Select Committee on Trade and Industry Minutes of Evidence


Memorandum submitted by UK Steel Association (continued)

SOME REGIONAL COMPARISONS 1997-98

(Crude steel consumptions million tonnes)


Region
1997
1998
+/-%

North America
155.8
166.8
+7
European Union
142.9
155.8
+9
South America
33.4
32.5
-3
Asia
338.0
300.0
-11
CIS
28.7
21.7
-24

Source: International Iron and Steel Institute.

Long supply chain—volatile steel cycle

  Changes in economic growth in each major world region cause shifts all the way up the steel supply chains across the world from consumers, who buy goods containing steel, through the finished goods industries back to component manufacturers, and through them to steel processors and ultimately to primary steel producers.

  This is a long and complex supply chain reaction, and, because steel is fundamental to so many different forms of manufacturing, results in a highly volatile "steel cycle".

  Expectations as to how the market is going to perform are reinforced at each stage; the further up the chain, the more exaggerated the reaction. Stocks are increased when the "market" foresees increased demand, but are unloaded when there's a general expectation that steel demand is going to fall. This in turn affects steel production.

Always tension between supply and demand

  Other than at times of peak demand, there is a structural surplus in steel production capacity world-wide, just as there is in car production. Production efficiency at each plant varies too. Some plants produce cheaper than others do. As a result there is a "natural" economic brake on the maximum price for steel—the higher the price of steel, the greater the world's capacity to make and deliver steel economically across the world. Rising production then leads to surplus so that prices weaken and production falls back. However, direct and sometimes disguised subsidies to steel producers in some countries upset this "market" balancing system.

  So, the reality underneath the apparently "monolithic" figures for world steel consumption and production is quite different. Minor shifts in global figures belie the major changes taking place at regional or national levels, through long and complex supply chains (see Annex, page 33). The steel production and processing industries are in a state of constant ebb and flow.

  And all this across approximately 7,000 different grades of steel.

These are the most important steel regions globally

  The USA has remained a net steel importer since the late 1950s, but has an effective legislative framework to impose anti-dumping duties when import surges threaten the country's indigenous production.

  Europe became a net importer of steel for the first time in 1999.

  Asia is the largest growing market and tends most years to be a net steel importer.

Some major countries

  Russia is the world's biggest steel exporter.

  China is the world's biggest steel producer, but still requires significant imports to achieve its long-term development plans.

  Brazil, blessed with the required natural resources, is now beginning to fulfil its potential as a major supplier of semi-finished products into the USA, after successful steel privatisations have sharpened performance.

  Japanese production expanded rapidly in the 1960s and 1970s to become a very large net exporter, mainly to SE Asia and the USA, but is not generally competitive in Europe.









 
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