Steel’s short-term outlook favorable

The short-term outlook for steel appears favorable. The International Iron and Steel Institute forecasts demand for crude steel in 1988 will reach 764 million tonnes, 10 million tonnes above last year’s total and 39 million tons above the 1986 level.

The organization says the rise in demand this year comes on top of favorable consumption levels for 1987. World consumption was up 4% last year, largely through an increase in demand in the Western world of 6% to 452 million tonnes. (The Western figures include a 4.4% increase in consumption in the industrialized countries and an 11% gain in the developing nations, especially South Korea and Taiwan, where steel demand rose by six million tonnes.)

The favorable projection results in part from improved demand prospects in the U.S. and Japan, the institute says. If the forecast Japanese consumption level of 80 million tonnes is realized, it will be that country’s second highest since 1973’s record 89 million tonnes.

Steel demand in the European Community is expected this year to remain at the 1987 level of 104 million tons.

The institute cautions that most economic indicators point to a further slowing of growth in industrialized countries this year, with the exception of Japan. For developing countries, some improvement is likely but the forecast rates remain below those attained in 1980-86. Past revisited?

Also, the institute says there are concerns the present high rates of ordering and lengthening delivery dates resemble the situation in the springs of 1974 and 1981, when the rapid build-up in inventories preceded a sharp fall in activity in the highly cyclical steel industry.

On the subject of demand, the chairman of Brazilian steelmaker Acos Villares SA, Paulo Villares, in a recent presentation, said developing countries account for about 26% of Western world demand compared with 16% a decade ago.

He said steel consumption has been rising steadily in developing nations, and mentioned India, South Korea and Taiwan as leading steel users. Financial constraints have slowed growth in Latin America, he said.

Steel production shows a similar picture, Villares said. More than 20% of Western world production now takes place in the developing world compared with 8% in 1976.

Although this growth has brought with it some expansion of developing-country steel exports, that group’s over-all share in world steel trade remains comparatively small, about 14%. He said many developing countries must still import an impressive share of their total needs, as much as 36 million tonnes in 1987, or about one-third of their consumption. Production advantage

Many of the new steel producers have a genuine comparative advantage in steel production, he said, with both favorable raw materials supplies and labor costs, and the most modern production technology. The most advanced can meet the product standards of the most demanding customers, he said.

Countries such as Brazil have become large exporters of semi- finished steel products to certain industrialized countries with insufficient primary stage production capacities, the steelmaker said. This may be a temporary phenomenon, Villares pointed out, since exporting companies will likely try to integrate their production downstream in order to improve the economics of their operations.

Villares said the fall in energy prices in real and nominal terms since 1985 may have given a significant boost to world steel consumption. However, the slowdown in growth in industrialized nations has led to trade restrictions that limit access of newcomers to their markets. The result, he said, is reduced capacity of developing countries to buy equipment and technical knowhow, and as a consequence reduced export possibilities for producers in industrialized countries.

Meanwhile, south of the 49th parallel, the WEFA Group of Bala Cynwyd, Pa., says traditional foreign steelmakers will be the big losers in the U.S. steel market over the 1985-90 period, while U.S. specialty steelmakers will be the winners.

“By 1990, steel imports will be down nearly 20% from 1985 levels, with traditional steel exporters such as Japan, West Germany, France and Belgium being hit hardest,” says John Jacobson, principal author of a study titled Cash or Crash? The Economy and the Steel Industry. “Imports from Brazil, South Korea and Taiwan, the newly industrialized countries, will do much better.”

On the U.S. scene, Jacobson says, specialty steelmakers will expand their volume and share of the U.S. market, while mini-mills and integrated steel producers will show declines in tonnage terms, even while regaining markets from imported steel.