Has the age of “peak steel” – in which world steel annual output and demand reaches a plateau at about its current level of 1.5bn-1.6bn tonnes – finally arrived? A growing number of industry observers are edging towards answering “yes” to this question, with the implications of what this means unsettling for many in the sector.
If the world can no longer rely on the kind of hefty year-on-year increases in steel demand that it has grown used to – albeit with a sharp break linked to the 2008-9 financial crisis – then the plans by the steel industry for how it organises its activities will need to be dramatically altered.
Rod Beddows, chief executive of Hatch Corporate Finance, which specialises in metals, says there is “massive pessimism” in the steel industry about current conditions and future prospects, with the worries being most intense in Europe. “A lot of companies are floundering and not sure about how to alleviate the problems linked to overcapacity. New thinking is required but seems absent.”
Already there are some signs of companies being propelled into action. The most significant of these was the shock announcement two months ago from ThyssenKrupp of Germany that it is looking for buyers for two big and expensive steel mills in the US and Brazil, costing about €12bn between them, which it started planning before the crisis. ArcelorMittal, the world’s biggest steelmaker, has refused to rule out reductions in its European plant network.
Other companies – for instance JFE of Japan and Voestalpine of Austria – are putting more emphasis on developing new forms of the material that they hope will give them a competitive edge on rivals, for instance by opening up new demand for strong or corrosion-resistant steel variants.
Behind the new sense of reality for the steel industry are signs that the headlong expansion in steel consumption and production in China is starting to slow dramatically.
Meps, a UK steel consultancy, says steel output in China this year is likely to rise 5.7 per cent, a similar level to last year. This represents a marked slowdown on the strong growth in China during 2000-10 when demand for the metal in the country rose five fold – sparking a similar upsurge in production by Chinese steel mills and putting upward pressure on steel prices worldwide which led to a spate of expansion plans by non-Chinese steel producers.
One of the most downbeat commentators is Hermann Reith of Frankfurt-based BHF Bank, who says Chinese steel demand and output is already close to a peak. John Lichtenstein, head of global metals at the Accenture consultancy, does not quite go this far, suggesting that Chinese production will probably stabilise at about 800m tonnes a year by the end of the decade – compared to the 750m tonnes that Meps expects this year.
With consumption trends in the rest of the world likely to be extremely sluggish for some time, such projections indicate that global annual output and demand could easily flatten out at close to the projected 1.6bn tonnes likely for 2012.
Even if a scenario of this sort looks likely, a number of steel industry executives argue against the idea that the outlook is unremittingly bleak.
Eiji Hayashida, chief executive of JFE, agrees that the growth of global steel demand “has come to a halt”. However, he feels that this could turn out to be only a temporary dip and that the way forward for his company and others lies in “differentiated” products.
Few industry observers disagree, however, with the idea that the next few years are likely to be decidedly tricky. Peter Marcus, managing partner of World Steel Dynamics, a US consultancy, says: “For the next five years the steel industry faces a rutted road strewn with potholes. A lot of companies are going to find it hard to make money.”