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To What Extent does the Economic Crisis Threatens Steel? |
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07/02/2009 17:01:58 The more prices were high during the first half of this year, which reflected the high demand forecasts as an expression of the prosperous situation seen by the steel markets, which was positively reflected in the increasing capacity of this industry to grow rapidly locally and worldwide, the more the fall of the prices, whose signs appeared in July of this year accompanied with a falling demand, was an indicator of the high sensitivity of this industry which has rapidly received the repercussions of the global financial and economic crisis. This translates the idea that prosperity of the steel industry is an expression of the prosperity of economy. On contrary, when the economic situation is in a state of recession, the steel industry is the first industry affected by this situation because of its correlation and connection with what the economic situation undergoes of change. This industry was aware that it is difficult to stay long at the peak this industry reached, within a super cycle, considered relatively long, the rapid fall has constituted a strong shock. It was not expected that it will have this speed of falling because the prices of the steel products fell by 40 – 70% within few months. Perhaps what was more important than the fall of prices was the decline of demand to levels making difficult to give forecasts of what will be the situation not only in the last quarter of this year but also for a period of time which may be longer than that. This appeared in the meeting of the International Iron and Steel Institute held during October of this year. The Institute did not present its usual forecasts regarding the demand situation for steel during the future period, considering that it had revised its forecasts more than once during the past period with upward trend of demand. Perhaps this is the first time at which several international organizations find themselves in a difficult position making them unable to give an exact image of the future period. This reveals the truth that what had taken place of a rapid change in the situations of this industry needs an in-depth study and outlook of the developments of the global economic crisis the world is undergoing, as well as of the consequences it will leave on the development of the steel industry and the allied industries as well, which constitute an efficient force for the growth and prosperity of the world economy. The thing which cannot be ignored today is that this industry is living the repercussions of the state of the economic crisis or the state of recession of which it is afraid that it may become a state of depression. This industry is required today to adapt itself rapidly to this state of affairs not only by recognizing its presence by recommending the means to face it. What makes the adaptation process rapid is that the shock faced by this industry is not limited to one market or one product, but it is characterized with its being comprehensive and unlimited. Also the price rising of steel products was not at the level of one market but at the level of the world markets with no exception. Also the fall touched all markets, even though at different degrees according to the conditions of each market and the supply and demand data. Reactions to the way of how it would be possible to face this situation lived by the steel industry in the world have been different from one to another, but the trend adopted by most major companies in the world was the decision of cutting production. The world largest steelmaker, ArcelorMittal, has decided to cut its production by 15% during the fourth quarter of this year and reduce its costs by a percentage which would reach 50% and there might also be other production reductions which would reach 30% in 2009 if the current state of markets would continue for a longer period, taking into account that ArcelorMittal׳s production accounts for 10% of the total world production. The same trend for tackling the crisis has been adopted by the major steel companies in a number of countries in the world. Also, there are companies which have shut down their mills for a certain period in order to cut production and minimize costs. Many blast furnaces with huge production capacities have been put out of operation as a result of the unfavourable market conditions. This closure would continue for several months, according to the development of the markets situation. Some steel industries have found in the crisis conditions a favourable opportunity to cut production by closing the uneconomic production capacities, as is the case of many old steel mills in China which are running in a way not corresponding to the development seen by this industry. This will result in reduction of China׳s steel production, estimated to be 10 million tons/ year during this year. The weak demand at the level of the steel products consuming industries, either in the construction industry, car industry or other consuming sectors has forced the steel mills to reconsider their production plans and their prices. Production has been reduced in most steel mills responding to the demand changes. Price reductions were also a decision resorted to by many Arab and world mills in order to drive the weak demand and eliminate the huge stocks which have turned out to be a burden not only on the producing companies but also on the steel traders who resorted during the past period to importing very considerable quantities exceeding the need of the markets when the prices were taking the upward trend, and became under the pressure of the continual decline of prices and the need to make available the liquidity to pay the amounts of the letters of credit, facing a new situation requiring eliminating these stocks and selling them at low prices. The current image of the steel industry would not be the image expected by the producers and the investment parties which have channeled a part of their capitals to the steel industry to transform them into products instead of keeping them as financial bonds or freezing them in the banks. However, what creates confidence in the future of this industry is that what happened, in spite of its strong character, comes within the cycles known to this industry and that the circumstances which contributed to acceleration of appearance of this crisis such as the oversupply and a strong export attack, especially at the level of the Middle East markets, will drive the market dealers to be more cautious for repetition of these circumstances. A strong review of the state of the market in order to recover confidence and achieving the balance between supply and demand and reconsideration of many new projects will push this industry to pick up again faster than expected. It would be required now, at the level of the regional steel industry, to form teams for the crisis management at the level of this industry. What is also required now is to direct the governmental and private financing to the steel products consuming infrastructure projects. The crisis from which the world economy suffers and what it has imposed of a shortage of the financial availability will make many people, especially in the Arab countries, think very well to direct their investments to where such investments will be more safe and less susceptible to risks. This opportunity may be suitable to develop many of the new projects using steel products in the Arab countries, which will be an extension of the currently existing steel industries or setting up of which may be thought of, because the strength of steel industry lies in its domestic markets and in its national integration on which focus must be concentrated as a plan to face and get out of the crisis at a time which would not be long. Arab Steel |
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