although they were still 4 per cent below
year-ago levels. However, a continuing rise in steel prices could lead to an increase in imports.
In the European Union countries, economic activity had suffered a continuing setback in output
since the latter half of 1995. GDP growth for 1995 was estimated at 2.5 per cent. This
slowing activity was blamed on cyclical economic trends, increasing interest rates, a weakening
dollar and the loss of business confidence. However, there were currently increasing signs of
a business pick-up during the second half of 1996. Lower interest rates, falling inflation, the
reversal of the value of the dollar and increased profitability on investment gave rise to
expectations of an increase in GDP of 1.5-2 per cent in 1996. Among the major countries, GDP
growth in France and Germany would reach around 1.1 per cent and 0.8 per cent in 1996,
respectively.
The reduction in activity in the main steel consuming sectors in the first half of 1996 led to a
fall in steel consumption. However, economic recovery in the second half of 1996 was
expected to offset this fall and maintain steel consumption at almost the same level as in 1995.
Real steel consumption would amount to 144 million tonnes, a mere 0.6 per cent decline from
the 1995 level. Apparent steel consumption for 1996 would reach 142.5 million tonnes, down
slightly by 1 per cent due to a reduction in dealers' inventories. Among steel consumers,
automobiles and non-electrical engineering had experienced favourable growth, while
construction was subdued. Imports had showed a significant decline since the second half of
1995 and dropped by 16 per cent in the first half of 1996, compared to the total volume
recorded in the first half of 1995. On the other hand, reflecting the strong dollar, exports in
the first half of 1996 increased by 24 per cent. Assuming a reduction of 13.5 per cent in
imports and an increase of 7.5 per cent in exports for 1996 as a whole, crude steel production
was estimated at 148 million tonnes, a reduction of 4.9 per cent from the 1995 level.
In Bulgaria, following modest GDP growth of 1.4 per cent in 1994 and 2.5 per cent in 1995,
1996 would not see any increase. This subdued outlook was attributable to the crisis in the
country's financial industry. Interest rates rose from 56 per cent in 1995 to 175 per cent on
average in 1996. Inflation also soared from 33 per cent in 1995 to 153 per cent on average
in the first nine months of 1996. Crude steel production for 1996 would decline by 20 per cent
over the previous year, and in 1997 it would remain at the level of 1996. Apparent steel
consumption for 1996 would remain at the same level as in 1995. The total export volume
amounted to 1.6 million tonnes in 1995 and 855 thousand tonnes during the first eight months
of 1996, while imports totalled 46 thousand tonnes in 1995 and 55 thousand tonnes in the first
six months of 1996, respectively.
In the Czech Republic, GDP increased by 4.8 per cent in 1995 and was expected to grow by
5 per cent in 1996 and 1997. The major driving force was industry, which would increase by
8 per cent in 1996, while private consumption would show a slowdown. Crude steel
production was expected to decline to 6.5 million tonnes in 1996, and then increase to 7.2
million tonnes in 1997. Domestic steel consumption in 1996 would remain at almost the same
level as in 1995, reaching 3.6 million tonnes and was expected to increase by 5 per cent in
1997, supported mainly by increasing output in industry. The volume of exports declined by
5 per cent from January to June 1996, while imports increased significantly, growing by 23
per cent. The share of imports in total domestic demand was expected to continue to increase.
Hungary was currently facing two serious problems, namely to expand economic growth and
to reduce the foreign trade deficit. It had put the priority on the latter problem and taken
restrictive measures. As a result, GDP was expected to grow only marginally by 0.5 per cent
in 1996. Another moderate rise in GDP was anticipated in 1997. However, inflation rates
would fall to 24 per cent this year, far lower than earlier estimations. Reflecting the weak
general economic trend and the slackened activity in almost all steel-consuming sectors,
apparent steel consumption in 1996 would reach about 1.3 million tonnes, a decline of 12 per
cent from 1995. In 1997, it was expected to increase slightly to 1.35 million tonnes. Crude
steel production would not exceed the 1995 level of 1.86 million tonnes in 1996, but would
increase by 2 per cent in 1997. Exports for 1996 and 1997 would remain at almost the same
level as in 1995 at 930 thousand tonnes.
In Poland, the economy had continued its buoyant growth. GDP was expected to increase by
6 per cent in 1996 and 5.2 per cent in 1997. Industrial production would increase by 8.5 per
cent in 1996. Inflation was expected to decline from 28 per cent in 1995 to 17 per cent in
1996. Apparent steel consumption had continued to rise since 1993, exceeding an annual
growth rate of 10 per cent. In 1996, apparent steel consumption was expected to reach 6.5
million tonnes. Among the major steel consuming sectors, construction, transport equipment
and shipbuilding contributed to growth in steel consumption. However, delivery of steel
products decreased in the first half of 1996 due to stagnation in construction affected by a
severe winter. Steel imports had been on a rising trend since 1991, increasing from 0.2 million
tonnes in 1991 to 1.0 million tonnes in 1995. Steel exports decreased by 20 per cent in 1995.
The Romanian economy showed a significant recovery in 1995 with an increase in GDP of more
than 6.4 per cent. The contributing sectors were construction, industry and agriculture.
However, GDP growth was expected to decline to around 4.4 per cent in 1996 due to a
slowdown of activity in industry and agriculture. Exports also had a negative impact on GDP
growth, with a drop of 12 per cent registered in the first seven months of 1996. Inflation
accelerated recently from a monthly average of 3 per cent to 7.5 per cent. Domestic steel
consumption remained stable supported by robust output in the manufacturing and construction
sector. A considerable drop in producers' steel stocks led to an increase in steel prices. Crude
steel production declined by 14 per cent to 3.4 million tonnes in the first seven months of
1996. However, crude steel production was expected to accelerate in the latter half of 1996
and reach 6.5 million tonnes as a whole for 1996.
In Slovenia, the economy continued its increasing trend with GDP projections of 3-3.5 per cent
for 1996 and 4 per cent for 1997. Inflation dropped to 9.4 per cent by September 1996. The
budget and current account deficits were relatively small. The driving force behind economic
growth was gross fixed investment, particularly in infrastructure-related sectors. In the first
half of 1996, crude steel production amounted to 195 thousand tonnes and was expected to
reach 409 thousand tonnes for 1996. A significant change in the outlook for crude steel
production in 1997 was not expected. Apparent steel consumption totalled about 800
thousand tonnes, 14 per cent higher than the 1994 level. This increase was largely attributable
to construction and manufacturing of electrical appliances. In 1996, the outlook for the steel
market weakened somewhat with a drop in steel prices.
In the Russian Federation, the economy had continued to contract in the first half of 1996 with
GDP declining by 5 per cent and industry output by 4 per cent. Inflation rose by 131 per cent
in 1995. Output of hot-rolled steel in 1995 increased by about 9 per cent over 1994 due to
a surge in exports. Exports accounted for almost 50 per cent of all steel products. In the first
six months of 1996, exports increased further, posting 5.3 per cent growth. The major markets
were the EU countries (the share in total exports was 12 per cent), the United States (12 per
cent) and the Asian countries (about 50 per cent). Imports also showed an increase of 36.2
per cent in the first half of 1996. Steel production contracted by 9 per cent in the first nine
months of 1996, although a fall in domestic steel consumption was offset by an increase in
exports. The fall in steel consumption contributed to declines in output in machinery and
construction of 14 per cent and 13 per cent, respectively, compared to 1995.
In Kazakstan, the steel industry faced a very difficult situation. Crude steel production dropped
sharply in 1991, and since then, production had remained at low levels with an estimated crude
steel production of around 3.1 million tonnes and rolled steel of 2 million tonnes in 1996.
Most steel plants had obsolete facilities and needed modernization. However, the total debt
of the steel industry had increased to 21 billion Tenge in August 1996 from 8 billion Tenge at
the beginning of the year (1 US$ was about 64 Tenge in June 1996).
In Japan, the economic outlook remained weak. However, there were some signals indicating
the start of a recovery. The major contributing factors were capital expenditures, residential
construction and private consumption. The Government had brought the business climate onto
a stable course by addressing the huge housing loans problem and taking the necessary
measures to ensure the effective use of land. GDP was expected to grow by more than 3 per
cent in 1996 and around 2 per cent in 1997.
Crude steel production amounted to 101.6 million tonnes in 1995 in Japan. However, apparent
steel consumption had exceeded considerably the level of actual steel demand resulting in
excess inventories. Crude steel production in the first six months of 1996 declined by 6.1 per
cent to 48.8 million tonnes compared to the first six months of 1995. This decline was due
to a reduction in overstocking. A swift recovery of domestic steel demand was not expected
to take place. In the manufacturing sector, the production shift from the domestic market to
the overseas market had caused a significant reduction in domestic steel demand. As a result
of this, apparent steel consumption would decline from 84 million tonnes in 1995 to 83.1
million tonnes in 1996 and 82.8 million tonnes in 1997. In the first half of 1996, steel exports
declined by 5 per cent because of a drop in exports to China. Imports increased by 30.4 per
cent in 1995. However, in the first half of 1996, they dropped by 31.1 per cent.
In the Republic of Korea, GDP growth was expected to slow down to around 7 per cent in 1996
after robust growth of 9 per cent in 1995. A sharp decline in exports and capital expenditures
had contributed to this slowdown. The economy was forecast to maintain the same course
into 1997 with projections of GDP growth of between 6.7 and 7 per cent. Capital expenditures
had fallen by 3.8 per cent in the first half of 1996 from the strong growth rate of 15 per cent
registered in 1995. Exports declined sharply in the first six months of 1996 by 13 per cent,
compared with 30 per cent growth in 1995. Export growth was expected to reach 15 per cent
in 1997. Private consumption was forecast to rise by 7 per cent in 1997.
Reflecting the weaker business activity in the manufacturing sector, apparent crude steel
consumption was expected to grow by a relatively weak 5.4 per cent in 1996, in contrast to
the very strong growth of 17.7 per cent in 1995. In 1997, it would decline further to a mere
3.5 per cent growth. In the construction industry, growth would decline to 8 per cent in 1996
and 6.8 per cent in 1997, respectively. Residential construction was lackluster, while public
works showed persistent growth. In the automobile industry, car sales recovered significantly
in 1996 from zero growth in 1995. Sales were expected to grow by 8.8 per cent in 1996 and
5.6 per cent in 1997. The shipbuilding industry experienced negative growth in 1996, although
its capacity was expected to increase by 10 per cent in 1997.