Sterling takes the shine off steel

Steel

While the outlook for world steel demand looks positive in 1998, UK industry sources predict another tough year for British Steel and other UK producers.

The Organisation for Economic Co-operation and Development forecasts that last year’s recovery in world steel consumption will continue. It predicts a 3.5% rise in global steel consumption, some 24 million tonnes more than 1997’s 670 million tonnes total.

But with its profits under siege from last year’s surge in sterling, British Steel begins the New Year facing economic fall-out in a main potential growth market, Asia-Pacific.

Since the early 1990s European steel producers have been piling into these markets, which they see as a potential saviour from the saturated markets in the West.

But the economic problems in Asia-Pacific have turned the region’s native steel producers to export markets and they are now targeting their products at Europe. This could lead to price weakening and more anti-dumping measures, say industry sources.

British Steel was also close to finalising a £500m investment in Indonesia to meet rising local demand for structural steel. However, this may have to go on hold if construction markets are adversely affected by the downturn.

First quarter price rises announced at the end of last year by European mills look set to go through, but by March general steel prices may weaken as imports increase. But demand for value-added steel such as coated strip, used in the white goods and automotive industries, is likely to remain high, keeping prices for these products strong.

Further rationalisation in the industry, particularly in Europe, will also help stabilise prices. Capacity cuts, and mergers such as that between Thyssen and Krupp last year, are forecast to continue. While greater rationalisation may reduce price volatility, it will also lead to further job cuts.

British Steel and other European Union mills have started. British Steel is shedding about 1,000 staff a year in its drive to cut costs and increase competitiveness. New generations of computer-controlled steel mills, employing fewer workers, are coming on stream throughout the world. These ‘mini-mills’ and further refinements in the steelmaking process are set to cut employment levels even further.

Arlene Foster