Sharpening an edge again

After last year’s production cuts in Europe and poor prices, prospects for steel markets are expected to improve in 1997.

In the UK, steel demand is expected to recover in 1997 to around 1995 levels – a peak year for many products. Last year’s 2% decline in demand was largely the result of destocking and a poor performance from certain steel consuming sectors, such as plant and machinery, and construction steels. Demand for stainless and alloy steels, which fell by 15% and 20% respectively last year, is expected to rise by 2% in 1997.

White goods and manufacturing will lead the UK recovery, say steel industry sources. Demand for construction steel is also forecast to rise by 3.8% after a fall last year of 1.3%.

On the export front, sterling’s continued strength could lead to a rise in imports. Last year UK exports rose by 3%, led by a 20% rise in sales to the US and a 10% increase in exports to Asia. Exports to Central and South America also doubled.

In 1997, steel demand is expected to improve in Europe as customers replenish stocks. Asia and the Middle East will also continue to be attractive export markets. Although the OECD forecasts a 4.5% rise in US steel demand this year, opportunities for exporters will be offset by a big increase in US domestic crude steel production. US imports are likely to fall by 1.8 million tonnes and demand is also expected to decline in Latin America.

Prices started to recover in the last quarter of 1996 in Europe and this trend is expected to continue. British Steel is looking for £10 a tonne on plate and £10-£40 a tonne on stainless from January.

In Europe, a new state aid code comes into effect this year until 2002. But the long-running battle over illegal state aid looks likely to continue. British producers remain unhappy over several cases, including £38 million of aid to Irish Steel and £70 million to a Belgian plate mill.

A persistent complaint from British steel producers over high energy prices is unlikely to go away. And the privatised utilities may seek price rises in an effort to recoup tax loses.

Financial results in 1997 are not expected to improve much before the second half. Some analysts predict a 50% cut in operating profits for the European steel industry in 1996.

Arlene Foster